Coronavirus: Lufthansa imposes hiring freeze as Diageo profits suffer

Lufthansa has announced a hiring freeze and is offering employees unpaid leave as part of a range of cost-saving measures to attempt to limit the financial impact of the spread of the coronavirus.

The German airline, which has already cancelled all flights to China until the end of March, also said it will expand part-time work options and cancel flight attendant and other personnel training courses from April onwards. Those that are already on courses will not be hired. The company said it aimed to offer affected trainees “employment contracts in the long term”.

“In order to counteract the economic impact of the coronavirus at an early stage, Lufthansa is implementing several measures to lower costs,” the company said. “It is not yet possible to estimate the expected impact of current developments on earnings.”

FTSE 100 tumbles below 7,000 points as Diageo warns of £200m coronavirus hit – business live

Lufthansa said the measures will result in a cut to its budget in administrative areas by 20%. The company said that looking at all the cutbacks in its flight schedule to China and Hong Kong, “in purely mathematical terms, 13 Lufthansa Group aircraft are currently on the ground”.

Shares in Lufthansa fell 3% on Wednesday morning as European stock markets suffered further heavy losses.

Several other European companies also warned that the coronavirus outbreak was hurting their operations amid intensifying fears that the global economy will be hit.

Diageo, the drinks giant behind Guinness and Johnnie Walker, said Covid-19 could hit its profits by up to £200m as restaurants and bars stay shut and international travel is curbed.

The world’s largest liquor company, home to brands including Smirnoff vodka and Tanqueray gin, said that it expects a £140m to £200m decline in profits in the year to the end of June. Sales are expected to be down £225m to £325m.

The company warned that its estimates, which depend on the “timing and pace of recovery”, exclude the impact of the coronavirus on other markets beyond Greater China and Asia Pacific.

Diageo said that the majority of consumption of its products in China is in bars and restaurants, which mostly remain closed. “We have seen significant disruption since the end of January, which we expect to last at least into March,” the company said. “Thereafter we expect a gradual improvement, with consumption returning to normal levels towards [June].”

The company also highlighted the impact in South Korea, Japan and Thailand, where events have been postponed, conferences and banquets have been cancelled and a drop in tourism has also had an impact on consumption in bars and restaurants.

The significant drop in international air travel, especially across Asia Pacific, has also hurt Diageo’s business, including sales in airports.

“We remain confident in the growth opportunities in our Greater China and Asia Pacific business,” the company said. “We will continue to invest behind our brands, ensuring we are strongly positioned for the expected recovery in consumer demand.” Diageo’s share price was down 1.6% in early trading.

Danone, the maker of products including Volvic, Evian and Activia, said that it will take a €100m sales hit in the first quarter as a result of the spread of the coronavirus.

The French-based company said that it has experienced a “severe demand slowdown” for its Mizone water brand in China, which is Danone’s second biggest market and accounted for 10% of global sales last year. Cécile Cabanis, Danone’s chief financial officer, said that a crucial relaunch of the brand planned for March is being pushed back to the second quarter.

“The current coronavirus outbreak is having a significant impact on first-quarter sales,” she said. “It is mostly sold in convenience stores and through traditional channels, which have been heavily impacted by the outbreak. We will delay the relaunch, which is an important step to reignite growth in Mizone.”

Danone said that there there had been no disruption in the supply of its specialised nutrition products but travel limitations in China had had an impact on “indirect sales” and its pipeline of new product innovations has been delayed.

Danone employs 8,200 staff in China and has eight factories, seven of which are for its water business. The company said water production resumed on 17 February bar its Wuhan factory, which is at the centre of the outbreak.

SSP Group, the British operator of restaurants and bars in airports and railway stations, said that sales across the Asia Pacific region will slump by half in February as the coronavirus outbreak hits air travel in the region.

The company said that in Asia Pacific, which accounts for 8% of group revenues, domestic and international air travel relating to China is down 90%, Hong Kong is down 70% and Singapore, Thailand, Taiwan and the Philippines are down 25% to 30%.

SSP’s share price fell almost 4% in early trading and the company said that group revenue would be down £10m to £12m in February, with operating profits down £4m to £5m.

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