KQ suffers pre-tax loss of Sh12.5b on back of travel advisories

Kenya: A combination of travel advisories by European countries and cancellation of flights to West African Ebola hit routes and high fleet costs have eaten into Kenya Airways’ fortunes over the last six months.

According to unaudited results for the period ended September 30, 2014, the national carrier made a pre-tax loss of Sh12.5 billion from a pre-tax profit of Sh548 million made over a similar period last year.

This includes a paper loss of Sh5.4 billion due to a write down of planes being retired from its fleet. “These results are not up to market expectations, especially due to the fact that an increase in our capacity was not met by revenue top line. We are not where we ought to be,” said Kenya Airways Chief Executive Officer Mbuvi Ngunze.

He made these remarks yesterday during an investor briefing to announce the airline’s performance for the six months ending September 2014. Ngunze took over the mantle last week from Titus Naikuni, who has retired. KQ has been operating in a difficult environment including political instability, which has kept it out of the Cairo route during the period under review.

Ongoing insecurity and upheavals in South Sudan has also forced KQ to reduce its capacity into this route by 11 per cent.  In response to the Ebola pandemic in parts of West Africa, Kenya Airways suspended operations into Monrovia, Liberia and Freetown in Sierra Leone, resulting in a capacity reduction of 20 per cent compared to the prior year. “We project to make an annualised loss of $40 million (Sh3.6 billion) or three per cent of our revenues as a result of suspended flights into Monrovia and Freetown,” said Ngunze. KQ is still waiting for directives from  the Government to resume suspended flights into Liberia and Sierra Leone - based on advice from the World Health Organisation.

High fuel costs

The airline’s direct operating costs increased by 13 per cent to Sh42.1 million on the back of purchase of new aircraft acquired as well as increased fuel costs, which was the single largest of total operating costs, at 35 per cent.

The airline’s overheads increased by 2.5 billion to Sh11.9 billion during the period under review, driven by increased manpower and marketing costs aimed at supporting the renewed fleet and expanded network.

KQ has thus issued a profit warning given the difficult business environment, stating that the second half year results are unlikely to reverse the full impact of first half loss. “It is reasonable at this time to anticipate earnings for the financial year 2014/15 will be lower than the previous year by at least 25 per cent,” said the airline’s board Chairman Evanson Mwaniki.

The airline’s board has already appointed a financial adviser to review and propose appropriate refinancing options. KQ has a long-term debt of Sh75 billion and a short term debt of Sh41 billion. It is relying on deployment of a new fuel efficient fleet, opening of Terminal A1 at Jomo Kenyatta International Airport, new lounges and a redesigned hub, to improve its prospects.