Airport, airlines trim outlook
For Auckland Airport and Qantas, outlook quickly turned negative
For both Auckland Airport and Qantas, this is shaping as the ultimate year of two halves. At exactly the same time as their half-year reporting periods ended on December 31, vague reports of a mystery virus in the central Chinese city of Wuhan made their way to the World Health Organisation.
Until then the airport had been performing ahead of expectations — its underlying profit reported yesterday beat forecasts — and in spite of subdued growth its net profit was flat at $147.2 million.
Qantas, despite headwinds including foreign exchange related costs, global freight weakness and disruption in Hong Kong, posted an underlying profit before tax of $A771m ($806m) — just $4m down on the previous year.
At Auckland Airport, full-year profit targets were on track despite a slowdown in the rate of passenger growth. Qantas was entering its centenary year with big plans — an announcement on its long-awaited Project Sunrise ultra-long range flights and a solid financial outlook.
But that was then.
The number of coronavirus cases has increased from a handful around a market in Wuhan to more than 70,000 infections and over 2000 deaths.
While they are nearly all in China, fear of the disease spreading is now global, and that will affect profit at the airport. And because Qantas is cutting capacity between New Zealand and Australia, fares across the Tasman are likely to be heading up.
The airport company says underlying profit after tax for the full year will be between $260m and $270m — down from a forecast range of $265m-$275m before the virus outbreak.
Chief executive Adrian Littlewood says his crystal ball is no better than anybody else’s and that guidance is subject to change if the situation deteriorates.
At this time of year there were usually about 45 non-stop services a week between Auckland and mainland China but this had now sunk to between eight and 11 a week as demand has collapsed and travel restrictions have been imposed.
China Southern, China Eastern and Air China are still flying reduced services, which are subject to change from day to day. Other smaller mainland carriers have quit flying for now and Air New Zealand has pulled out of its Shanghai services until April at the earliest.
The state-owned Chinese airlines have also seen their other international routes evaporate, the massive domestic market devastated and 75 per cent of planes parked. The airlines had been carrying the growing Chinese middle class to the world, enjoying 10 per cent growth rates year-on-year for the past decade.
Now they face years of recovery if the Chinese Government makes an airline network a priority, and the travel industry is worried they will be slow to come back.
“As a general statement that is a risk,” said Littlewood. ”I know all airports around the world and tourism markets are thinking about that.”
He said Chinese airlines here had been performing well, with load factors of more than 80 per cent.
“That says to me there is strong underlying demand — even where capacity has tracked down, passenger numbers have not tracked the same way. In some other markets where they were a bit weaker around the world that [Chinese airlines not returning] is a risk.
Routes between Auckland and mainland China make up only 5.9 per cent of total overall seat capacity through Auckland, which the airport believes shows it is not overly committed to the market. But the Qantas announcement yesterday is a sign of a worrying, wider threat to the airport company’s performance and all travellers.
The airline carries a large proportion of Chinese tourists, who visit both Australia and New Zealand and will cut flights by between 5 per cent and 6 per cent into Auckland and Christchurch.
This will almost inevitably lead to fare increases and any fall in capacity is bad news for the airport.
It is also a taste of what’s happening in other markets outside of China. Qantas announced yesterday that it was cutting back its Asian network by 15 per cent until at least the end of May.
Singapore Airlines will temporarily cut flights across its global network in the three months to May, with key affected destinations including Frankfurt, Jakarta, London, Los Angeles, Mumbai, Paris, Seoul, Sydney and Tokyo.
This month and next, embattled Cathay Pacific will cut capacity by 40 per cent and it has asked its workforce to take three weeks’ leave.
Besides suspending Shanghai services, Air New Zealand is also pulling back some capacity from Hong Kong. The airline says it remains committed to both markets.
It reports its six-month result next week, and while some more capacity adjustments are possible, wide-scale cuts are not expected.
The fittest airlines recover fastest from global crises — the six months will show which have been working out the hardest.