Air NZ to massively cut its international capacity as demand plummets, Grant Bradley reports.
Air New Zealand will cut international capacity by 85 per cent in the next few months as it further reduces capacity across its network as a result of the impact of coronavirus.
The airline placed itself into a trading halt today to allow it time to more fully assess the operational and financial impacts of global travel restrictions.
On its long-haul network the airline will cut back its international schedule to a skeleton service and will operate a minimal schedule to allow Kiwis to return home and to keep trade corridors with Asia and North America open.
Among the flights being suspended, Air NZ will put a halt to routes between Auckland and Chicago, San Francisco, Houston, Buenos Aires, Vancouver, Tokyo Narita, Honolulu, Denpasar and Taipei from March 30 to June 30. It is also suspending its London–Los Angeles service from March 20 (out of LAX) and March 21 (ex London Heathrow) through to June 30.
Full details of this schedule will be advised in the coming days.
The Tasman and Pacific Island network capacity will significantly reduce between April and June. Details of these schedule changes will be announced later this week.
On the domestic network, capacity will be reduced by around 30 per cent in April and May but no routes will be suspended.
As part of Air New Zealand's cost savings initiatives the board of directors will take a 15 per cent pay cut until the end of this calendar year. Chief executive Greg Foran has volunteered to cut his own $1.65m salary by 15 per cent.
Customers are advised that due to the unprecedented level of schedule changes they should not contact the airline unless they are due to fly within the next 48 hours, or need immediate repatriation to New Zealand or their home country.
Foran says that while airlines face an unprecedented challenge, Air New Zealand was better placed than most to navigate its way through it.
"We are a nimble airline with a lean cost base, strong balance sheet, good cash reserves, an outstanding brand and a team going above and beyond every day. We also have supportive partners. We are also in discussions with the Government at this time."
Air New Zealand chief executive Greg Foran started work on February 3. Photo / Supplied
As a result of the downturn in travel Air New Zealand continues to review its cost base and will need to start the process of redundancies for permanent positions.
"We are now accepting that for the coming months at least Air New Zealand will be a smaller airline requiring fewer resources, including people,'' he said.
The airline's wage bill is about $1.3 billion a year.
The airline had deployed a range of measures, such as leave without pay and asking those with excess leave to take it, but these only go so far, said Foran, who started work at the airline on February 3.
''We are working on redeployment opportunities for some of our staff within the airline and also to support other organisations".
Foran said the airline was working constructively with the heads of the four main unions, E tū, AMEA, NZALPA and Federation of Air New Zealand Pilots, representing more than 8000 of its workforce, to ensure the right outcome for all staff.
"These are unprecedented times that we are all having to navigate. And it is clear that if we don't take all the appropriate measures to lower costs and to drive revenue, our airline won't be in the best position to accelerate forward once we are through the worst of the impact of Covid-19."
One analyst is expecting the Government - which owns 52 per cent of the airline - will step in to underwrite a capital raise.
Airlines around the world are quitting international routes after travel restrictions have got tougher around the world. American Airlines will suspend 75 per cent of its international flying - including to New Zealand two weeks before it was scheduled for winter, and SAS is quitting its international routes completely, affecting 10,000 staff.
Forsyth Barr analyst Andy Bowley said he expects the new travel restrictions will have an ''unprecedented'' impact on Air NZ's financial health.
''Substantial earnings losses are now likely over the coming months and the need for balance sheet support is increasingly likely. While we don't know what the impact on demand will be, it will be substantial,'' he said.
''We have no visibility as to when the restrictions will lift, however, we view it as prudent to assume that air travel will be severely impacted for at least the next six months.''
While Forsyth Barr believes the airline may require additional capital to provide liquidity and protect its balance sheet, the Government's position as majority shareholder is helpful.
''We expect it would step in and underwrite a capital raise, if required, assuming politics don't get in the way of potential financial assistance.''
Bowley said the Government's restrictions will cripple its international business.
Excluding capital spending, the airline's fixed overheads were estimated to be $160 million a month.
Forsyth Barr revised modelling, which has a very high margin of error, assumes that AIR generates material losses in both this financial year and next.
This morning Auckland Airport Auckland Airport also announced it has suspended earnings guidance for the year.
Chief executive Adrian Littlewood said this was due to the unprecedented scale of the new border restrictions announced over the weekend, and uncertainty over the impact on the business.
"Auckland Airport is a strong, diverse and resilient business, but these are unprecedented times," said Mr Littlewood.
He said the company was working to communicate the border changes to the 30 airlines that fly routes to the airport, but it was too early to judge the impact on future passenger and cargo air services.
"Aviation and tourism are vitally important to New Zealand, supporting thousands of businesses and jobs. The future is very uncertain and our industry and government are pulling together so we can manage our way through this period and ensure we are in a strong position to rebuild, when the recovery phase eventuates.''
