Kenya Airways flies into stormy skies as costs rise

Kenya Airways is headed for harder times as it tries to navigate the skies during the tough economic times that have left many players in the aviation industry fighting for survival.

The airline is grappling with increased costs due to rising prices of fuel, rising overheads and fleet ownership costs, among other issues.

Although it is generating cash, it is not enough to sustain it.

In addition, the slowdown in the global travel industry has hit the airline’s passenger and cargo numbers, reducing operating profits by eight per cent to Sh162 million in the first half of this financial year, ending September 2009.

Fuel cost instability and revenue management are among the top challenges for carriers across the world over the next 18 months.

Kenya Airways chief executive Titus Naikuni is now weighing his options, including job cuts, to save every shilling that he can and to increase revenues.

“I am not ruling out job cuts, I’m not ruling out anything, although we also have to work efficiently to cut costs,” he said in a recent interview with Business Daily.

Job cuts have become a common feature in the aviation sector as airlines look at ways of cutting costs. British Airways recently said it would cut 2,000 cabin crew jobs—a move that has met major resistance.

In the past two years, Kenya Airways has invested heavily in its systems to improve business efficiency, including cargo and baggage handling to curb delays.

Such delays costs the airline dearly as it has to compensate passengers.

Global economy

KQs share price has fallen by over 80 per cent in the last three years, from a high of Sh116 to the current price of Sh24.75.

According to Mr Tony Waweru of Standard Investment, the share has been stable for a while, drawing more interest .

Like most cyclical stocks, KQ would be expected to benefit from a recovering global economy but the months ahead look even more challenging due to factors that the management can control and some beyond reach.

Mr Justus Agoti, an analyst at Sterling Securities, is positive that the second half is likely to be better than the same period last year as the global economy is showing signs of recovery and fuel prices are moving up.