Kenya Airways earnings hit by Euro zone crisis

East Africa’s biggest Airline, Kenya Airways (KQ), suffered a net loss of Sh4.8 billion in first half of the year, down from a profit Sh2.03 billion over the same period last year on the account of the euro zone crisis and a stronger Kenyan shilling.

East Africa’s biggest Airline, Kenya Airways (KQ), suffered a net loss of Sh4.8 billion in first half of the year, down from a profit Sh2.03 billion over the same period last year on the account of the euro zone crisis and a stronger Kenyan shilling.

During the annual general meeting this week, the airline issued a profit warning saying it is impossible to make a complete turnaround in the second half.

The huge loss affected KQ’s share price at the Nairobi Securities Exchange with the shares hitting a low of Sh11.80 before closing at Sh12. A total of 436,700 KQ shares were traded.

“We expect to have a better second half but we do also believe that it will not be sufficient to reverse the results of the first half within at least 25 per cent of last year’s earnings,” said KQ’s group finance director Alex Mbugua when he announced the results.

In the last financial year, the airline’s profits dipped by 53 per cent to Sh1.7 billion from Sh3.5 billion in 2011. The airline which has recently retrenched 599 employees incurred a one off cost of Sh826 million paid out to those that were sacked, further dampening the airline’s profit prospects.

Passengers accounted for Sh43.6 billion of the total revenue though it was a drop compared to Sh43.6 billion netted as at September 2011 while cargo accounted for Sh4.9 billion. Europe which has been hit by a financial crisis accounts for 30 per cent of KQ’s total revenues.

Revenue also reduced by 9.3 per cent to 49.8 billion from Sh54.9 in 2011 attributed to lower number of passengers and a stronger shilling.

It however expects to save Sh1.2 billion annually in reduced staff costs. During the first half for the period ending September 2012, gross profit dropped by 60 per cent to Sh4.6 billion from Sh10.5 last year.

“Travel advisories as a result of security issues had severe impact on passenger numbers,” said Mbugua. KQ chief executive Titus Naikuni said the airline was unable to predict what would happen in the market precisely, before hand.

KQ said it has had to cut back operations through suspension or reduced frequency on the routes that were not performing well like Rome, Muscat, Zanzibar and London. KQ said it had cut back on the London route by stopping the day flight.

“London is a big contributor to our passenger numbers and we are looking at alternative routes within Africa to start feeding into the London route,” said Naikuni.

Some routes like Zanzibar, were said to have been hit by decreased tourism activities while Muscat was affected by strong competition from other carriers especially those from the Middle East.

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