KQ hopeful for VAT exemption

May 30, 2008
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, NAIROBI, May 30 – National carrier Kenya Airways (KQ) has expressed optimism that the government would exempt it from Value Added Tax (VAT) in this year’s budget that is due to be read in mid-June.

KQ Chief Executive Officer (CEO) Titus Naikuni told an investor briefing on Friday that the tax, which is not levied on any other airline in the world other than the national carrier, has caused them to raise their fares and thus affected their profit bottom line.

He revealed that they have had discussions with Treasury and hoped that they would receive positive consideration in the 2008/2009 budget.

“We are not asking for special dispensation, all we want is a level playing field,” the CEO stressed.

While releasing their financial results for the year ended March 31, 2008, Finance Director Neil Canty said that KQ recorded a 5.6 percent loss in their profit after tax from Sh4.1 billion recorded in 2007 to Sh3.9 billion in 2008.

Although the six percent loss was slightly less than the 18 percent drop recorded in 2006, this was the third consecutive year that the airline was posting a dip in profits.

Group turnover grew by 3 percent from Sh58 billion to Sh60 billion during the same period, while the passenger carrying was at 2.8 million, reflecting a six percent growth.

The marginal decline was attributed to the post election crisis in the last quarter of 2008 (January to March), which resulted in a sharp decline in bookings, and temporary suspension of various flights across the world.

The post poll turmoil saw the Kenyan domestic network drop by three percent but it especially affected the European route where revenues declined by 10.8 percent.

“The above, together with an increase in competition lowered the average aircraft seat occupancy to 70.4 percent compared to 73.6 percent realised in the previous year,” the CEO explained.

On the fuel front, the company recorded a 17 percent reduction on fuel costs as it entered into several hedging contracts late 2007.

Through fuel hedging, an airline makes advanced purchases of the commodity at a fixed price for future delivery to protect itself against the shock of anticipated rises in price.

Had they not hedged, the fuel bill would have been in excess of Sh19.2 billion.

At the same time, Naikuni said there would be a three-year delay in the delivery of nine Boeing 787 planes that were supposed to arrive between 2010 and 2012.

However, one Embraer 170 regional jet is due for delivery in September 2008, while three B737-800’s are due to arrive between August and November 2008.

One of the planes is expected to replace the aircraft lost in the Douala, Cameroon crash in May 2007.

The official however expressed optimism that despite the challenges that the airline was going through, such as escalating fuel costs and the current credit crisis in the developed world, the prospects for the future would remain bright.

Naikuni said several initiatives and system projects that had been undertaken such as e-ticketing and aircraft maintenance, which was started in 2007, would be fully implemented by mid 2009.

“We see ourselves getting the full benefits of these systems next year,” he added.

And while responding to President Mwai Kibaki’s call to introduce direct flights to Japan, Naikuni said those plans as well as those to enter the USA market were well underway, although negotiations with the Asian authorities would take not less than three years.

The entry into Japan and Australia, he revealed, was part of their long term strategy to operate in new frontiers.

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