KQ hits turbulence with Sh6.5bn pre-tax loss

November 7, 2012
Turnover posting a 9.3 percent or Sh5.5 billion dip to Sh49.8 billion was bogged down by a stronger shilling since a large portion of the airline’s revenues are dollar denominated/FILE

, NAIROBI, Kenya, Nov 6 – Kenya Airways (KQ) has posted a pre-tax loss of Sh6.5 billion in its first half-year ended September 30, 2012.

This was a mammoth 333 percent drop from Sh2.8 billion pre-tax profit posted in a similar period last year. The airline attributed the loss to the foreign exchange rate, high fuel and labour costs as well as depressed revenue numbers.

Turnover posting a 9.3 percent or Sh5.5 billion dip to Sh49.8 billion was bogged down by a stronger shilling since a large portion of the airline’s revenues are dollar denominated.

“In the revenues, out of the Sh5.5 billion, Sh2 billion was because of the exchange rate,” KQ Finance Director Alex Mbugua said while releasing the results.

With revenue from passenger numbers making up 90 percent of turnover, the 10 percent dip to Sh43.6 billion in the first half took a toll as well.

“There was a reduction in passenger numbers because of Eurozone issues and the travel advisories against Kenya that have had a severe negative impact on the passenger numbers,” Mbugua explained.

On the London route, traffic from the British capital to Mombasa compared to prior years has come down by 50 percent. Further capacity cuts were also seen in Europe, which traditionally accounts for approximately 30 percent of total revenues.

Fuel costs jumped by Sh200 million to Sh21.4 billion, accounting for 50 percent of the airline’s direct operating costs.

In the second half the airline is looking to decrease overhead expenses that registered a 7.2 percent increase to Sh10 billion.

In August, KQ let go close to 600 of its employees, in a retrenchment exercise that cost about Sh826 million, however it is expecting benefits of roughly Sh400 million to be amassed by the end of the financial year.

Though the airline is expecting a better performance in the second half, Mbugua said it will not be enough to compensate for the loss made in the first half hence the issuance of a profit warning.

“We made a profit of Sh2.5 billion last year we do not believe we’ll be able to come within 25 percent of that, given our position now,” he said.

The airline said it will focus more of its energies in catering to the African and Asian markets, which are is still under-serviced and subsequently attracted other airlines from the Middle East and Europe over the last 10 years.

“We are seeing a lot of Middle East carriers coming into our backyard and eating our lunch. We are taking measures to make sure that we remain the largest airline in Africa,” Mbugua said.

African Airlines have gone down by almost 10 percent in terms of market share in the continent, from 56 percent to 47 percent in the last 10 years, while the Middle East airlines have climbed from 8 percent to 15 percent in the same period.

Qatar Airways is in talks with the government to begin direct flights to Mombasa, with official word from Doha needed to finalise the agreement, according to Transport Minister Amos Kimunya.

“European airlines are also starting to face downwards to Africa. They moved from 34 percent to 38 percent, so African airlines have a challenge and we need to counter this competition,” KQ Chief Executive Officer Titus Naikuni pointed out.

KQ expects to launch its low-cost carrier Jambo Jet in the fourth quarter and has already attained its license.

As far as fleet expansion, the airline will be converting some 737s into freighters, with the new Embraers that are on continued delivery to be partly used to offset some of that capacity lost.

The first delivery of the nine Boeing 787 Dreamliners will be made in the first quarter of 2014.

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