Kenya Airways turnover hits Sh106b, focus on cutting costs

Kenya Airways incoming CEO Mbuvi Ngunze (right), cuts the ribbon to welcome the airline’s second Boeing 787 Dreamliner recently.He will be the man turn around the fortunes of the airline.

Kenya Airways announced a positive increase in its turnover for the current (2013/14) financial year to Sh106 billion from Sh98.9 billion over the same period last year, despite a rise in its pre-tax loss.

The national airline’s a pre-tax loss of Sh4.86 billion, up from Sh10.8 billion is its second in two years after reporting a pre-tax profit of Sh2.15 billion previously. The airline has been hit by falling demand for air travel in the European tourist markets that issued travel advisories against Kenya.

It reported a Sh7.86 billion loss in the lprevious financial year from a Sh1.66 billion profit in 2012. To trim costs, Kenya Airways has had to endure painful staff layoffs.

This attracted the wrath of labour unions, but it renegotiated fleet maintenance contracts and increased domestic flights to make up for lost business on global routes.

“We still have a number of challenges that we can foresee. One is the growing insecurity risk in Kenya which leads to travel advisories. There is also growing competition that continues to come out of the Nairobi route, with many Middle East carriers as well local competitor Ethiopian Airlines also increasing frequency on Nairobi route,” said  outgoing KQ Chief Executive,Titus Naikuni,

Kenya Airways has also been held back by double taxation agreements between Kenya and other jurisdictions, with negotiations to remove these being fairly slow. To cut costs, it has had to bargain with some suppliers of services and goods.

“Going forward, we shall do more of this to improve on efficient utilisation of these goods and services while also looking at ways of increasing revenue. There is a limit to cost cutting and you need revenue to support the costs you remain with, Naikuni told an investor briefing yesterday.

Alex Mbugua, the airline’s Finance Director, said total revenue rose to Sh106 billion during the year, mainly due to higher yields from the passenger business. Direct operating costs fell by two per cent, driven mainly by savings of Sh1.5 billion in favourable oil prices and efficient consumption.

The airline, which was privatised in 1996, benefited from a gain of Sh972 million from its fuel-hedging positions. Analysts interviewed about the stock earlier this month said most investors did not expect a full rebound in the full year results. Instead, they expected a focus on measures to propel the airline back to profitability and had factored this into their evaluation of the airline’s share price.

New boss

The results announcement that had been expected on June 12, were held off until the airline’s board on Tuesday announced that Chief Operating Officer Mbuvi Ngunze would take over from Naikuni in December this year.

Naikuni, who has run the company since 2003, said new routes would be opened this year using a newly acquired fleet of Boeing 787 Dreamliner planes.

“We are also looking into going to Beijing this year,” Naikuni said. Kenya Airways, which is 26.73 per cent owned by Air France-KLM and 29.8 per cent by the government, is ranked among the largest carriers in sub-Saharan Africa, alongside South African Airways and Ethiopian Airlines. The airline has suffered from the effects of insecurity following attacks by Somalia’s Islamist Al Shabaab insurgents that cut demand for air travel.

— Additional reporting by Reuters