KQ taxiing to recovery despite turbulent market conditions

Kenya Airways CEO Michael Joseph(L) and Kenya Airline Pilots Association(KALPA) Secretary General Captain Paul Gichinga addresses the press at KICC on Monday 17/10/16 after the strike was called off. [Boniface Okendo/Standard]

Two weeks ago, we announced Kenya Airways’ 2018 full year financial results. While the bottom line figure is still not at the desired level, there is reassurance that the turnaround programme we boarded on in 2016 is paying off.

Since joining the KQ board, I have consistently been asked if and when I see KQ returning to profitability. While I am fully confident that the airline will be profitable again in the future, I have always emphasised that success should not only be measured by profits but by looking at the strides made forward from the negative situation that we found ourselves in, five years ago.

It is these positive strides that have seen our net loss gradually reduce from the levels of Sh25 billion and Sh26billion reported in 2015 and 2016 respectively to Sh9.4 billion in 2017 and Sh7.5 billion we have just reported for year 2018.

In the last two years, we have undertaken various actions to ensure financial and operating efficiency to enhance business sustainability despite unfavourable market conditions. These undertakings include network expansion through introduction of new routes, revenue enhancement initiatives, improving the customer experience, senior management changes and continued focus on cost reduction initiatives.

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Last year, one of our biggest wins was the growth in our revenue to reach Sh114.45 billion from Sh106 billion in 2017. Passenger revenue, which accounts for the lion’s share of KQ’s income, rose from Sh83 billion to Sh88.7 billion in the year ended December 31, 2018.

Passenger movement

According to International Air Transport Association (IATA) Global Airlines Report, Africa accounts for 100 million passengers - just 3.1 per cent of all global passenger movements. With 4.84 million ferried by KQ last year, we accounted close to five per cent of the Africa passengers share. As KQ, we are strategically positioning ourselves to take a bigger share of this volume as IATA forecasts that Africa will be the fastest growing market with 200 per cent growth by 2035.

Besides passengers, the other income streams for KQ continued to grow with revenue from cargo reaching Sh8.68 billion (18 per cent increase) while the other ancillary services such as ground handling and maintenance brought in Sh17 billion (eight per cent increase).

It is worth noting that KQ enjoys no competitive advantage from having JKIA as its hub and we have been losing the cargo market share to other African and Middle East operators. Currently, the national carrier only accounts for just 24 per cent of the cargo in JKIA while competitors have gradually taken up the rest of the market share, 76 per cent, over the years.

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With no integrated airline–airport arrangement in place, I am sad to say KQ might never be as competitive as other airlines and may continue to lose market share.

In addition to growing our revenues, I am thrilled that our total direct operating costs, fleet ownership costs and overheads came to Sh115 billion, against the total revenue of Sh114 billion, as this is a strong indication that once again we can sustain our operations from our internally generated revenues.

This speaks to the Prudential Financial management that we have put in place. However, to accelerate our turnaround we are not closing the door on additional capital injection from our shareholders.

Contrary to different reports, we have managed to gradually reduce our costs in the past years. For instance, KQ’s direct operating costs peaked in 2015 at Sh126.5 billion and declined to Sh120 billion in 2016. In 2017 the costs stood at Sh105.6 billion. Unfortunately, in 2018, we were affected by the high global fuel prices, as mentioned above, as we are not immune to such macro-economic factors.

The launch of the New York route last year was also a major investment that we expect, with continuous flying coupled with more market awareness and partnerships, will pay off in the near future.

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In 2019, we expect a lot of the investments and changes made in 2018 to pay off. We have developed a five-year plan built on realistic assumptions towards revenue increase and costs reduction. We are working towards efficient network planning including closure of unprofitable routes, launch of new prospective connections as well as upgrade or downgrade of equipment used to operate flights.

As a result of these actions, we hope to significantly increase KQ’s passenger numbers and consequently revenue levels.

- The writer is the Chairman of Kenya Airways

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KQTaxiingMichael JosephEconomic conditions