26 June 2014

Kenya Airways Reduces Full Year Loss As Cost Cutting Pays Off

KENYA Airways cut its losses in the financial year ending March 2014 by more than half attributing this to major cost cutting measures including savings on fuel costs.

The airline yesterday reported a net loss of Sh3.38 billion for the period compared to Sh7.86 billion recorded in 2013. Other than savings on fuel, the airline said it renegotiated some of its supply contracts and a newer fleet came with low maintenance costs.

Outgoing KQ boss Titus Naikuni said the results were "impressive" given the numerous challenges and difficult operating environment last year characterised by insecurity in Kenya which lead to travel advisories, the Westgate terror attack that cut visitor numbers and the major fire incident at its hub Jomo Kenyatta International Airport which disrupted operations.

"The impact of the Westgate attack took us longer to recover from than the JKIA fire," Naikuni told investors. He said insecurity led to an estimated 20 per cent drop in business volume. Incoming CEO Mbuvi Ngunze said: "We took a more than usual hit on the back of these things."

Though the advisories affected passenger numbers on the Europe, US and some Far East routes, the airline still managed to record a slight increase in passengers from 3.66 million in 2013 to 3.72 million in 2014.

The stability of the shilling also worked to its favour. The shilling averaged at an exchange rate of 85.92 to the dollar compared to 85.95 previously.

Direct operating costs dropped from Sh77.2 billion to Sh75.3 billion largely due to reduced fuel prices. This accounts for the largest single expense.

During the year, the average price of jet fuel per gallon dropped by six per cent and the airline also saved Sh1.5 billion through hedging contracts. Its cargo business improved with volumes increasing by 1,000 tonnes from the 70,000 total tonnes carried in the previous year.

The airline got a refund of Sh2.7 billion for its first Dreamliner aircraft during the financial year and is expected to receive more refunds as more Boeing 787s are delivered.

KQ however is still awaiting Sh1.5 billion tax refund from Kenya Revenue Authority and signing of more double taxation agreements between Kenya and in the countries that it operates in to save more cash.

Going forward, Ngunze said the outlook is bullish given projections by International Air Transport Association that the market conditions are likely to improve. He also cited JKIA upgrade and ongoing fleet modernization as other key factors expected to boost business in the current year.

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