Air New Zealand withdraws earnings guidance due to coronavirus outbreak

The Air New Zealand Limited (ASX:AIZ) share price could come under pressure again on Monday after it withdrew its guidance for FY 2020…

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On Friday the Air New Zealand Limited (ASX: AIZ) share price was out of form and tumbled to a multi-year low of $1.96.

Unfortunately for the airline operator's shareholders, its shares look set to test new lows on Monday after the release of an update this morning.

What did Air New Zealand announce?

This morning Air New Zealand announced that it would be withdrawing its FY 2020 earnings guidance due to the increased uncertainty surrounding the duration and scale of the coronavirus outbreak.

This guidance was only reconfirmed two weeks ago, which goes to show just how things have escalated in such a short space of time.

According to the release, over the course of the last week, the airline has seen further softness in demand with a decline in bookings across its network. This has been blamed on the ongoing spread of the coronavirus to countries outside of China, which has driven a downward shift in demand.

And while Air New Zealand has taken numerous steps to mitigate the impact of reduced demand, the airline believes the financial impact is likely to be more significant than previously estimated.

Furthermore, with the situation evolving at such a rapid pace, management does not believe it is in a position to provide an earnings outlook to the market at this time.

Unprecedented situation.

Air New Zealand's Chief Executive Officer, Greg Foran, described the outbreak as an "unprecedented situation" and explained that it is too difficult to predict future demand patterns.

He added: "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."

In light of these tough trading conditions, Mr Foran has voluntarily offered to reduce his base pay of NZ$1.65 million by approximately 15% (NZ$250,000). In addition to this, Air New Zealand's Executive team will extend their salary freeze that has been in place since May 2019.

"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," the chief executive concluded.

All eyes will now be on rival Qantas Airways Limited (ASX: QAN) to see if it follows suit this week.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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