How the Coronavirus pushed the Qantas share price 40% lower
'When revenue falls you need to cut costs, and reducing the amount of flying we do is the best way for us to do that,' says Qantas Group CEO Alan Joyce.
Qantas share price and the Coronavirus impact
Even as governments rush to contain the Coronavirus (COVID-19) – at 114,343 reported cases and 4,025 deaths across the globe – the situation continues to escalate mostly unabated.
In the last few days alone, equity markets have been smashed, commodity markets (particularly oil) have been thrown completely out of whack, and panic surrounding slowing global economic growth has only intensified.
In response to this unfolding situation – Qantas (ASX: QAN) – Australia's premier airline, today announced a number of additional cuts to its international flying program as well as some key changes to its renumeration processes.
The airline had previously reduced flights, particularly from Australia to a number of Asian countries, in response to the Coronavirus situation, in late February.
Adding to those cuts, Qantas’s CEO, Alan Joyce today said: ‘in the past fortnight we've seen a sharp drop in booking on our international network as the global coronavirus spread continues.’ Given this demand drop-off, the blue chip airline said it would be 'cutting capacity out to mid-September' by 23% overall.
When compared to the same period last year, capacity reductions remain most pronounced in Asia at -31%, followed by the US at -19%, UK -17% and Trans-Tasman -10%.
Domestic capacity reductions for Qantas and Jetstar flights will also be reduced by 5% to mid-September.
These moves, notes the airline, will enhance 'our ability to reduce costs as well as giving more certainty to the market, customers and our people.'
Ultimately, Qantas noted that it would not ‘exit routes altogether’, but rather reduce flight frequency and use smaller aircrafts.
Mind you, though Mr Joyce tried to reassure investors today: touting the company's strong balance sheet, low debt levels, and noting that the majority of the airline's profit is derived from the domestic market; the stock still tumbled at the open, crashing to a low of $3.89 per share.
At that intraday low, the Qantas share price was down more than 40% since its mid-January top.
Positively at least, by 14:15 AEDT, the Qantas share price managed to stage a strong rebound, climbing as much as 5.30% – to $4.37 per share.
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Buy backs and other cuts
Besides capacity reductions, Qantas (ASX: QAN) today announced that it would cancel the off-market share buy back that had been announced in February.
This decision, notes management, will help preserve $150 million in cash.
For FY20 it was also announced that annual management bonuses have been set to zero, that the Board would absorb a 30% fee reduction, that the Group's CEO would take no salary; and that the company would suspend all 'non-essential recruitment and consultancy work.'
Positively at least, management also said that significant declines in energy prices 'has provided a significant cost benefit in addition to the saving from lower consumption.' The airline's overall fuel costs are now anticipated to hit $3.74 billion.
All up, airline stocks were always going to be impacted by the spread of the Coronavirus, we are now simply getting a clear idea of by just how much. Virgin Australia stock, for reference was down ~6% today.
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