African airlines tipped to close year at Sh51bn net loss

Corporate News

A Kenya Airways aircraft. IATA’s projections are good news for airlines such as KQ struggling to return to profit. PHOTO | FILE 

By MUGAMBI MUTEGI, pmutegi@ke.nationmedia.com

In Summary

• IATA says lower fuel prices will help airlines to post results that are $200 million (Sh20.2 billion) better than last year’s but still remain in loss-making territory.
• IATA sees African airlines growing their capacity by 5.3 per cent this year, staying ahead of demand growth which will go up 4.5 per cent.

The International Air Transport Association (IATA) projects that African airlines will close the year at an improved net loss position of $500 million (Sh50.5 billion), offering hope for struggling carriers such as Kenya Airways (KQ).

The association says lower fuel prices will help airlines to post results that are $200 million (Sh20.2 billion) better than last year’s but still remain in loss-making territory.

KQ, a member of IATA, posted a Sh11.95 billion net loss for the six months to September, up from Sh10.45 billion the previous year, saddled by flat revenue growth that stood at Sh56.7 billion.

IATA, during its annual general meeting taking place in Dublin, Ireland, also revised its 2016 financial outlook for the global air transport industry upwards to $39.4 billion from the $36.3 billion it announced in December.

“Lower oil prices are certainly helping-- though tempered by hedging and exchange rates. In fact, we are probably nearing the peak of the positive stimulus from lower prices,” said Tony Tyler, IATA’s director-general and chief executive.

“In December, our projections were based on the cost of oil being $51 per barrel. Our revised position is based on $45 per barrel and this makes a significant difference.”

Mr Tyler, who was speaking at the AGM’s opening ceremony, added that the industry remains “resilient” even in the event that oil prices rise again, as is currently happening.

He added that some of their members are now paying debt following consecutive years of profits but added that “it will take a longer run of profits before balance sheets returned to full health.”

IATA sees African airlines growing their capacity by 5.3 per cent this year, staying ahead of demand growth which will go up 4.5 per cent.

The association’s earnings projection is good news for carriers such as KQ, which is struggling to return to profit, hard hit by high finance costs, depreciation of the shilling, loan re-evaluation losses, the Ebola crisis and terrorism attacks.

KQ, whose total negative equity position stands at Sh33.9 billion, is implementing a turnaround strategy through which it hopes to return to profitability by the end of next year.

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The airline is in the process of selling or leasing some of its aircraft, cutting down its workforce, streamlining its operations and selling off land in Embakasi.

According to IATA, the main bottlenecks facing African airlines are intense competition from long-haul routes, political barriers affecting intra-Africa traffic, high costs as well as infrastructure deficiencies.

“In addition, many major economies in the continent have been hit hard by the collapse of commodity prices, and this has had an impact on revenues and the inflow of hard currencies,” said IATA.

“Unresolved foreign exchange crises are adding to the economic difficulties facing airlines in the region.”

IATA called upon governments to consider abolishing some taxes on airlines arguing that the aviation industry is taxed “punitively as the “sins” of alcohol and tobacco” despite its huge contribution to economies.

The association, which is made up of 264 airlines, also urged governments to “consistently” implement global standards for data collection and transmission in order to tackle the growing threat of terrorism.