might be people reading recommendations like this - from Morningside on ASB . Updated last night.
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Shares in Air New Zealand Fall Out of the Sky, but Rout Looks Overdone
We lower our fair value estimate for shares in no-moat Air New Zealand to NZD 2.30, from NZD 2.50 previously, as capacity restrictions cut deeper than expected across the airline's network. The impact of the coronavirus is weighing on air travel demand across the globe, and Air New Zealand is not immune. Indicative of the volatility of the situation, the firm has withdrawn guidance previously reconfirmed at its interim results on Feb. 27, 2020. We lower our fiscal 2020 profit before tax, or PBT, forecast to NZD 318 million, from our previous estimate of NZD 350 million, representing a 15% drop compared with fiscal 2019. But we don't expect this to persist longer term and anticipate air travel demand to start recovering from fiscal 2021.
The firm is restricting capacity across its network in line with stifled demand, particularly on Asian routes. Air New Zealand is now reducing capacity on its Asian routes by 26% through June 2020, more than the initial 17% cut flagged on Feb. 24, 2020. This is a marked reversal from strong capacity growth in the region of 17% over the first seven months of fiscal 2020. We now forecast fiscal 2020 capacity to decline 4% across the group on a full-year basis. While this weighs on near-term earnings, we don't expect the impact to be protracted. We anticipate a U-shaped impact on demand from the coronavirus, similar to the impact experienced during SARS in 2002, and forecast a return to capacity growth from fiscal 2021.
We anticipate Air New Zealand's labour costs, which constitute about 30% of operating costs, are principally fixed, weighing on near-term earnings. Nonetheless, there are some levers the firm can pull to reduce the impact: executive pay cuts and freezes (new CEO Greg Foran is taking a 15% pay cut), hiring freezes, and voluntary unpaid leave for employees. We also expect a reduction in the fuel bill--from lower consumption due to cuts in capacity and the lower jet fuel price--will offset some of the impact.