KQ expansion in Africa bears fruit

Kenya Airways has seen its passenger numbers and cargo uptake increase in the third quarter.

Passenger numbers increased by four per cent to 773,079 compared to 742,118 in the same period last year with Africa, excluding Kenya, accounting for 54 per cent of the people carried. Cargo uptake rose by nine per cent to 15,266 tonnes.

During the period, the airline increased its capacity, contrary to industry trend, by five per cent to 3,179 million seats per kilometre.

This capacity was mainly on its African routes where the airline launched new routes during the period strengthening its presence in the region.

However, this increase in capacity was adversely impacted by the delayed replacement of one of the Boeing 767 whose lease expired earlier in the year, a statement from the airline said.

In the Middle East, Far East, Asia, and Europe was reduced due to the slow demand from these markets.

Kenya also saw capacity drop by five per cent due to the suspension of flights to Malindi and Lamu.

KQ’s share price has been moving upwards since the start of the year as its exposure to fuel hedges are reduced as jet fuel prices continue to increase and investors move back to the market.

Mr Robert Bunyi of Mavuno Capital says that the airline has been one of the depressed stocks thus has been one of the benefactors as investors moved back to the market.

“Going ahead its operational efficiency are what investors will be looking at,” he said.

KQ’s share price has risen by 40 per cent in the last one month to Sh50 at the end of last week.

The increased capacity as well as passenger numbers, especially in Africa, was not necessarily profitable for the airline as its actual volume of passengers carried, which is measured in Revenue Passenger Kilometres (RPKs), recorded a one per cent growth compared to the prior period.

In its half year results the airline’s RPK dropped by 4.7 per cent.

In its statement the airline shows a slow uptake of this extra capacity that was put in the market leading to a drop in cabin factor, which shows the use of available seats, dropping from 69.6 per cent to 67.4 per cent.

This low uptake of the capacity has been attributed to the expansion to new markets and the slump in the aviation market that led to a slump in travel.

Un-hedged fuel

In the first two quarters of the financial year the airline saw its RPK drop by 4.7 per cent despite increased capacity while the cabin factor also dropped to 66 per cent form 73 per cent.

These factors along with increased competition in the market, leading to discounts, saw the airline record lower passenger and cargo yields that saw its operating profits reduce.

KQ’s revenues dropped by 1.7 per cent to Sh33 billion while its operating profits dropped by eight per cent to Sh162 million.

Despite the reduced revenues and operating profits, the airline posted a 17 per cent increase in pre-tax profits to Sh1.2 billion for the period ending September, 2009.

This was from gains of acquiring un-hedged fuel at market prices, which were lower compared to the prior period, leading to a direct saving of Sh5.7 billion.

As some hedges expired, the airline was able to get new ones at a cheaper price.

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.