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How has coronavirus impacted ASX travel shares?

As the spread of coronavirus expands globally, its impact on populations and economies is growing. Governments are reacting with stimulus measures and travel bans.

The Australian Government has put travel bans in place for foreign nationals arriving from Iran and China and is considering bans for South Korea and Italy. Many businesses have suspended travel to impacted parts of the world and nervous travelers are putting plans on hold.

Amidst the fallout, let’s take a look at how ASX travel shares are faring. 

Webjet Limited (ASX: WEB) 

In its half-year result, Webjet reported it was seeing the impact of coronavirus on bookings and total transaction value across its business. Webjet expects the impact of coronavirus to be one-off in nature, reducing earnings during the current period while travel is restricted and travelers are uncertain. 

Like most organisations, Webjet does not have any clarity on when current disruptions will end. Nonetheless, consistent with previous disruptions, it expects its overall earnings profile to quickly return to prior expectations thereafter. Webjet expects deferred travel will be re-booked once the threat of coronavirus has passed. 

Webjet’s WebBeds business has been impacted with a material slowdown in China and subsequent impact to the rest of Asia Pacific, with a lesser impact in Europe and AMEA (Americas, Middle East, and Africa). Fixed package tours have a high reliance on China product offering, and have been impacted by a slowing in domestic and international flight demand. The Online Republic motorhome business has also been impacted as it has exposure to the China source market. 

Webjet has advised it is challenging to predict with any certainty the impact of coronavirus on second-half results. The company’s best estimate at this stage is a reduction in 2H20 earnings before interest, tax, depreciation and amortisation (EBITDA) of $7 million – $15 million. As such, it has revised full-year EBITDA guidance to $147 million – $165 million, down from $162 million – $172 million. 

Qantas Airways Limited (ASX: QAN)

Qantas has announced temporary reductions to flights across Asia in response to a drop in demand due to coronavirus. The company will cut 16% of Asia capacity until at least May, impacting flights from Australia to mainland China, Hong Kong, and Singapore. 

Reductions of 5% are being made to Qantas and Jetstar flights between Australia and New Zealand, with cancellations of flights to Auckland and Christchurch. Jetstar will cut its capacity to Asia by 14% until at least the end of May, impacting flights to Japan and Thailand, and intra-Asia flights. 

Qantas has estimated the net impact of coronavirus of profits will be between $100 million and $150 million in FY20, softened by weaker fuel prices. CEO Alan Joyce said, “coronavirus resulted in the suspension of our flights to mainland China and we are now seeing some secondary impacts with weaker demand in Hong Kong, Singapore and to a lesser extent, Japan.”

Qantas also announced reductions of around 2% to total Group domestic Australia flights in the second half to reflect market demand. Joyce said, “we’re seeing some domestic demand weakening so we’re adjusting Qantas and Jetstar’s capacity in the second half.”

The impact on capacity that Qantas has taken out is equivalent to grounding 18 aircraft across Qantas and Jetstar to the end of May, which impacts around 700 full-time roles. Qantas plans to use leave balances across the workforce and freeze recruitment while it rides the virus out. It will also take advantage of having aircraft on the ground by bringing forward planned maintenance.

Corporate Travel Management Ltd (ASX: CTD)

Corporate Travel Management downgraded its guidance due to coronavirus induced travel restrictions. Full-year EBITDA is now forecast to be between $125 million and $150 million. This would represent a flat result on FY19 results at the upper end, or a 16.5% reduction at the lower end of the range. 

The company has assumed the outbreak will last throughout the second half with a peak impact in February and March. Corporate Travel assumes activity will return to normal levels by July. Declines in activity in Australia and New Zealand have been reported which Corporate Travel believes is primarily related to coronavirus. 

Corporate Travel reports that in its Asian region, approximately one third of transactions relate to flights into and out of China. In February, post-Chinese New Year activity was down 50%, largely driven by border closures and travel bans. Corporate Travel has advised that significant cost management measures are underway to mitigate lower client activity. 

Across the rest of the world, less than 2% of flights relate to travel to and from China, with less than 4% of flights relating to travel to and from Asia. Minimal impact has been reported in Europe and the US to date. 

Air New Zealand Limited (ASX: AIZ)

Air New Zealand has advised that its revenue outlook for the full year has been adversely impacted by coronavirus due to softer demand for travel to and from Asian destinations. Weaker forward bookings on the Tasman and domestic networks have also emerged. 

The airline has taken steps to mitigate the impact of lower demand by adjusting capacity across the Asia, Tasman, and domestic networks. Capacity reductions to Asia routes predominantly relate to Shanghai and Hong Kong services. In addition, services to Seoul have been suspended from 7 March to the end of June. As a result, total Asia capacity will be reduced by 17% for the months of February through to June. 

Tasman capacity reductions of 3% will be in place from March through to May. Reductions in domestic capacity of 2% will be in place in March and April. Domestic reductions are focused on Christchurch and Queenstown services to and from Auckland. 

The company is also increasing market development activities to drive additional demand in the domestic and Tasman markets. These actions, in addition to the lower market price for jet fuel, will partially mitigate the impact of lower demand, but Air New Zealand warns that overall earnings for FY20 will be adversely impacted nonetheless. 

Although the situation is uncertain, Air New Zealand is currently anticipating a net negative impact to earnings in the range of $35 million – $75 million. At the midpoint of this range, approximately $55 million, the airline is targeting full-year earnings before other significant items and taxation to be in the range of $300 million – $350 million. 

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited. The Motley Fool Australia has recommended Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.