Cargo, charter flights help Kenya Airways cut half-year losses by 20pc
Monday August 30 2021
Kenya Airways has exploited opportunities of raising much needed revenue through passenger charters and ramped up cargo operations. PHOTO | FILE | NMG
Kenya Airways is still in the red despite cutting its half-year losses by 20 percent helped by increased revenues from cargo and charter flight operations. This is happening despite the ongoing cash conservation measures, including partial deferment of staff salaries and renegotiations of lease rentals and payment plans with suppliers.
The national carrier which has forecast a grim full-year performance due to the effects of the Covid-19 pandemic, made a net loss of Ksh11.48 billion ($105.32 million) in the six months to June 30, 2021, down from a net loss of 14.32 billion ($131.37 million) in the same period last year.
In March, the airline said it was in desperate need of an immediate capital injection of about $500 million to cover its short-term debts that had fallen due and shore up its depleted working capital in order to survive what it considers another difficult year (2021) threatened by the third wave of the Covid-19 pandemic.
During the six months to June 30, the airline’s total revenues declined by nine percent to Ksh27.35 billion ($250.91 million) from Ksh30.21 billion ($277.15 million) as a result of the cessation of domestic scheduled operations in April and travel restrictions/lockdowns due to a surge in virus cases.
Passenger numbers declined by 20 percent to 800,000, resulting in a 17 percent decline in passenger revenues to Ksh20.23 billion ($185.59 million), while cargo revenues increased by 60 percent due to a stronger focus on freighter operation, according to the airlines’ unaudited financial statements.
Cargo-centred initiatives
KQ freight revenues improved by $270 million from cargo centred initiatives which included the conversion of two Boeing 787 craft into fully fledged freight operators last year.
During the first six months of the year, cargo volumes increased by 33 per cent to 29.9 million tonnes compared with last year's 22.5 million, a business segment that most airlines leveraged on during the pandemic when passenger business has remained low.
KQ’s overall revenue, however declined to $2.73 billion over the period, compared with $3.02 billion in the half to June 2020, severely impacted by Covid-19.
During the period, the airline saved a substantial amount in fuel costs from reduced capacity deployment which was part of the contribution to the reduction of the company’s total operating costs by 10.4 per cent to $3.46 billion from $3.86 billion.
“During the period the company’s main focus was and still is cash conservation. The company has exploited opportunities of raising much needed revenue through passenger charters and ramped up cargo operations.
“Other initiatives undertaken by the management are partnerships with other airlines, lease rentals renegotiations, payment plans with suppliers and partial deferment of staff salaries,” said Michael Joseph, the airline’s chairman.
“With the long recovery prospects and diminishing revenue occasioned by reduced demand in passenger business and increased costs due to tighter health and safety measures, the business focus for the rest of 2021 will be ensuring survival and rebound.”
Fleet ownership gains
Negotiations on fleet ownership saw the carrier save $150 million while net financing costs fell by $160 million. The persistent underperformance of the airline that has led to huge losses and loss of market share to rival firms has compelled the government to think of nationalising with hopes of turning around its dwindling fortunes.
In July 3, 2020 the airline’s stock on Nairobi Securities Exchange (NSE) was suspended from trading on the Nairobi Securities Exchange to pave way for the planned takeover by the state following the publication of the National Management Aviation Bill 2020 on June 18, 2020.
“The 2021 results will continue to be negatively impacted by the ongoing pandemic which has resulted in suppressed air travel demand,” said Mr Joseph.
During the first half of 2021 the airline’s operations continued to be severely impacted by the Covid-19 crisis.
The airline has been operating at 30 percent of 2019 capacity as a result of depressed demand, difficulties in controlling the virus variants, slow vaccination uptake in some of its key markets, travel restrictions and lockdowns.
Meanwhile, suspension of flights to India and the red-listing of Kenya by the UK cost KQ 86 per cent and 87 per cent of its passengers. The European Union's restriction of entry for Africa nationals has seen a 94 percent decline in passengers.
Most of KQ's revenues however come from the African routes (50 per cent) followed by long-haul flights abroad (40 per cent) while the domestic market contributed between nine and 10 per cent of the airline's income, according to management.
During the period, the airline operated a number of charter flights and ramped up cargo operations, penetrating new market sectors and the company believes the new markets and diversified revenue streams will be critical for the future of the airline.
KQ chairman Michael Joseph expressed optimism the sector will recover in the next one year.
“We have a tough period going forward but we remain a strategic asset for the country. Hopefully in the next 12 months we will see light at the end of the tunnel,” said the chairman.
Government bailout
KQ CEO Allan Kilavuka now is seeking government’s bailout to remain afloat as the airline is in a precarious financial position.
“The long recovery prospects and diminishing revenue in an environment of increased cost due to tight health and safety measurers mean it will require bailout to stay afloat.
The financial situation of the company is precarious,” said Mr Kilavuka. The airline’s key routes including London, India and Guangzhou have experienced various travel restrictions, thus severely affecting the network deployment.
In addition, the percentage of fully vaccinated adults in Africa currently stands at 1.84 percent compared to 51.2 percent and 61.6 percent in the US and the United Kingdom (UK) respectively. KQ is 48.9 per cent owned by the government and a group of 10 local banks which own 38.1 per cent of the shares.
Other shareholders include KLM Royal Dutch Airline (7.8 per cent), employees (2.4 per cent) and other shareholders at 2.8 per cent.