Kenya Airways’ six-month loss rises to $83 million

Kenya Airways planes are seen parked at the Jomo Kenyatta International Airport near Nairobi, Kenya on March 6, 2019. PHOTO | THOMAS MUKOYA | REUTERS 

In Summary

• The airline attributed the 112 percent widening of loss to increased operating costs in the wake of its expansion into new routes.
• The company’s revenue jumped by 12.1 percent in the period.
• Similarly, costs jumped 15.4 percent, eating into the carrier’s margins.

By BUSINESS DAILY
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Troubled national carrier Kenya Airways’ half-year loss more than doubled to Ksh8.56 billion ($83 million), sinking shareholders into a deeper negative equity position of Ksh16.18 billion ($156 million).

The airline attributed the 112 percent widening of loss to increased operating costs in the wake of its expansion into new routes and the return of two Boeing 787 planes that had been sub-leased to Oman Air.

The company’s revenue jumped by 12.1 percent to Ksh58.5 billion ($565 million) in the period, from Ksh52.1 billion ($502 million) in the first six months of last year.

Similarly, costs jumped 15.4 per cent to Ksh61.4 billion ($593.4 million) in the period from Ksh53.2 billion ($514 million) last year, eating into the carrier’s margins.

“In turning around Kenya Airways, a deliberate decision was taken not to shrink the airline but instead improve financial performance through strategic investments on growth opportunities,” said board chairman Michael Joseph after announcing the results in Nairobi on Tuesday.

“Some of these investments may deny KQ and its shareholders an immediate return but are expected to yield positive results in the future.

The Treasury is Kenya Airways’ biggest shareholder, controlling a 48.9 percent stake while banks, which converted their loans into equity, own 38.1 percent.

Strategic partner KLM is ranked third with 7.8 percent shareholding while other investors hold 5.2 percent of the Nairobi Securities Exchange-listed company.

The carrier, known by its international code KQ, could be nationalised if the government adopts a recommendation made by Parliament.

The airline, which has been struggling to return to profitability and growth, now says it is banking on the nationalisation to turn around its fortunes. It believes that the benefits of scrapping of taxes after nationalisation will improve its financial position.

Nationalisation

“Nationalisation is not what we want to be but it is what we need to be in order to be where we want to be,” said Mr Joseph. He blamed taxes slapped on the national airline for its dwindling performance.

“Revenue will always be under pressure (under current landscape). All these (competing) airlines are State-owned and their costs are subsidised,” Mr Joseph said.

Nationalisation is expected to help cut costs to enable KQ grow revenues and make a turn around.

“We won’t have same costs under nationalisation. We will have a combined entity where we can integrate the airline,” he said. “(For instance) we will not be paying costs to Kenya Airports Authority (KAA), but to the holding company.”

KQ intends seek tax exemptions under the law once the nationalisation process kicks off. However, Mr Joseph admitted that the nationalisation could be drawn out.

“We hope it can be completed as soon as possible,” he said.

KQ incurred Sh1 million income tax in the half-year period from Sh43 million the previous year. The airline’s Chief executive Sebastian Mikosz has already announced that he will be leaving the airline at the end of this year, even before the end of his first term in office.

The outgoing CEO said KQ is bracing for fresh competition from newly-launched regional airlines, including Tanzanian and Ugandan national carriers, which are set to launch new routes to Kenya and the region.

Nairobi-New York

“The competition will be bigger for each one of us. In KQ we are very cognisant that we need to keep defending our position in the broader East African market,” said Mr Mikosz.

As part of a new strategy to beat competition, Mr Mikosz said KQ would increase frequencies in some markets and launch new routes in others.

During the period, KQ launched new routes to Mogadishu, Libreville, Geneva, Rome and Malindi. The Nairobi-New York direct flight route launched in October last year remains loss-making nearly a year into operation, but Mr Mikosz said it is “doing better now”.

The National Assembly last month voted to accept a Transport Committee report on nationalisation that had been debated by the House on June 18.

A proposal by KQ to take over the running of Nairobi’s main airport to boost its revenue was rejected by the House Transport committee.

Mr Joseph said nationalisation would enable KQ to effectively compete with rivals like Ethiopian Airlines.

“For us to compete on a level playing field, we have to bring our costs down and to gain the benefit of operating in an integrated way,” said Mr Joseph. “We pay more taxes than anyone else. None of our competitors have these taxes.” Some of the taxes include a railway levy as well as customs on spare parts.

A future change in ownership of Kenya Airways will also give KQ “more freedom” in deciding new routes, the airline said, referring to its partnership with Air France-KLM.

Mr Joseph said that KQ was mulling a reorganisation of its staff structure. He did not elaborate. The process to replace the exiting CEO is also under way.

“We will conclude in the next few weeks,” said Mr Joseph.