UPDATE 3-Airline SAS halts northern Italy flights, drops guidance due to coronavirus

* 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)