Key Asia-Pacific airlines have announced major capacity reductions in the region until at least the end of May as they cope with reduced demand after the coronavirus outbreak. But it’s not only Covid-19 that is having an impact: demand is weakening elsewhere too.
On February 20, Qantas said it will reduce capacity on its international network to Asia by 16 percent until late May. The airline’s only direct service into China (Sydney-Shanghai) will be suspended until May 24. Services from Melbourne, Sydney, and Brisbane into Hong Kong will be reduced too as Qantas continues to see weaker demand for Hong Kong since the social unrest of late 2019.
The capacity reduction is the equivalent of taking two Airbus A330s, one A380 and a Boeing 737 out of the network. The average capacity on the international network will be 3.8 percent lower in HY2 because Qantas will open new routes to the US including San Francisco and Chicago.
Subsidiary Jetstar will reduce capacity within Asia by 14 percent. Jetstar International and Asia already suspended services to mainland China and Hong Kong but more is needed to adapt to the drop in demand. The reduction is the equivalent of 6 Airbus A320s, one Boeing 787-8, plus three A320s on charter.
Qantas Domestic and Jetstar will reduce capacity within Australia by 2.3 percent, primarily between capital state airports as both corporate and leisure travel has been showing signs of weakening while regional demand is stable. An exception to the rule is Western Australia, which has seen a surge in traffic and capacity (+12 percent) lately. A fourth A320 will enter the network to cope with demand here.
Qantas reported a $771 million underlying million profit before tax for its fiscal year 2020 HY1, down from 775 million the previous year. The Group suffered from $119 million in financial headwinds, including reduced demand for Hong Kong, currency costs, higher operating costs after the sale of domestic airport terminals, and the drop in international cargo. Revenues were up 3 percent to $9.464 billion.
Profit of Qantas Domestic was $465 million, down from 478 the previous year. International profit was 122 million, up from 119 million. Qantas is seeing very positive effects from 787-operations compared to the 747s, which will all have been retired by the end of this year. The success of Perth-London gives the confidence to pursue more long-haul routes.
Jetstar’s profit before tax was $220 million, down from 253 million as industrial action, higher fuel costs, and currency costs negated the benefits of stronger international demand and ancillary revenues. Domestic demand was weaker.
In his outlook for HY2, CEO Alan Joyce reckons Qantas’ net result will suffer by $100-150 million from the coronavirus.
Earlier this week, Singapore Airlines announced a massive reduction in capacity from March until the end of May. It will cancel 494 services across its entire network, which include routes to London, Paris, Frankfurt, Copenhagen, Dusseldorf, Los Angeles, New York, Seattle, Tokyo, Busan, Jakarta, Surabaya, Makassar, Bandung, Penang, Yangon, Koh Samui, Bangkok, Taipei, Brunei, Kuala Lumpur, Phnom Penh, Brisbane, Melbourne, Sydney, Perth, Christchurch, Male, Johannesburg, Colombo, Cochin, Dhaka, Dubai, and Mumbai.
Also affected are 180 routes of subsidiary Silk Air.
SIA hasn’t said how it will absorb this reduction both financially and operationally, as it will likely have to park a significant number of aircraft as well as reduce staff.
The announcement came just days after Singapore Airlines reported its nine months FY19/20 results with a net profit for the Group of $520 million compared to 480 million the previous year. Revenues were up 3.5 percent to $ 12.795 billion. The parent airline Singapore performed best by recording an $878 million profit versus 787 million in FY18/19. Silk Air slipped into the red with a $12 million loss, although the airline booked a 7 million profit in Q3. Scoot recorded a $73 million loss over the March-December period but showed a $4 million profit in Q3.
Hong Kong-based Cathay Pacific, already hurt badly by the recent social unrest, is feeling the impact from the coronavirus heavily. The airline announced on February 17 it will reduce capacity on routes into China by 40 percent until the end of March, with extended reductions likely in April.
The unrest in Hong Kong had a 40 percent impact on January-traffic into Kong Kong, a slight improvement over 46 percent in December.
“The first half of 2020 was already expected to be extremely challenging financially”, Chief Customer and Commercial Officer Ronald Lam said. “As a result of this additional significant drop in demand for flights and consequential capacity reduction caused by the novel coronavirus outbreak, the financial results for the first half of 2020 will be significantly down on the same period last year.”
Air New Zealand
Air New Zealand said in a market announcement on February 24 it expects FY20-earnings to be $35-75 million lower due to lower demand as a direct result of the coronavirus crisis. Full year earnings are forecast to be $300-350 million. The airline will reduce its capacity to Asia by 17 percent until July. Domestic and Tasman traffic is also weaker than before, so capacity will be reduced by -2 and -3 percent respectively.