Virgin Australia cuts more capacity, suspends guidance amid Covid-19 blow

[SYDNEY] Virgin Australia Holdings said on Friday it would make deeper capacity cuts, suspend financial guidance, freeze hiring and offer leave without pay to staff as it grapples with plunging demand due to the coronavirus outbreak.

Australia's No. 2 carrier joined its larger rival Qantas Airways in reducing both international and domestic capacity more than once in quick succession.

Virgin shares have plunged to record lows and some of its high-yield bonds are trading at less than 80 per cent of their face value amid investor concerns over its financial position, which is weaker than investment-grade rated Qantas.

Airlines around the world are seeing weak demand due to Covid-19 and many have suspended their financial guidance as a result, as have travel agents like Flight Centre Travel Group Ltd which did so on Friday, sending shares down more than 15 per cent.

An industry body last week estimated that passenger revenue for airlines could drop by as much as US$113 billion this year.

Virgin chief financial officer Keith Neate told reporters that there were no financial or change of control covenants on its bonds and that its next major debt maturity not until Oct 2021, when US$350 million was due.

The airline has more than US$1 billion of cash, and Fitch Ratings said on Tuesday that it had the flexibility to manage liquidity pressures in the short term that could stem from falling demand for air travel.

Virgin, predominantly a domestic airline, said its second-half capacity will be reduced by 6 per cent, up from the 3 per cent cut announced last month, and will be further trimmed to 7.7 per cent in the first half of 2021.

The airline also put in place a freeze on all external recruitment and the use of consultants for rest of 2020 and said its chairman and independent directors would take a 15 per cent temporary cut in their base fees.

"All of the actions we are taking today are making sure we minimise the cash burn," said Virgin chief executive Paul Scurrah.

He said job cuts were possible, but the airline was first trying to manage through attrition, a hiring freeze and unpaid leave.

Jefferies analyst Anthony Moulder said he was surprised the airline was not making deeper cuts in the domestic market, where it is trimming 5 per cent of capacity in the half ending June 30 and 6.2 per cent for the 2021 first half.

"Even with the appreciation that Virgin has a higher leisure skew and predominately a domestic airline, we could have expected capacity cuts of >10 per cent in the domestic market," he told clients in a note.

The airline said bookings to some leisure destinations in Queensland and Western Australia were tracking ahead of the same time last year, in a sign that Australians were booking more holidays at home.

REUTERS