KQ profit drops, fuel prices to blame

June 14, 2012
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KQ Finance Director Alex Mbugua (L) with CEO Titus Naikuni

, NAIROBI, Kenya, Jun 14 – High fuel costs have hit Kenya Airways (KQ) profits for the financial year ending March 31, dropping by a whopping 57 percent.

Net profit dropped from Sh3.5 billion last financial year to Sh1.6 billion this year, while profit before tax went down from Sh5 billion to Sh2 billion.

Kenya Airways Group Managing Director Titus Naikuni said the company spent over Sh40.7 billion on fuel costs alone.

“The fuel increase is impacted by opening up new routes because the aircrafts must fly. But you also need to look at, how did I get the revenue increase? I got it out of the new routes. So the two are interrelated and you can’t avoid it. Pricing is the major issue. Even if we had not opened up the new routes the revenue would have gone down but the cost would have still gone up,” said Naikuni.

He said the company plans for a major cost restructuring program to reduce its direct operating costs which went up by 44.6 percent to Sh77.2 billion.

This will include reducing unnecessary purchasing and also ensuring its suppliers provide goods and services at reasonable prices.

“On the area of costs, one is wastage. Like buying whatever you are buying, first you ask yourself, do I really need this particular item or can I really use this particular item? Second thing you look at is prizing, that is, is your supplier giving the right price or can you get an alternative?” he explained.

Overheads increased by 14.3 percent to Sh19.4 billion, adversely impacted by an increase in employee costs of Sh2.2 billion.

However passenger traffic growth was achieved in all regions with local domestic traffic growing by 29.6 percent as a result of increased capacity and frequency on Mombasa, Kisumu and Malindi operations.

Despite the decline in profits KQ shareholders still have a reason to smile by getting 25 cents per share as dividends due in October this year.
“This is a reduction from the tradition of a shilling or a shilling and fifty cents in the past. But the reason for this is that if you recall when we announced the Rights Issue, part of the terms of the offer was that the new shareholders would participate in a dividend,” said the Group Finance Director Alex Mbugua.

KQ plans to focus on new routes and close down others which proved unproductive and hence costly to maintain.

Naikuni says the board had earlier projected low profits due to the challenges in the industry currently, but added that he is optimistic of good profits by the end of the year due to its expansion programme.

Meanwhile KQ announced plans to construct its own hotels adding that it spends over Sh450 million in hosting its passengers when there are delays or flights cancellations at the airport.

“No airline has ever avoided that cost. What we are saying is why do we have to go and give that money to somebody else, why can’t we run one (hotel) ourselves?” Naikuni said.

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