KQ flies into profit despite harsh times

November 3, 2011
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National carrier Kenya Airways/FILE
NAIROBI, Kenya, Nov 3 – National carrier Kenya Airways has reported a 41.6 percent rise in net profit despite rising international fuel prices and exchange volatility that has hit the aviation industry.

In the six months between April to September, the airline realised Sh2 billion in net profit compared to Sh1.4 billion a year earlier.

Kenya Airways Managing Director Titus Naikuni told investors on Thursday that increased passenger and cargo haulage that resulted in higher yields during the period led to the profitability with revenues growing by 33 percent to Sh54.9 billion.

“Kenya Airways profit after tax in the first half of 2011/12 compares favourably against the prior year’s profit. The Board is optimistic that the company’s performance will continue improving in the second half of the year,” Naikuni said.

During the six months, capacity measured in available seat kilometres grew 13.2 percent while revenue passenger kilometre grew by 17.9 percent. This increased frequency and launch of new destinations saw passenger turnover rise 32.2 percent to Sh48.5 billion. KQ has steadily been growing its cargo business and so revenues from that business increase 41.4 percent to Sh4.2 billion.

Despite strong revenue growth, operating costs contracted due to a 52.5 percent rise in direct costs with fuel costs remaining the key component under direct costs at Sh21 billion. Overall, earnings were supported by a realised gain on fuel derivatives of Sh1.5 billion.

KQ Group Finance Director Alex Mbugua told investors that fuel price hedging helped to cushion higher oil costs offsetting rising costs due to the shilling’s depreciation against the dollar.

“Our hedge book is healthy. We are in the money for up to $30 million (Sh2.9 billion),” Mbugua said.

The weakening of the Kenya shilling against the dollar has had some positive effect on the earnings of the airline.

Mbugua said that the dollar strengthened against the shilling, with the average exchange rate for the period being Sh87.91 against a prior year average ofSh80.

“The strong US Dollar and the relative weakening of the Kenya shilling over this period had a positive effect on foreign currency denominated revenues when reported in Kenya Shillings. These gains were however partly offset by the adverse effect on foreign currency denominated expenses,” Mbugua said.

Kenya Airways has set out a 10 year strategic plan that seeks to more than triple its aircraft fleet to 107 by 2020 from the current 33. It also plans to grow the number of destinations from the current 53 to 115 by 2020.

“The board has taken cognisance of the cyclical traffic demand and has approved a 10 year plan that will enable Kenya Airways remain competitive by positioning itself to capture the traffic flows in the future. The 10 year plan starts from this financial year to 2020/21. The plan includes new destinations roll out covering the six continents and a fleet acquisition plan,” Naikuni said.

The airline is embarking on fundraising round through a rights issue to finance the strategic plan. The size and timing of the rights offer will be determined by directors once regulatory approval has been granted in Kenya, Tanzania and Uganda.

Mbugua was optimistic of a successful issue with its two biggest shareholders KLM (26 percent) and the government (23 percent) having given a written undertaking to take up their rights.

“We are expecting a successful rights issue but we are at the same time cognisant of the timing due to the Christmas holidays, so we are planning on the best time to have the issue done,” Mbugua said.

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