Coronavirus: 'This is different,' Air NZ chief executive says as he takes pay cut as bookings tumble

Monday, 9 March 2020

Incoming Air New Zealand chief executive has been working as chief executive of Walmart's US operations.

Air New Zealand's chief executive Greg Foran has offered to slash his base pay, as the airline moves to cope with falling demand as a result of the coronavirus.

The airline announced on Monday morning that it was suspending its full-year profit forecast because of uncertainty over how long bookings might be reduced because of Covid-19.

Foran, a New Zealander, was head of the US operations of retailer Walmart, leaving a US$13 million (NZ$20m) annual salary to take up his role at Air New Zealand last month.

He has offered to slash his $1.65m base pay by $250,000, a 15 per cent pay cut, and the airline's executive team will extend a freeze on their salaries that has been in place since May 2019.

* Coronavirus: Will airlines survive the current crisis?

* Coronavirus 'could take $100m off Air New Zealand's profit'

* Coronavirus: Air NZ should prepare for 'prolonged financial damage'**

Other measures the airline is taking include offering operational staff the chance to take unpaid leave, and a hiring freeze on non-critical roles.

Foran said it was a significant event and different from challenges Air New Zealand had faced in the past, such as Sars or the global financial crisis.

'This is affecting every part of the world… this is different but it doesn't mean we are not equipped to deal with it.'

He said the airline had watched the impact spread, first through China, then Korea, then affecting flights to Australia and the United States.

There was also an impact domestically as businesses cautioned their staff against travel and changed conference plans.

He said Air New Zealand continued to make capacity changes but was not flying empty planes to retain airport slots, as it has been reported other airlines around the world are doing.

The airline was offering flight discounts where it needed to, to stimulate demand.

Foran said he continued to fly as normal, as did many other New Zealanders.

Air New Zealand, like other airlines, is suffering because of lack of passenger revenue due to the coronavirus.

'Planes have incredibly good air filtration systems.'

Air New Zealand was ensuring it kept its planes clean and in good condition, he said. 'There is no significant risk from flying Air New Zealand.'

Deteriorating passenger numbers meant redundancies at Air New Zealand could not be ruled out, one analyst said.

Andy Bowley, head of research at Forsyth Barr, said the airline had been relatively lucky in that it had gone into the downturn in a healthy financial condition.

But it would do what it had to to survive. 'I don't think you could rule anything out at the moment because there's so much uncertainty.'

Air New Zealand's and other airlines' survival really depended on the length of the outbreak, Bowley said.

'Airlines are in relatively simple position when it comes down to what generates profitability. It's bums on seats and those bums are paying a decent yield relative to the cost that the airline has.'

But things could get 'significantly worse' if the virus became established in New Zealand.

Air New Zealand chief executive Greg Foran says Covid-19 has created an ''unprecedented situation''.

'The worse case scenario for New Zealand is the virus gets a foothold in New Zealand and that then has an impact on both [the airline's] domestic business and their international business, because fewer people will want to come to New Zealand at that stage.'

Other steps taken by Air New Zealand to mitigate its risk include reducing its capacity on Asia, Tasman and domestic networks, redeploying fuel-efficient 787 Dreamliner aircraft, and offering cheaper fares.

When the airline last issued guidance on February 24, it expected the outbreak to lower its forecast profit by $35m to $75m.

However, now the airline expects a greater financial impact. Last week independent economist Benje Patterson suggested the profit could be up to $125m lower than expected.

Foran said it was becoming increasingly clear that coronavirus had created 'an unprecedented situation and it is difficult to predict future demand patterns'.

'The airline now believes that the financial impact is likely to be more significant than previously estimated and with the situation evolving at such a rapid pace, the airline is not in a position to provide an earnings outlook to the market at this time.'

He also hinted that further action might be taken, while expressing confidence in the airline's ability to navigate past industry highs and lows.

Air New Zealand was 'a strong and resilient business' and an update on profit expectations would be provided when appropriate.

Foran said Air New Zealand was comfortable with international governments' response to the outbreak so far. 'We are keeping close to them, and their agencies. They are keeping us informed and we are keeping them informed.'

He said it was hard to predict how long the disruption would last but instead of looking at it hour by hour, Air New Zealand was now thinking about the impact three months from now.

Since the coronavirus outbreak, Air New Zealand has:

* Reduced its capacity by 10 per cent, including 26 per cent in Asia to June and 7 per cent on the trans-Tasman route.

* Reduced Pacific Island capacity by 6 per cent to June.

* Reduced capacity nationally by 4 per cent, with capacity down 10 to 15 per cent in March and April.

* Deferred non-urgent capital spending and non-critical business activity.