KQ to increase Boeing fleet ahead of US venture

The airline has been exiting fuel hedging which was a key source of its losses in the recent past following a sharp drop of global oil prices beginning mid 2014. PHOTO FILE | NATION 

In Summary

• KQ management announced that it was opting for fuel hedging — a contractual tool used to reduce exposure to volatile fuel costs — as part of its turnaround measures.

By GEORGE KAMAU
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Kenya Airways intends to increase its Boeing 787 fleet in order to enjoy the economies of scale as it eyes the US route.

KQ management announced that it was opting for fuel hedging — a contractual tool used to reduce exposure to volatile fuel costs — as part of its turnaround measures.

The airliner also plans to withdraw from two routes — Hong Kong and Hanoi in Vietnam — from October 29, allowing it to deploy the aircraft to the US and African routes.

Chief executive Sebastian Mikosz said the airline was going back to fuel hedging having formed a committee. Fuel cost is the highest expense incurred by airlines.

The airline has been exiting fuel hedging which was a key source of its losses in the recent past following a sharp drop of global oil prices beginning mid 2014.

As at the end of March this year KQ did not have fuel hedging contracts in place.

“When you are running an airline you have to plan forward so hedging is part of the fuel committee that we have formed,” said Mr Mikosz.

Mr Mikosz was brought on board to turn around the ailing Kenya airline which reported a loss of Ksh10.2 billion ($101.2 million) as at the end of March owing to his turnaround record at LOT Polish Airlines.

KQ had booked accumulative losses exceeding Ksh8 billion ($80 million) due to fuel hedge contracts. The airline had, however, reaped benefits from the contracts before the fuel prices went south.

READ: Audit exposes how employees, suppliers wrecked Kenya Airways

The hedges returned a cumulative gain on fuel derivatives of Ksh4.07 billion ($40 million), with Ksh2.5 billion ($25 million) realised in 2012 alone.

“The set up of the fuel committee and hedging is good for KQ but they have to check the tenor of the contracts because if it is too long the more exposed you are,” said the head of research at Sterling Capital, Eric Munywoki.

KQ policy on hedging is up to 80 per cent of its oil rations for 12 months and 50 per cent of it for two years.

The airline had also suffered heavily from defrauding by staff as was revealed by a leaked audit report last year.

Mr Mikosz is working on a culture change that will ensure decision-making power is distributed across the airline operations avoiding bottlenecks associated with bureaucracy.
“Culture is the biggest challenge we face. We have to start trusting our own staff. An airline is as strong as the lowest guy can make decisions,” he said.