Kenya Airways future pegged on fuel pricing

However, the expansion has been sucking all its free cashflows — the cash profits that can be distributed to shareholder— as the management invests into the future. KQ’s costs have been going up since 2005.

In this period overheads increased by Sh1.1 billion to Sh6.8 billion, a 19 per cent move, mainly driven by a new agreement reached by union staff and the management mid this year.

Expansion plans

In August 2009, union staff in the airline downed their tools demanding salary increment.

The management reached an agreement with the Aviation Allied Workers Union (AAWU) after two and a half days of the strike.

The 20 per cent increment was reached, to be staggered to two years, saw the airline pay out Sh618 million on back dated salaries.

In addition, the airline incurred costs of accommodating passengers as well as immeasurable costs like on reputation and lost clients.

“Cash is king in our business. We have to increase revenues and reduce costs in order to improve our cash,” Mr Alex Mbugua, the airline’s financial director told investor.

KQ is also faced with challenge of the continued delay of the Boeing 787, by the manufacturer.

These planes, which were expected in 2010, have been delayed by three years and were part of the airline’s expansion plans to new markets and to increase frequencies.

“The Dreamliner was meant to be a big dream but it is turning to be a nightmare,” Mr Mbugua said.

The airline is re-looking at either extending the ageing Boeing 767 leases, acquire new vintage B767s or acquire new Airbus 330.