The Air New Zealand Limited (ASX: AIZ) share price is down after it released updates on the financial impact of COVID.
Up until recently Australia and New Zealand had a trans-Tasman Quarantine Free Travel (QFT) arrangement, affectionately named ‘the trans-Tasman bubble’. This allowed travel between the two countries during COVID-19.
Trans-Tasman bubble suspended
With Australia and New Zealand both facing COVID outbreaks, it was determined to suspend the travel bubble. It is unclear how long the travel bubble will be paused for.
New Zealand has also been on a nationwide ‘Alert Level 4’ which restricts travel. On 7 September 2021, all areas outside of Auckland were moved to ‘Alert Level 2’ and allowed travel. Auckland remains at Alert Level 4 with restricted travel currently.
Air New Zealand impacted
On 26 August 2021, Air New Zealand suspended its earnings guidance because of the changing situation and uncertainty around the pausing of the travel bubble and New Zealand’s restrictions.
Air New Zealand said that after a month of impacted trading it remains unclear how long travel restrictions will continue. It noted that it is also unclear how well demand will recover when the restrictions are lifted.
Management said it is seeing strong demand for air travel in New Zealand regions that are not under travel restrictions. Cargo flights are continuing with around 50 flights a week.
Financial loss numbers
Whilst restrictions remain in place the company estimates that the monthly impact is around $25 million to $35 million with an Auckland-only Level 3 or Level 4 travel restriction (with the rest of New Zealand at Level 1 or Level 2). This includes benefits of any wage subsidies.
The monthly impact caused by the pause in the trans-Tasman bubble is around $20 million to $25 million.
It also outlined that the monthly impact would be $45 million to $55 million (including wage subsidies) if all of New Zealand is in a Level 3 or Level 4 restriction.
The company noted that it has begun drawing down further on the Crown standby loan facility. It has recently requested additional drawdowns on the loan facility totalling $435 million, with remaining available funds sitting at $1.065 billion.
Final thoughts on the Air New Zealand share price
It is going to be a bumpy take off for the ASX travel industry. There does seem to be an end in sight with a return to somewhat normality, however, there will be logistical bumps along the way.
Qantas Airways Limited (ASX: QAN) is also feeling the pain of lockdowns and travel restrictions continuing, as Australia lags behind the rest of the western world in the shift to ‘COVID normal’.
The Air New Zealand share price is down over 1% at the time of writing.
It is hard to say if the current share price is fair value, considering the lingering uncertainty fog for the logistical steps between now and COVID normal.
