(Feb 20): Qantas Airways Ltd. is slashing flights in Asia and freezing recruitment in response to falling demand as the coronavirus scares travelers across the region.
Capacity reductions of 15%, which will be in place until at least the end of May, affect services to China, Hong Kong, Singapore, Japan and Thailand, the Australian airline said in a statement Thursday. Flights to New Zealand will also be cut by 5%.
The breadth of the pullback reflects the scale of the challenge for airlines in the region. What started as a largely Chinese problem has since spread to Southeast Asia’s biggest markets as the outbreak takes hold in transit hubs like Singapore. Qantas said there’s now even weakness on routes in Australia, and the airline is trimming capacity at home by 2.3% to the end of June.
“We can extend how long the cuts are in place, we can deepen them or we can add seats back in if the demand is there,” Chief Executive Officer Alan Joyce said in the statement.
Qantas could double its capacity cuts if fallout from the virus deteriorates, Joyce said in an interview with Bloomberg TV.
Qantas shares rose 6.8% in Sydney trading to A$6.72 ($6.26) at 10:28am after the airline reported first-half profit that beat some estimates. Group revenue and profit at the company’s loyalty business climbed to fresh records.
The pullback in flights is the equivalent of grounding 18 planes at Qantas and low-cost division Jetstar and the company forecast a hit to profit in the year ending June of as much as A$150 million.
The impact of the virus could extend into next financial year before demand rebounds, Joyce said on a call with reporters. There’s no clear picture of forward bookings beyond June, Qantas said.
“When this is over, there will be pent-up demand,” Joyce said on the call. “When the market does recover, we certainly want to be flying the entire fleet.”
Qantas is among the first airlines to put a price on its bottom line from the outbreak, which has infected more than 75,000 people. The global death toll stands above 2,100. While Qantas has said it has scope to reallocate, ground or retire aircraft and isn’t cutting jobs, other airlines are already feeling more severe pain.
China plans to take over troubled conglomerate HNA Group Co. and sell off its airline assets, the most dramatic step to date by the state to contain the damage from the coronavirus epidemic.
First-half underlying profit before tax at Qantas fell 0.5% to A$771 million. Analysts at Jefferies had expected a figure of A$754 million. The airline had already trimmed capacity to Hong Kong in response to anti-government protests.
