Airlines start counting virus-hit losses

Paris (Bloomberg): Air France-KLM said China’s coronavirus outbreak will wipe as much as 200 million euros ($216 million) from earnings, hammering home the financial impact of the crisis even thousands of miles from its epicenter.

The estimate includes losses from halting flights to the Asian nation this month and next, and assumes that services will resume in April, the Paris-based company said. An extended delay would escalate costs still further.

“It’s a severe effect,” Chief Financial Officer Frederic Gagey said. “We were quite satisfied with the month of January. All that changed quite brutally with the declaration of an epidemic in China.”

Paris will miss the Chinese

Air France-KLM is the first of Europe’s long-haul airlines to post earnings since the gravity of the outbreak became clear, leading carriers around the world to cut links to a country that’s been a key profit driver. UBS estimates the Paris Charles De Gaulle hub will be hit hardest in the region because France is such a draw for the Chinese, who spent almost 3 million nights in its hotels last year.

Gagey said the severe acute respiratory syndrome epidemic in 2002 and 2003 affected the transportation industry for five to six months. As things stand, occupancy levels are lower on long-haul flights through May, so that unit revenues - a measure of average fares - will decline in the first quarter.

Cargo demand has also been hit, Air France-KLM said, as China imposes travel curbs to contain the disease, affecting exports.

Cathay Pacific is at the frontline

Hong Kong-based Cathay Pacific Airways Ltd., among the carriers hardest hit by the novel coronavirus outbreak, said Monday that first-half earnings will “significantly down” as a result of the health scare.

Among Air France-KLM’s European peers, British Airways parent IAG SA is due to report earnings next Friday, followed by Deutsche Lufthansa AG on March 19.

Drastic remedy

Qantas Airways Ltd. said on Thursday it will ground the equivalent of 18 planes, freeze recruitment and ask its 30,000 staff to use up annual leave as it grapples with falling demand from Asia due to the epidemic. It reported underlying pre-tax profit, its most closely watched measure, of A$771 million ($514.87 million) in the six months ended December 31, down 0.5 per cent from A$775 million a year earlier in a weaker domestic market.

The carrier estimated the coronavirus would result in a A$100 million to A$150 million hit to underlying earnings before interest and tax for the financial year, accounting for capacity adjustments and lower fuel costs.

Chief Executive Alan Joyce said: “We are keeping the capability to have the rebound, keeping the aircraft, keeping the people because we think it will happen eventually.”

Capacity cuts of 15 per cent in Asia, 2.3 per cent in the domestic market and 5 per cent between Australia and New Zealand were the equivalent of grounding 18 planes, impacting 700 full-time roles, the airline said.

China, the biggest source for international visitors to Australia was hardest hit, Joyce said. Hong Kong, Singapore and Japan were weak but demand from the US and UK was normal, he added.

An April return to normalcy?

Meanwhile, A.P. Moller-Maersk, the world’s largest container shipping company, is positioning itself for a strong rebound in two months, based on an expectation that the fallout of the coronavirus on global trade may soon peak.

“Over the last two-and-a-half weeks we have seen a steady decline in the number of new cases” and “that is positive,” CEO Soren Skou said. “It means, very well, we could be set for a peak within the next two weeks,” he said. “If that were to be the case, then we would expect a very weak March and a rebound in April, a sharp rebound in April,” he said. “But there is still a lot of uncertainties out there.”

The comments followed a set of results that lagged behind analyst estimates, and Maersk warned investors that its 2020 outlook is overshadowed by “considerable uncertainties” due to the outbreak of the coronavirus.

The Copenhagen-based company expects its operating profit to reach about $5.5 billion this year, less than the $5.94 billion estimated by analysts. Maersk acknowledged it was seeing a “weak start to the year”.

Maersk, which operates a fifth of the world’s container fleet, has in recent years tried to reduce its reliance on sea-borne shipping. On Wednesday, the company said it agreed to buy US warehousing and distribution company, Performance Team, as part of its strategy to expand land-based transport services. The deal is valued at $545 million.