Plans by Kenya Airways to raise cash on the stockmarket through a rights issue face hang in the balance after the airline issued a profit warning, saying the Eurozone crisis, rising fuel prices and the political tension in Egypt and Nigeria would lead to reduced revenues.

Investors are likely to give the airline’s share sale — expected either in the first or second quarter of 2012 — a wide berth, over uncertainty in KQ’s earnings given the volatility of the airline sector.

KQ said its full year earnings for the period ending March 2012 will be at least 25 per cent less compared with the previous year. All seemed well when the airline released strong results in the six months to September 2011 when profits after tax rose by 39 per cent to $23.7 million compared to the same period last year. But, the airline has since run into head winds.

“In the second half of the year the Eurozone crisis, escalating fuel prices, political unrest in Egypt and Nigeria have resulted in reduced revenues.

These factors are negatively impacting the second half of Kenya Airways operating results for the financial year 2011/2012. It is predicted that earnings for the year will be at least 25 per cent less than the level of earnings in the previous year,” Evanson Mwaniki KQ’s chairman said.

KQ reported a profit of $41 million in the year ended March 2011. This means that with the profit warning, the airline should report an after tax profit of $30.75 million for the year ending March 2012.

“First half margins were quite thin with a lot of profits going to fuel hedges. It might have gone against KQ’s plans by now,” said Eric Musau of Standard Investment Bank. “They’ve realised the hedges they had taken were not in line with their plans and might not cover the profits as expected,” Mr Musau said.

Ironically, last week’s profit warning came a day after the airline announced a 15.4 per cent growth in passenger numbers for the third quarter ended December 2011. Europe registered the highest increase at 14.7 per cent, thanks to the introduction of flights to Rome and double daily weekend flights to London.

Passenger traffic within Kenya was up by 26 per cent to 205,654, while the rest of the continent excluding Kenya generated 14 per cent growth to 502,435.

However, an analyst who spoke on conditions of anonymity said the high growth in Europe, compared with the other regions, might not be realised in the coming quarter, casting doubt on rising passenger numbers leading to an increase in profits.

“The second and third quarters are peak periods for Europe passengers because of the holiday season but things slow down in the first and fourth quarters,” explained the analyst, adding that the profit warning was to prepare shareholders for any impending shocks ahead of the rights issue.

The airline has not disclosed the amount of money it will be looking to raise through the rights issue meant to aid its expansion plans but analysts’ project it might be around the $300 million required for the pre delivery of nine dream liners.

The Kenyan government owns 23 per cent of KQ while KLM has a 26 per cent stake and both have committed to take up rights, to help the airline in its capital raising plans.

However, KQ’s shares are down 5 per cent since the beginning of the year to trade at US cents 24 on the Nairobi Securities Exchange, just shy of US cents 22, the lowest they have traded since January 2011.

Additional reporting by Emmanuel Were