Webjet and Helloworld withdraw profit guidance amid Covid-19 uncertainty

Webjet and Helloworld withdraw profit guidance amid Covid-19 uncertainty

Webjet MD John Guscic (pictured) and Helloworld CEO Andrew Burnes are taking pay cuts in the face of challenging conditions, following the lead of Qantas boss Alan Joyce and Air New Zealand's Greg Foran.

An escalation in cancellation rates at short notice has prompted travel booking aggregator Webjet (ASX: WEB) to withdraw its profit guidance, while the uncertainty around coronavirus Covid-19 has also led travel agent Helloworld (ASX: HLO) to take similar action. 

Webjet was previously forecasting FY20 EBITDA guidance of $147-165 million, and Helloworld was expecting a figure of $86-90 million.

The announcements come just a day after Australia's leading airline Qantas announced a drastic downsizing of international flights, while restrictive measures are on the rise globally in a bid to contain the virus.

Air New Zealand, Singapore Airlines, British Airways and Lufthansa are some of the other major airlines that have made reductions to capacity. 

This morning the Australian Federal Government also extended its travel ban to Italy, adding to restrictions on travellers coming from China, South Korea and Italy.

Webjet notes while forward bookings beyond three months remain in line with previous expectations, cancellations are now occurring at short notice prior to travel and therefore reducing visibility on future earnings.

To cope with the challenging situation, Webjet has put a cost reduction programme in place to minimise operating expenditure, which is expected to result in $10 million in savings for the remainder of the financial year.

This includes a voluntary decision from managing director John Guscic (pictured) and the board of directors to reduce their salaries and directors fees by 20 per cent with immediate effect until conditions return to normal.

Guscic has also agreed to forgo any bonus that would have been achieved in FY20.

This follows the decision by Qantas Group CEO Alan Joyce to give up his salary entirely for the rest of the year, although Joyce usually earns more than three times what Guscic makes in a year. 

Air New Zealand boss Greg Foran has also taken a $250,000 pay cut to weather the coronavirus storm.

The current state of affairs is in sharp contrast to Webjet's outlook before the outbreak, when total transaction value (TTV) growth was pointing towards an upgraded guidance for FY20.

"With Covid-19 placing downward pressure on bookings, we are focused on mitigating the short-term impact to earnings but importantly, we remain intent on retaining our leadership positions in our global WebBeds business and Australian Webjet OTA," says Guscic.

"Webjet has a strong balance sheet and low net debt levels, ensuring we are well placed to weather this event.

"In the immediate term, we have taken steps to ensure we maintain this strength through cost reductions and have the flexibility in our operating model to allow us to implement further changes should the situation require."

He clarifies the momentum prior to Covid-19 was well ahead of the market, and Webjet is getting prepared to take advantage of "what is likely to be a faster-growing market when broad-based travel returns globally".

Helloworld takes "decisive action"

Helloworld has also observed declining forward international travel demand, and due to "obvious uncertainties" it has reached the conclusion that quantifying the impact on earnings is not possible.

While the outbreak plays out, CEO and managing director Andrew Burnes will take a 30 per cent pay cut and chairman Garry Hounsell won't be charging any fees. Meanwhile, the company's executive management team will take a 25 per cent salary cut.

All non-essential recruitment has come to a halt, employees have been asked to take paid or unpaid leave, and all discretionary expenditures are being reduced or eliminated.

But the group's strategy is not just about slashing costs; Helloworld is now increasing its domestic leisure offerings and promoting destinations still regarded as safe to travel.

The company notes domestic demand in the corporate travel market has held up so far, while there has been an increase in demand for domestic leisure travel - a "welcome sign given the negative impacts of the bushfires and of coronavirus on inbound visitor arrivals".

"Over the last two weeks we've seen a steady decline in bookings in some parts of our business, particularly cruise, inbound to Australia, wholesale to Asia and Europe and in corporate international travel," says Burnes.

"At the same time we've seen cancellations increase in these areas and we anticipate lower demand to continue in to Q1 and possibly Q2 FY21 so we are taking action now to reduce our costs to sustainable levels based upon what we are seeing in the market in Australia and New Zealand at present."

He describes Helloworld as a strong business with a solid balance sheet, low debt levels and a mix of business, some of which are being impacted and some of which are not.

"We're in a good position to see this through but like so many businesses in tourism and other industries we need to take steps to right size our operations for the journey ahead," he says.

"Who knows how long this will go on but it will eventually get better and the world will recover and we want to ensure we are well positioned when that happens to meet the leisure and corporate travel demands of our customers in Australia, New Zealand and around the world."

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