Last week Qantas Airways Limited (ASX: QAN) released its half year results and warned that the coronavirus outbreak was going to have a profound impact on its bottom line.
The airline operator has been able to mitigate some of this through capacity cuts, but still expects to report a $100 million to $150 million impact to underlying earnings before interest and tax in FY 2020.
It won't be the only airline that is impacted by the outbreak. This morning rival Air New Zealand Limited (ASX: AIZ) provided an update on the impact it expects the coronavirus to have on its earnings.
What did Air New Zealand announce?
This morning Air New Zealand revealed that its revenue outlook for the remainder of the year is expected to be adversely impacted. This is a result of softer demand for travel to and from Asian destinations. In addition to this, it notes weaker forward bookings for travel on the Tasman and Domestic networks.
Management has taken immediate steps to mitigate the impact of lower demand, including adjustments to capacity across the Asia, Tasman and Domestic networks. The company is also increasing its market development investment to drive additional demand, specifically across its Domestic and Tasman markets.
These actions, in addition to the reduced market price for jet fuel, are expected to partially mitigate the impact of lower demand. However, overall earnings for the 2020 financial year will still be adversely impacted.
What is the damage?
While at this stage the situation remains uncertain, based on current assumptions of lower demand and the benefits of its capacity reductions and lower jet fuel prices, the airline currently expects a negative impact of NZ$35 million to NZ$75 million to its earnings due to the coronavirus outbreak.
Based on the midpoint of its estimated range, the airline is now targeting earnings before significant items and taxation to be in a range of NZ$300 million to NZ$350 million in FY 2020.
Air New Zealand's Chief Executive Officer, Greg Foran, said: "Air New Zealand is a resilient business and we have demonstrated the ability time and again to respond quickly to changing market conditions. We have a highly capable and experienced senior leadership team who have dealt with challenges such as this before and I am confident that we will effectively navigate our way through this."
