Coronavirus: Air NZ boss takes pay cut, suspends earnings guidance

Air New Zealand chief executive Greg Foran has offered to reduce his base pay of $1.65 million by approximately 15 per cent ($250,000), and its executive team will extend its salary freeze as the airline grapples with the deepening coronavirus crisis.

On top of this, the airline has implemented a hiring freeze for all roles that are non-critical and will offer operational staff the option to take unpaid leave in addition to managing annual leave balances.

Foran says that it is increasingly clear that Covid-19 has created an ''unprecedented situation'' and it is difficult to predict future demand patterns.

Shares in Air New Zealand dropped by about 3 per cent on the back of the news. By 10.30 am the stock was trading at $2.00, down six cents from Friday's close.

He said Air NZ had put in place various labour initiatives, including a voluntary reduction of his pay, a hiring freeze for all non-critical roles and voluntary unpaid leave for operational staff.

Due to increased uncertainty surrounding the duration and scale of the Covid-19 outbreak, the airline has today announced that it will be withdrawing the full year 2020 earnings guidance it issued to the market on February 24 and reconfirmed at its interim results announcement three days later. On February 24 it cut its full-year underlying earnings guidance by as much as $75m.

Air New Zealand has already cut capacity on its Asia, Tasman and domestic networks, redeploying its fuel-efficient 787 Dreamliner fleet to drive operational efficiencies and using tactical pricing to stimulate demand on the impacted sectors.

''However, the airline now believes that the financial impact is likely to be more significant than previously estimated and with the situation evolving at such a rapid pace, the airline is not in a position to provide an earnings outlook to the market at this time,'' it said in a notice to the NZX.

E tū, the union for cabin crew and ground staff, represents about 5000 of Air New Zealand's 12,500 staff.

The union's head of aviation, Savage, said it had good lines of communication with the airline's dominance.

''Along with other unions we will be meeting with Air NZ leadership tomorrow to discuss in more detail what can be done in the coming months to turn the situation around," he said.

Aviation workers are particularly susceptible to the impact of Covid-19 as they are predominantly shift workers so how much they earn fluctuates according to seasonal and daily flight schedules.

''A sudden drop off like this at what would normally be peak travel season is having a serious effect especially for part-time workers in loading, cabin crew, cargo, cleaning and catering. Instead of earning maximum amounts and picking up overtime they at minimum hours and being asked to take leave, " said Savage.

Already this year about a third of its market capitalisation - or about $1 billion - had been wiped out as investors dumped shares. An update on earnings expectations will be provided when appropriate.

Its half-year net profit slumped by 32 per cent to $101 million and the airline warns coronavirus makes its outlook uncertain. Its earnings before other significant items and taxation of $198m for the period ended December 31, compared to $217m in the prior period.

The airline has made four cuts to capacity over the last month but in the course of the last week the airline has seen additional softness in demand with a decline in bookings across its network, spreading to a market that had been previously holding up - North America.

"We have been continuously monitoring bookings and in recent days have seen a further decline which coincides with media coverage of the spread of Covid-19 to most countries on our network as well as here in New Zealand," says Foran.

The airline has implemented further capacity reductions to its network, which include extending the suspension of its Shanghai service through to the end of April, and additional consolidation of services across the Tasman, Pacific Islands and domestic network in March and April.

As a result of these actions, Air New Zealand has reduced total capacity into Asia by 26 per cent, and total overall network capacity by approximately 10 per cent since the outbreak of Covid-19 started.

Like other airlines, the airline is also pursuing a range of mitigations in response to the swift decline of demand.

These include the deferral of non-urgent capital spend and non-critical business activity across operational and corporate functions.

"Air New Zealand is a strong and resilient business operated by a world-class team with deep experience having navigated prior shocks to our business and industry. While we have already made swift adjustments to our operations, we are prepared to take further actions to address the ongoing demand impact of Covid-19," said Foran.

His pay cut follows that of other airline bosses around the world including those at Singapore Airlines and Thai Airways.

The total pay package for his predecessor, Christopher Luxon, was $4.2 million.

Foran took over Air New Zealand's top job on February 3, just as travel bans were coming into force and the impact of the epidemic was starting to be widely felt throughout the airline and travel industries.

The coronavirus epidemic could cost passenger airlines up to US$113b ($178b) in revenue this year, the International Air Transport Association warned last week.

That's three times the estimate IATA made two weeks earlier in a sign of how quickly demand for airline seats is collapsing.