18 November 2017

Kenya: KQ Eyes Air France Deal to Boost Revenue As Loss Falls 20.5%

Kenya Airways #ticker:KQ is early next year set to sign a joint venture agreement with Air France even as the national carrier announced that its net loss for the six months to September improved 20.5 per cent to Sh3.8 billion on lower costs.

The partnership, which is an expansion of the carrier's existing deal with Dutch airline KLM, will see KQ, as it is referred to by its international code, book revenue from flights connecting Nairobi and Paris.

Michael Joseph, KQ's chairman, said the proposal has been lodged with the Competition Authority of Kenya (CAK), with the national carrier hopeful of having the deal in place by April 2018.

The plan was disclosed Friday when KQ announced a reduction in net loss position, mostly due to lower costs, especially operating expenses which fell by Sh724 million to close the period at Sh53.08 billion.

"Air France is set to commence local flights in April and we hope we shall have received the regulatory exemptions sought, which will allow us partner with them instead of compete," said Mr Joseph.

"KLM and Air France merged years ago and so it would be in all our interests to have a joint venture. Such a pact will also be advantageous for KQ as we draw closer to direct United States flights."

KLM and KQ entered into a "master co-operation agreement" in 1995, which sees them share revenues on certain routes based on a pre-determined ratio after deducting expenses.

This is just one of the several strategies that KQ hopes will improve its revenues, which in the six months to the end of September, dropped 0.4 per cent to Sh54.52 billion compared to Sh54.75 billion the previous year.

Currency fluctuations and market capacity pressures dampened the sales benefit that KQ would have booked from passenger numbers growing 3.3 per cent to 2.3 million.

The national carrier, which completed its balance sheet restructuring this week, absorbed this flat revenue line by reducing its fleet costs and overheads by 21.9 per cent and 8.9 per cent respectively.

The airline's half-year loss, however, worsened its negative equity position to Sh48.18 billion, compared to the Sh44.915 posted during a similar period last year.

"Kenya Airways is on a continuous improvement trajectory on its way towards returning to profitability," said Sebastian Mikosz, KQ's chief executive, said at his maiden results announcement.

"We have kept our fleet costs in check. Going forward, we'll grow our routes strategically. But if we launch a route and it does not work out, we shall not hesitate to close it. We shall also be extremely cautious about our cash spending."


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