No option but to cut down on capacity and frequency. That's what US airlines are doing, now pulling back on European services. Image Credit: Reuters

Sydney, Chicago: The fallout from the coronavirus spread across the Pacific on Friday, with travel companies in Australia and New Zealand issuing profit warnings as US airlines rushed to cut flights to Europe in the wake of new US travel restrictions.

US travel curbs on much of continental Europe announced by President Donald Trump on Wednesday evening deepened the sector’s misery that began after the virus emerged in China late last year and reduced traffic. United Airlines Holdings Inc warned of US travel disruption as the virus spreads domestically and major tourist attractions like Walt Disney Co’s theme parks in California and Florida said they would close.

American Airlines Group Inc and United said they would continue normal flights to and from Europe for the next week but would be reducing capacity to Europe by around 50 per cent in April. American also said it was cutting international capacity by 34 per cent for the summer travel season and accelerating the retirement of its Boeing Co 757 and 767 planes.

Airline stocks shudder

Delta Air Lines Inc also said it would significantly reduce its US-Europe schedule after Sunday as it continues to watch customer demand. Several Latin American countries stepped up measures to slow the spread of the coronavirus, halting flights to and from Europe.

More than $825 million was wiped off the value of listed Indian airlines on Thursday after the government said it was restricting visit visas.

Immediate help needed

The International Air Transport Association (IATA), a global industry group representing airlines, called on governments to consider extending lines of credit, reducing infrastructure costs and cutting taxes. “There is a heightened concern there will be increased airline bankruptcies in 2020 given the fallout from the coronavirus,” Cowen analyst Helane Becker said.

“We expect some governments to step in to help some airlines, but ultimately we expect more airlines to fail this year than last year,” she said in a note to clients, citing Cirium data that 41 airlines with 324 aircraft went bankrupt last year.

Cash-strapped low-cost carrier Norwegian Air Shuttle ASA said on Thursday it would cut 4,000 flights and temporarily lay off up to half of its employees due to the coronavirus outbreak.

Sparing none

Virgin Australia Holdings Ltd, Auckland International Airport Ltd, Flight Centre Travel Group Ltd and Corporate Travel Management Ltd said they would take hits to earnings from reduced travel demand, which included an 18 per cent decline in international passengers at Auckland’s airport in the first 10 days of March.

Australia’s No. 2 carrier, Virgin Australia, said it would offer discounted fares and cut some flights from Sydney to Los Angeles as demand for trans-Pacific travel fell while the airline’s share price hit record lows.

“You will see us continue to be very disciplined with capacity as the situation evolves,” Virgin Australia Chief Executive Paul Scurrah said, echoing similar comments by rival Qantas Airways Ltd earlier in the week.

Virgin and Flight Centre joined a growing list of travel companies, which includes the big US airlines, that are freezing hiring, halting executive bonuses and offering unpaid leave to staff in an effort to preserve cash.

“With this uncertain environment our priorities are to reduce costs, while also ensuring that we and our people are ready to capitalise when the steep discounting that is underway across most travel categories starts to gain traction as the trading cycle rebounds,” Flight Centre Managing Director Graham Turner said in a statement.

Airline shares crash
Airline stocks in Asia were also hit, with Singapore Airlines Ltd shares down 8 per cent in early trade as Singapore Changi Airport announced seat capacity for the month of March was down nearly 30 per cent from what was originally scheduled.
Japan’s ANA Holdings Inc and Japan Airlines Co Ltd down more than 10 per cent, having also fallen on Thursday.