* SAS says virus outbreak affecting demand
* Says will cut short-haul capacity
* To cut costs, measures could include temporary layoffs
* Analyst: risks “large 3-digit mln” SEK profit hit
* (Adds SAS cancels northern Italy flights, updates shares)
By Niklas Pollard and Anna Ringstrom
STOCKHOLM, March 3 (Reuters) - Swedish-Danish airline SAS on Tuesday cancelled its flights to northern Italy and withdrew financial guidance for its current financial year after the spread of the coronavirus hit demand.
SAS shares have fallen 36% this year as the virus that began in China spread to dozens of countries across the world, curbing airline travel and savaging stocks in the sector.
“In response to the lower demand, SAS will in the next couple of months seek to reduce part of its short haul network capacity,” the airline said in a statement, adding it would also cut flights to Hong Kong and continue to suspend services to mainland China.
“At this stage, it is too early to assess the full impact on SAS operations and financial outcome and therefore not possible to give a more accurate guidance.”
A spokeswoman at SAS, which has increasingly focused on leisure travel in Europe in recent years, said the company had seen a big drop in demand over the last few days, notably to and from the north of Italy, Europe’s worst-affected country.
She said the new capacity reductions concerned March and April and no decisions had been made for the summer holiday season.
SAS on its website said it had decided to suspend all flights to Milan, Bologna, Turin and Venice in Italy from March 4 until March 16, pointing to the safety of passengers and crew.
Only last week SAS stood by its full-year outlook for an operating margin excluding one-off items of 3%-5%, but cautioned things could change if the coronavirus outbreak were to spread and extend to summer.
Since then there have been more cases of the virus in Europe, SAS’s main market, and rivals such as Finnair , Easyjet and British Airways owner IAG have warned of the impact on their business.
SAS, part-owned by the governments of Sweden and Denmark, said it was pursuing a number of measures to cut costs, including postponing marketing and a hiring freeze, while it was also looking to reduce spending on personnel.
“Measures related to personnel expenses may include temporary layoffs, voluntary leave, early retirement or other initiatives,” SAS said.
Sydbank analyst Jacob Pedersen said the hit to full-year profit from the coronavirus outbreak could be in the “large three-digit million” crowns.
“But it is very difficult to asses, it all depends on how quickly the situation normalises. I think SAS doing what in can, it’s the right measures,” he added.
SAS’ shares were down 1% at 1543 GMT while the wider market in Stockholm was up 2.5%.
Rival Norwegian Air in neighbouring Norway said on Thursday it was flying as normal while monitoring developments around the coronavirus outbreak closely. (Reporting by Niklas Pollard and Anna Ringstrom; additional reporting by Colm Fulton and Tommy Lund in Gdansk; editing by Susan Fenton, Emelia Sithole-Matarise and Barbara Lewis)