KQ Half Year Profits Up a Whopping 343 pc

By CHRIS MBURU
SPECIAL CORRESPONDENT

KENYA Airways turnover for the first six months to September 30, riding on the back of tourism recovery in Kenya, has jumped 38 per cent from a similar period last year to Ksh19.2 billion ($240 million).

Announcing the results on October 29, the group's chairman Isaac Omolo Okero said passenger numbers and yields are sharply up on the same period last year with an overall growth in traffic of 20 per cent to just short of 1 million passengers. 

Strong growth markets in Europe and the Far East are attributed to the highly successful deployment of the new Boeing 777 and the opening of the Bangkok-Hongkong route respectively. 

Profits before tax, pushed by ruthless cost-cutting under managing director Titus Naikuni, rose by an impressive 343 per cent during the half year to Ksh2.35 billion ($29.4 million). No interim dividends will be paid.

Rising profitability has been made possible mainly by the continued success of the management-initiated KQ turnaround project (KTAP) which was tasked with enhancing revenue generation capability and rationalising cost structures. 

This consisted of 57 projects covering: improved revenue generation, cost efficiencies and rationalisation, and implementation . Retrenchment of 10 per cent of the workforce since the beginning of the year has been achieved and approximately Kshs 1.6 billion has been saved in the first year.

The half-year results were driven mainly by improved traffic demands from an expanded network, additional frequencies and new destinations, riding on the back of increased capacity from the new B 777 and acquisition of a sixth B 767-300 aircraft.

A relaxation of travel advisories against Kenya and the rest of East Africa, the launch of Bangkok and Hong Kong routes and increased benefits from a wider African traffic base boosted KQ's sales drive. The aviation industry was also fortunate to experience a relatively stable and crisis free six-month period in which it saw further recoveries in global demand. 

Mr Okero said the return to growing profitability achieved during the second half of the past financial year has been sustained and accelerated during the past six months of this year. 

He said all African destinations registered growth above 15 per cent, other than Kenya itself, where cut backs in frequencies restricted traffic to the same level as last year. 

Cargo tonnages and yields continued to grow across the network. Increases in passengers and cargo have contributed significantly towards the tourism and agricultural sector recoveries in the country.

On the downside, global fuel prices during the period under review were on average over 50 per cent higher than the corresponding period last year. But KQ held the impact of this on cost per gallon to 13.5 per cent in dollar terms through a successful hedging programme. Increased flying and the weaker shilling accounted for the balance of the increase in fuel costs.

The airline, however, also faced increased competition from Midle Eastern carriers – Egypt Air, Emirates Airlines, Oman Air and Qatar Airlines – particularly between Dubai and West Africa. 

Although total operating costs increased materially, costs as a percentage of revenue improved by a considerable margin from 94 per cent down to 87 per cent. This was made possible by higher sales on the back of the improved cost controls rendered by the KTAP initiative. The major causes of increased costs were the declining dollar exchange rate and the cost of launching and financing the new B777.

But while the airline's directors remain reasonably optimistic about operations for the remainder of the financial year, it has serious concerns about the current high fuel prices, which have now more than doubled in the past 12 months. Future profitability depends on the level of oil prices and the extent to which this increased cost can be recovered via fuel surcharges.

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