Kenya: Skyrocketing Costs Sink KQ Into Sh12.9 Billion Loss

Kenya Airways planes at JKIA in Nairobi.

Rising costs have sunk Kenya Airways deeper into the red, after it reported a Sh12.9 billion loss for the financial year ended December 2019.

The fact that the loss was reported in the year before Covid-19 pandemic grounded the aviation sector promises the airline more painful days ahead.

Despite growing its revenues by double digits, the national carrier widened its losses by a staggering 71 percent from the Sh7.5 billion loss it reported in the same period in 2018 to the current Sh12.9 billion.

This is the last year of the Polish expat Sebastian Mikosz whose reign at the airline coincided with some of the worst turbulence to hit the airline. By the time he left, earlier than his term, the airline's financial health was in the intensive care unit and is surviving on government bailouts. The Covid-19 pandemic could not have hit at a worse time for the national carrier.

In a statement to the Nairobi Securities Exchange (NSE) on Tuesday, the airline said the total revenue for the group increased by 12.4 percent from Sh114 billion in 2018 to Sh128 billion last year.

"The growth was due to improved passenger, cargo, ancillaries, and other revenue streams, mainly due to expansion of the Kenya Airways network," the airline's chairman Michael Joseph said in a statement.

Joseph explained that the airline invested in new routes in the year under review among them Geneva, Rome, and Malindi. This expansion resulted in a 6.7percent increase in passenger numbers to hit a record 5.1 million passengers.

Passenger revenue grew by 8.9percent driven by route expansion among them the full year of New York operations, launch of Rome, Geneva and Malindi.

Capacity deployed in Available Seat Kilometres (ASKs) increased by 15percent but the benefits were taken away by a decline in cabin factor of 0.6 points to 77 percent. The silver lining was the growth in cargo tonnage by 6.3percent from 64,238 tonnes to 68,264 tonnes.

Inability to keep a lid on its costs hurt the airline's bottom-line, punishing it into another year of loss making.

It said its operating costs grew by 12.4 percent, driven by the increase in capacity deployed and an increase in fleet ownership costs attributed to the return of two Boeing 787 aircraft that had been subleased to Oman Air.

This saw its total costs surge from Sh114.8billion to Sh129.1billion, wiping away any benefits from the increase in sales.

"The Airline benefitted from the reduced global fuel prices and maintained low fuel costs through its hedging program," the statement added.

Joseph explained that some of the contributors of the loss include the adoption of IFRS 16 and increase in operating costs associated with a 15percent increase in capacity deployed to offer increased connectivity between city pairs and investment in new routes.

The KQ board sees a difficult year ahead. The statement says the global economic and geopolitical context is uncertain particularly because of the current crisis occasioned by the Covid-19 pandemic.

As a result of this crisis, the Airline suspended most of its operation from March 25, 2020.

"The crisis has significantly affected economies around the world and the aviation sector in particular. We estimate that it will take at least a

year to gain the confidence of the travellers and start recovering the travel demand," Mr Joseph said.

He noted that the airline must however look at the bright side of this crisis and the opportunity it presents to recalibrate and reset its business in order to adopt measures that will future proof the Airline.

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