Business Daily (Nairobi)
Wangui Maina
15 May 2008
The national carrier, Kenya Airways, is set to launch new routes in Africa and increase frequency on some routes this financial year as part of its expansion plans.
But the move to Antananarivo in Madagascar or increased flights to Angola is not expected to change the market outlook for the airline, which has recently faced one of its most turbulent years.
Market experts are not expecting much change in Kenya Airways results, which are expected to be announced on May 30.
In the past financial year, the airline has had to contend with the escalating price of fuel and an increase in competition from both international and domestic carriers moving into the region.
Analysts believe the results for the year ending March, 2008, will have marginal change, with most expecting a slight drop in its performance or similar performance as of last year.
Mr Charles Ocholla, the head of investment banking and fund management at Suntra, notes that the airline will record profits but that they are likely to be almost the same as last year's, if not slightly lower, following the half year results.
The half year performance released in September, 2007, were the first signs that the 2007/2008 financial year was not going well for the national carrier as profits fell by 18.8 per cent.
Profits dropped to Sh1.97 billion from Sh2.4 billion during the same period in 2006/2007. The rising cost of fuel , currency exchange, increased competition and poor customer service were some of the challenges attributed to the declining profits.
This has not changed in the past six months, with fuel currently at its highest, according to the International Air Transport Association (IATA) statistics. IATA statistics show that the cost of fuel has risen by 72 per cent in the past one year, with jet fuel currently trading at $146.8 (Sh9,248) a barrel. As of September, 2007, fuel was trading at $78.1 (Sh4,920).
Escalating cost of fuel is likely to make a major dent on the airline's accounts as the cost of fuel accounts for up to 30 per cent of its total costs, say industry stakeholders.
At a previous press briefing, the managing director, Mr Titus Naikuni, noted that currently the airline's fuel bill was around Sh27 billion, a 70 per cent increase compared to what was spent the previous year.
But Resa Imbuye, an analyst with Old Mutual Asset Manager, says although the airline hedges a big portion of its fuel, its books are likely to be impacted ,especially when it comes to re-hedging.
To cushion it, passengers will soon have to dig deeper into their pockets as the airline looks at increasing fuel surcharges. A fuel surcharge is a fee paid by passengers on their ticket as part of taxes.
The appreciating value of the shilling against the dollar has had a major impact on the airline's revenues as most of its business is carried out in dollars. In the past, the airline has indicated a wish to look at other denomination options although this would only happen if the whole aviation industry agreed.
According to Mr Imbuye, the bearing of a strong shilling impacts the airline both positively and negatively as the airline gains when buying fuel but loses when selling tickets which are denominated in dollars.
The airline has in the past few months been going through a management shift as key staff leave the company. The airline has created a post of Chief Operation Officer (COO) who will oversee the day to day operations of Kenya Airways a move which has been seen as a positive step towards future business strategy by some analysts.
During the last quarter, the airline faced a turbulence due to the skirmishes that rocked the country, leading to cancellation of visits to the country. The impact saw the airline struggle to fill its planes on some of the routes, leading to reduced capacity on routes like London and Amsterdam as well as the withdrawal of flights to Paris.
On the other hand the airline has continued to record good performance on its Indian routes, mainly due to the withdrawal of Air India, Chinese routes and the African routes. But Kenya Airways has found a way of making profits, tapping into the high yield customers in the African region.
The move to open new routes like Madagascar this current financial year and increase frequencies to destinations like Ghana, Angola, Dubai, China and Botswana is seen as a positive move for the medium to long term as most airlines still hesitate to operate on the continent.
The airline was able to move from a loss making carrier to a profit making one through this strategy which it plans to maintain and even expand further as it awaits delivery of its Boeing 777 and Dreamliners in 2010.
The airline's share has witnessed some volatile movement having shed 41 per cent in the past year. It opened the year at a Sh 62 and has dropped to Sh49.25.
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