In the past few days, coronavirus has spread even further, prompting governments to close mass events and introduce even tougher travel bans. The US announced bans on visitors from 26 European countries, later extending this to Ireland and the UK. New Zealand has announced that arrivals will be forced to self-isolate for 14 days, and the Australian Government has followed suit. Australia has also extended bans of entry from China to include Iran, Korea, and Italy.
As the fallout hits the travel industry, we take a look at how ASX travel shares are faring.
Qantas Airways Limited (ASX: QAN)
Qantas shares have more than halved from January highs of above $7 and are now trading at just $2.88. Last week the airline announced further cuts to international flying, reducing capacity by almost a quarter for the next six months.
The spread of coronavirus into Europe and North America as well as continued spread throughout Asia has resulted in a sudden and significant drop in forward travel demand. Having previously reduced capacity on Qantas and Jetstar by 5%, the airline has now increased this to 23% until mid September.
Capacity to Asia has been cut by 31% compared to the same period last year. Capacity to the United States is down 19%, while the United Kingdom is down 17% and trans-Tasman flights down 10%.
Qantas says that rather than exiting routes altogether, it will use smaller aircraft and reduce the frequency of flights in order to maintain overall connectivity. Eight of the airline's largest aircraft, the Airbus A380, will be grounded until mid-September. Two A380s are undergoing scheduled maintenance leaving just two in operation.
Jetstar will make significant cuts to its international network, suspending flights to Bangkok and reducing flights from Australia to Vietnam and Japan by almost half. Domestically, Qantas and Jetstar capacity reductions will be increased from 3% to 5% through to mid-September.
Cost reduction measures have been put in place including CEO, Alan Joyce, taking no salary and the board taking a 30% reduction in fees. Given the uncertainty surrounding the situation, however, Qantas is unable to provide meaningful guidance on the impact on earnings for the remainder of FY20.
Flight Centre Travel Group Ltd (ASX: FLT)
The Flight Centre share price has more than halved in value from above $40 in February to just $17.42 currently. The travel group withdrew its full year guidance last week in light of the heightened coronavirus uncertainty.
Previously, full year guidance was for underlying profit before tax of $240–$300 million, which had already been lowered from $310–$350 million. Last week, however, Flight Centre advised that the spread of coronavirus and increased travel restrictions meant demand was softening significantly and the timeframe for recovery was unclear.
The company announced plans to close 100 storefronts in Australia, although it hopes to transfer sales and staff to other shops. Flight Centre is prioritising cost reductions, but wants to ensure it is ready to capitalise when the trading cycle rebounds.
Short-term cost reduction strategies include allowing staff to switch from full time to part time arrangements, reduced trading hours in some shops, a recruitment freeze, and encouraging staff to utilise leave balances. Directors will forego 30% of their fees for the remainder of FY20 and executives will not earn any short-term incentives.
In the near-term, Flight Centre plans to proactively seek to win leisure-market share by investing in sales and marketing, noting that competitors may be forced to pull back. The company is also seeking to maintain its balance sheet strength, which at 29 February featured $403.2 million in cash and investments and $213.9 million in debt.
Helloworld Travel Limited (ASX: HLO)
Helloworld Travel shares are currently trading at just $1.60, down more than 60% from a high of above $5 in January. Helloworld Travel reiterated its FY20 guidance in late February, but since then the spread of coronavirus in Europe and North America has resulted in declining forward international travel demand.
Last week, Helloworld advised that it could not provide meaningful earnings guidance, given the uncertainties in domestic and international leisure and corporate travel. Action taken to reduce financial impacts include cost cutting, increasing domestic leisure offerings, and promoting destinations regarded as safe to travel to.
The company advised that domestic travel demand in the corporate travel market has held up so far and that it had seen an increase in demand for domestic leisure travel. Nonetheless, cost cutting measures include the CEO taking a 30% salary cut and executive management team taking a 25% salary cut.
All non-essential recruitment has been halted and discretionary expenditures reduced or eliminated. Employees are being asked to take paid or unpaid leave. Commenting on the situation, CEO Andrew Burnes said:
Helloworld is a strong business with a solid balance sheet, low debt levels, and a mix of businesses. We're in a good position to see this through but like so many businesses in tourism and other industries we need to take steps to right size our operations for the journey ahead.
Corporate Travel Management Limited (ASX: CTD)
Corporate Travel Management shares have fallen more than 65% from highs of over $22 in January and are now trading at $7.69. The company suspended its full year guidance last week having previously revised it in mid February.
The impact of coronavirus is now more severe than initially assumed by Corporate Travel Management, with numerous governments effectively closing borders and corporates deciding to ban or limit travel. Given the current uncertainty it is difficult to reliably predict future activity, leading the company to suspend guidance.
Corporate Travel Management emphasised that a large proportion of its total transaction value was domestic in nature. Domestic travel accounted for 65% of total transaction value in Australia and New Zealand, 70% in the USA, and 70% in Europe. Nonetheless the company has actioned plans to manage costs against reduced activity.
Staff are being asked to take leave, work shorter weeks on proportionate pay, and take leave without pay. There is a freeze on non-essential recruitment, non-client facing project work is being delayed, and discretionary expenditure reduced. Non-executive directors and the managing director are taking a 20% reduction in their fees and fixed remuneration for the remainder of the financial year.
Corporate Travel Management has emphasised that it has entered this period with positive net cash and a committed debt facility that is not due to expire until August 2022. This, it says, will allow it to withstand a prolonged period of reduced activity.
