The airline industry faces a grim year as coronavirus erodes demand. Photo / 123RF
The airline industry faces a grim year as coronavirus erodes demand. Photo / 123RF
COMMENT:
Emirates is asking staff to take up to a month of unpaid leave, in a sign of the magnitude of the crisis facing airlines as the coronavirus spreads and fear of flying grows.
While the Middle Eastern titan says it is managing a ''measurable slowdown'' in demand, for theindustry that's an understatement. Demand has fallen off a cliff and capacity cuts are coming thick and fast.
Airlines are at the outbreak's health and financial front line, and some will not make it through the crisis. In Britain, domestic carrier Flybe collapsed, blaming the coronavirus as the final straw after flying through tough times in a crowded market.
The International Air Transport Association now predicts the coronavirus will cause a much bigger loss in revenues for commercial airlines this year. IATA expects total revenue losses between US$63 billion ($100b) and $113b depending on the spread of the virus.
The losses are much larger than the US$30b estimated two weeks ago when the virus was largely confined to China.
Around the world airline shares have been hammered. Air New Zealand has lost close to a third of its market value since the start of the year.
In China, domestic capacity collapsed by 80 per cent last month and figures out today from air travel distribution and intelligence firm ARC for internal and international flights provide further insight into the scale of the problem for airlines.
Compared to the seventh week of 2019, sales are down by more than 82 per cent and refunds are up about 128 per cent.
Globally, China-related sales were down nearly US$3.6 billion ($5.7b) to February 18, 2020 compared to the same period last year, while refunds increased by more than US$2.6b.
In step with data showing 50,000 of the 80,000 infected people in China have recovered, there are faint signs of recovery this week as two Chinese airlines resume a handful of flights to other countries in the region.
But the contagion hitting airlines has spread globally, with deep capacity cuts to Italy and Iran and reductions elsewhere in Europe.
Emirates flies the most international seats and has been hit by the coronavirus outbreak. Photo / Dean Purcell
Here, Air New Zealand started with surgical cuts to its network; now it has taken the axe to its services.
Over the next three to four months Hong Kong, Taipei and Singapore services will be cut by between 25 per cent and 50 per cent.
The airline will return to Shanghai with limited services from the end of the month, travel restrictions permitting. On the Tasman it is cutting capacity by 4 per cent through May and June at the same time as domestic capacity is trimmed by 2 per cent.
Air New Zealand last week floated the leave without pay idea too, although there are no further details on this.
Its Shanghai-based cabin crew have been redeployed to help with call centre inquiries from Chinese customers.
Operating empty planes doesn't make any sense, but while leaving them on the ground saves on fuel, the fixed finance and labour costs are still painful. In the past six months Air NZ's labour costs were $681m, about $25m more than fuel.
Emirates joins other big premium airlines Cathay Pacific and Singapore Airlines in scrambling to save costs with unpaid leave. And in Singapore's case, its chief executive has volunteered to take a 15 per cent pay cut.
There's no word from Air New Zealand whether that's an option here, but since last year top executives' pay has been frozen.
The airline was well down a cost trimming path before the arrival of the outbreak — the worst crisis to hit the airline industry since 2001.
That's when Air New Zealand needed a Government bailout of $885m, having been dragged down by its disastrous ownership of Ansett Australia. The 9/11 terror attacks pushed it to the brink of collapse.
That was definitely then. Now the airline has been completely transformed and faces the virus crisis with a balance sheet in good shape, $1b in cash, a modern, efficient and coherent aircraft fleet and a big international reputation.
Air New Zealand chief executive Greg Foran has just started n the role. Photo / Supplied
It also has an engaged staff of 12,500, one of the most recent recruits being former Walmart US boss Greg Foran, who started work as chief executive on February 3.
The airline's vastly experienced executive has managed crises before and is meeting daily to get through this one. Foran will be deeply involved with those meetings.
His input will be crucial. He's been largely out of the public eye but as an airline industry outsider has even more licence to relate to those New Zealanders who now may be nervous about flying. Their financial stake in Air New Zealand is 52 per cent and the emotional connection is even higher.
Foran's got an impressive CV, is known for his interpersonal skills and in the in-house videos Air NZ has supplied, has a soothing manner. That will come in handy right now.
