With locked borders and no travel within the country, the COVID-19 is supposed to be under control in a few weeks. This suggests that air travel facilities can commence the long road to recuperation. According to the World Health Organization as of 10:00 AM CEST, 27 April 2020, there have been more than 2.8 million confirmed cases of COVID-19, including beyond 1.9 lakh deaths reported globally. Simultaneously, in New Zealand, there have been 1,121 confirmed cases of COVID-19 with 18 deaths.

As nations across the globe are working towards flattening the curve of COVID-19, New Zealand is all set for a far more ambitious target. The country plans to eliminate COVID-19 entirely. On 20th April 2020, the New Zealand government announced an extension to Alert Level 4 and will move out of it on 28th April 2020. After which the country will be on the alert level 3 for the next two weeks.

The fast and fixed lockdown done by the government of New Zealand, shutting down its borders and declaring a state of national emergency prior to any fatality from COVID-19 has been attributed with containing this highly contagious infection.

In the wake of the COVID-19 crisis, aerospace faces an exceptional international crunch. The aerospace industry has been one of the hardest hits, with contracts withdrawn, production ceased and appeals for massive bailouts. A tiny virus has brought aerospace business down to earth. Governments across the globe are scrambling to rescue airlines that have been forced to park planes along with the layoffs as the virus puts the curbs on travel.

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The International Air Transport Association (IATA) released a revised evaluation demonstrating that the COVID-19 turmoil will see a drop of $314 billion in airline passenger in 2020, which is a 55% decline compared to 2019. Moreover, the IATA estimates that the global aerospace industry will suffer the loss of nearly $252 billion or 44% below in 2020 as compared to 2019.

IATA intends several relief options for governments to contemplate, comprising-

  • The direct financial backing to the passenger and cargo carriers to compensate for diminished revenues and liquidity as a result of restrictions imposed due to COVID-19;
  • Loan guarantees as well as support for the corporate bond market by governments or central banks.
  • IATA also stated that the government may also offer a tax relief on payroll taxes given to date in 2020 and/or a term extension of payment for the remaining 2020, in conjunction with a provisional waiver of ticket taxes and other tariffs imposed by the government.

The domestic as well as international passenger demand for complete year is anticipated to be declining by 48% as compared to 2019. The two main elements driving this are overall economic developments and travel restrictions.

In the given backdrop, we are discussing NZX listed Aerospace company, Air New Zealand who is all geared up to enable essential travel from 28 April 2020.

Adjustments to the Domestic Network for Alert Level 3

NZX-listed company Air New Zealand (NZX:AIR) operates a global network that offers domestic and international passenger and cargo services in New Zealand to nearly 17 million travelers per year. The Company operates its link to London and through international alliance partners joins New Zealand to Europe and outside, with more than 3,400 flights.

The Company revealed that it had made further adjustments to its limited domestic plan subsequent to the recent statement from the Government of New Zealand. During the alert level 3, Air New Zealand issued a new restricted domestic flight schedule.

The airline stated that it is all set to enable only essential travel and keep air freight running from 28 April 2020. The Company will run return flights from Auckland to Tauranga, Christchurch, Napier and Wellington, from Wellington to Nelson and Christchurch, and from Christchurch to Dunedin.

General Manager Networks of Air New Zealand- Scott Carr stated that travel stays very limited under the Level 3 alert.

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Air New Zealand Modifies its International Network-

The airline company stated that it will not recommence process of its suspended air routes for Los Angeles-London along with Auckland-Buenos Aires because of the profound impact of COVID-19 on upcoming travel demand. Moreover, the airline has also undertaken the decision to delay the commencement of its Auckland-New York (non-stop) service which were about to start on 29 October 2020 till late 2021.

Along with 95% of its international flying, Air New Zealand's Buenos Aires and Los Angeles-London routes are at this time suspended through to 30 June due to low demand as well as government travel bans.

Currently, Air New Zealand is operating a constrained global network through to 30 June 2020 to maintain flight connections open for the necessary travel and movements of cargo on key trade routes. Airlines has reduced the entire capacity to 95% of pre-COVID-19 levels, and need would be assessed on the basis of route-by-route before the recommencement of services.

Financial highlights for 1H2020 (ended 31 December 2019)

  • In the first half of the FY2020, the Company recorded a solid revenue growth with operating revenue of ~$3.0 billion, climbing up by ~3%;
  • The earnings before other significant items and taxation were reported to be $198 million, falling by 8.8%;
  • The net profit after taxation was at $101 million, down by 33%;
  • Air New Zealand reported operating cash flow of $534 million in the 1H FY2020.

Moreover, the Company mentioned in its interim report that cost reduction initiatives previously outlined in March 2019 remain on track-

Air New Zealand’s Response to the COVID-19 Turmoil

  • Total capacity drops by 10% throughout the network;
  • Several labour initiatives that include a voluntary cut in wage of CEO, suspension in hiring for all non-critical roles and voluntary unpaid leave for operational employees;
  • Suspension of capital spending that is not essential as well as any other non-critical business activity.

On 27 April 2020, share price of AIR declined by 5.86% and its last traded price was at NZD 1.205. The market capitalisation of the Company was reported at NZD 1.35 billion. The P/E ratio of the company was noted at 6.18x, with a gross dividend yield of 18.26.

 

 


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