KQ issues profit warning despite rise in passengers

Kenya Airways has issued a profit warning for the year ended March, despite buoyant growth in passenger numbers in the last months of 2011.

The airline, currently undertaking an aggressive expansion plan, says it expects a maximum of Sh2.65 billion in net profit, which would be a drop from the previous Sh3.5 billion.

Capital Markets Authority obliges firms to issue an alert if profit is forecast to fall by at least one quarter.

“In the second half of the year, the eurozone crisis, escalating fuel prices, political unrest in Egypt and Nigeria have resulted in reduced revenues,” Evanson Mwaniki, the KQ board’s chairman said in a statement.

The airline’s profit warning came barely a day after it reported higher passenger numbers for its third quarter up to December, a 15.4 per cent increase to 956,742.

An increase in passenger numbers does not seem to have translated into profits.

The Kenyan shilling has gradually stabilised while international oil prices edged down towards the end of last year, which may change things for the national flag carrier.
Vimal Parmar, the head of research at Kestrel Capital, says that underlying factors such as the worker’s strike in August as well as the costs of paying for their pre-ordered airplanes worsened the situation.

“The profit warning was not expected but it seems that all these factors when compounded were quite significant,” said Mr Parmar.
“The euro crisis could have affected them in terms of the number of visitors who are coming into the country since passengers headed to Europe went up,” he added.

Europe recorded a 14.7 per cent increase to 111,527 passengers, boosted by a new route to Rome and increased flights to London. The continent accounted for 27 per cent of KQ’s Sh85.8 billion revenue last year.

In August last year, a worker’s strike made the airline’s management accede to a 20 per cent pay increment backdated to 2010 and running through this year.

A similar one two year’s ago, heavily impacted on its performance with increase in employee costs of Sh1.55 billion and Sh532 million on general administration and establishment costs.

The wage bill also grew from Sh6.2 billion in 2009 to Sh7.7 billion last year, accounting for 10 per cent of its revenues.

Looking at the future, the airline says that an expansion drive, which has seen it open at least five new routes per year, will cushion them from similar eventualities.

“The airline’s strategy to grow its network in Asia and Africa as well as renewal of its fleet will continue to improve efficiencies and outlook in the future,” said the airline.

They have announced plans to venture into six new destinations in China and India – a s a step towards cutting revenue reliance on the European and African markets.