Kenya Airways flies into stormy skies as costs rise

For the year ending March, 2009, the airline announced a loss of Sh5.6 billion mainly driven by new accounting standards that saw it book Sh7.5 billion in its financial statement from unrealised hedging positions.

A lifeline

The airline hedged between $108 and $110. But the upward movement of fuel in the past few months has given the airline a lifeline as it could see a return to profitability earlier than expected.

The losses from the hedges have not deterred the airline from hedging its fuel up, a common practice in the aviation sector.

Mr Naikuni says despite the losses, KQ would still continue hedging as this has saved it millions of shillings in the past.

“We are reviewing our hedging policy, are not scared of it and we will make appropriate decision as and when we see it is the right time. We look at the long term effect,” he said.

KQ has 53 per cent of its fuel hedged until the end of the year and 33 per cent until the end of 2010.

Once fuel prices reach highs of $100 per barrel the airline will be in the same situation that was witnessed in 2007 and early 2008 when high fuel prices led to the collapse of some airlines globally.

In order to cushion itself, the industry increased fuel surcharges, leading to passengers paying more on fares.

For KQ, only time— and what the competition does— will tell, for it is in a precarious situation of trying to attract passengers in a slow travel market and cushion itself from increased costs.