You may recall that at the start of 2012 we stated that this was going to be a hard year for Kenya Airways and so it is proving to be as the airline has posted a massive 333% fall in profits to a pre-tax loss of Sh6.5bn in its first half-year ending September 30, 2012, from a Sh2.8bn pre-tax profit posted for the same period last year.
The reason for our call in January was the gaining strength of the Kenyan Shilling and the obvious willingness of the Kenyan government to do nothing to counter the advance of the same. This factor, more than anything else, has damaged Kenyan Airways and it is hard to see what it can do given that the airline seems unable to amend its reliance on an increasing slab of US Dollar revenues. In fact FX losses accounted for more than Sh2bn of the Sh5.5bn (or 9.3%) fall in turnover.
This half of the year should have been the big earner for Kenyan so we are right to worry. The other problem for Kenyan Airways is that they do rely on premium tourist income to an extent and this has fallen away during 2012. In fact Kenya is one of the hardest hit tourist economies in the globe at the moment, we can pin this on political unrest, riots and Islamic insurgents but equally we can argue that a lack of decent connections into China, Japan and other growing APAC economies is causing the problems in Europe to have a greater impact than need be the case.
Kenyan Airways needs to turn its attention from Europe, which accounts for some 30% of its network, to the new money in the APAC region. Competition from the Middle East airlines should not weigh too much on Kenyan if it can replace some aircraft types and move forward with more range and target China directly.
The Kenyan Government, with its close ties to Kenyan Airways really does need to get on-side and help overhaul international connections. Kenyan Airways expects to launch its low-cost carrier Jambo Jet in the fourth quarter and has already attained its license. The airline will be converting some 737s into freighters in the meantime but Airline Economics has also gained some detailed information on these aircraft and how the process of awarding contracts for the conversions was handled and although I dare not print that scenario. The first delivery of the nine Boeing 787s on order will be made in the first quarter of 2014 where they are aimed will be all important.
Traffic from London to Mombasa compared has now fallen 50% from its peak a few years ago.
Fuel costs rose by Sh200m to Sh21.4bn, increasing to just below 50% of the airline’s direct operating costs. A profit warning has been issued by the airline and it will be the first of many if the airline does not refocus. The Kenyan Airways management and government officials will be at Airline Economics Dublin 2013. Have you booked?
Meanwhile: The State Bank of India yesterday cautioned Kingfisher Airlines that it "will not fly" if it fails to bring in fresh capital of at least US$1bn by November 30, 2012. So is that it?