East African Business Week (Kampala)
Lumiti Khabuchi
2 November 2008
Nairobi — National carrier Kenya Airways registered a slump in profits for the last nine months thanks to inflated international fuel prices and early year post election skirmishes that dwindled passenger numbers. Close to 39 per cent of the overall operating expenses went to fuel purchase.
The airline will however mitigate the fuel cost crisis by a hedging programme that will see oil reserves purchased now when the international crude prices have gone down by almost 50 per cent.
Financial results released by the airline at an investor briefing in Nairobi yesterday revealed a drop in profits after tax to Sh736million down from Sh1.9 billion posted over the same period. This was against an operating margin of 4.7 per cent this year over last year's 11.3 per cent.
Managing director Titus Naikuni said the profits were also drawn back as a result of delayed deliveries of ordered dream liners from manufacturers Boeing due to protracted shareholding wrangles at the US based plane manufacturer.
The results come against a background of an international aviation industry that has continued to face major challenges arising from fuel prices which hit an all time high of USD 147 per barrel in July 2008. The situation has resulted in a majority of airlines posting losses whilst pushing others into filing for bankruptcy. The escalating fuel prices have also seen the collapse of several airlines and lATA, the global industry body, projects airlines worldwide will make a combined loss of USD 5.2bn in 2008 and USD 4.1 billion in 2009.
Naikuni said the airline will continue to strategically focus on improving its operational integrity, through investment in staff training, improvement of systems and fleet modernization.
The results indicated an increase in passenger traffic for the first half by 2.0 per cent. The passenger yields in US cents improved by 10.9 per cent, which reduces to 4.4 per cent when translated into Kenya Shillings, primarily due to the weaker US Dollar in the period.
Areas of high passenger traffic growth included West and Central Africa with 20 per cent mainly due to additional frequencies to Lagos, Kinshasa and Accra. Far East growth of 19 per cent was driven by the introduction of three weekly Bangkok-Guangzhou services.
The Southern Africa route registered a modest growth of 8 per cent while the Middle East regions settled at five per cent over the period. Europe suffered a decline of 6 per cent, mainly impacted by the post election crisis prompting temporary suspension of Paris operations and reduction of capacity to Amsterdam. East Africa marginally declined 2 per cent while Northern Africa remained largely unchanged.
Domestic Kenya declined 9 per cent due to reduced travel within the country and ex-European feed into Kenya. With an overall ASK growth of 2 per cent and RPK growth of 3.4 per cent, the average Cabin factor moved from 72.7 per cent to 73.8 per cent.
Cargo volumes were at par with prior year, but at an improved yield of 27 per cent over the previous year. High Cargo growth in tonnes was achieved in Northern Africa 18 per cent and Middle East 14 per cent. Modest growth was achieved in Southern Africa 8 per cent and West and Central Africa at 4 per cent.
Although the US Dollar is currently strengthening against the shilling, the average exchange rate for the period at KShs 64.72 per US$ was much lower than the previous year level of KShs 67.80 per US$. The weakness of the US$ and the relative strengthening of the Kenya Shilling over this period had an adverse effect on foreign currency denominated revenues when reported in KShs, albeit partly offset by a favourable effect on foreign currency denominated expenses. In addition, it is also affecting profits to the extent of adverse FOREX losses on the value of the US $ denominated bank balances but offset by favourable FOREX gains on the US $ denominated loan repayments.
The company however remained optimistic that the remaining half of the year will be fruitful based on increased passenger numbers, favourable exchange rate and stable fuel prices.
Whilst the Board recognizes that these results are much lower than the prior year. It remains optimistic that the Company's performance will improve in the next half year. The main drivers of the anticipated improved performance are increased passenger numbers.
The fate of African economies and the airline however will remain in the balance following the global financial crisis that had critically reduced international travel and seen huge investments roll back. "While the impact of the global economic crisis continues to affect the West and Asian economies, the full impact on the African and Kenyan economy is still uncertain. It is therefore difficult to fully assess the full impact on Kenya Airways. Management and the Board will continue to monitor this on a regular basis and take appropriate action," said Niakuni.
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