Kenya Airways sees peace, cheaper oil restoring profit

Peaceful elections, lower oil prices and the easing of tensions in neighbouring Somalia should help Kenya Airways recover from a tough two years that saw it swing to a pre-tax loss in the year ended March, it said on Friday.

The airline, which is 26.73 per cent owned by Air France KLM, reported a pre-tax loss of Sh10.83 billion for the period. That followed a 57 per cent drop in pre-tax profit the previous year.

Management blamed the festering euro zone debt crisis, fears of unrest during March presidential election, and a string of gun and grenade attacks on Kenyan soil following its foray into Somalia in pursuit of al Shabaab militants.

"Somalia is finally settling down and we had a peaceful election so on the combination of those two things, we expect the travel advisories that we suffered last year will not be evident this year," said finance director Alex Mbugua, referring to some foreign countries that had advised their citizens against travelling to Kenya due to security concerns.

Mbugua also cited the lower price of fuel, at $95 per barrel since April, and a pick-up in passenger and cargo volumes in the first months of this financial year.

"April and May have been good as compared with last year and we expect that trend to continue," he said.

The airline, which had previously only made a full-year loss once - in 2009 - since listing in 1996, made a loss per share of Sh6.35, compared with earnings of Sh3.58 the previous year, as its net profit margin tumbled to minus 8 per cent from a positive 1.5 per cent previously.

Its shares were pummelled at the bourse, dropping 6 per cent to a touch above their 2013 low of Sh10.00.

(Read: KQ shocks market with Sh4.8bn half-year loss)

Cargo ferried rose 18 per cent during the year after the airline acquired a Boeing 747 freighter and put it on busy China and Nigeria routes, although yields inched down 2.6 per cent.

Passenger traffic edged up to 3.67 million while revenue per passenger kilometre declined due to a drop in travellers from Europe and rising competition from Gulf carriers like Emirates and Qatar Airways.

"Unprecedented competitive pressure drove passenger yields down, with the network average declining by 1.3 per cent against last year," Kenya Airways said.

It said it expected to cut costs through the modernisation of its fleet with more fuel-efficient Embraers and Boeing B-787 Dreamliner planes. The airline operates 16 Embraers in its fleet of 42 planes, while it expects delivery of its first Dreamliner in March 2014.

Chief Executive Titus Naikuni also struck an upbeat note due to growing demand on African and domestic routes.

He cited Entebbe in Uganda and the western Kenyan city of Kisumu where the airline has 35 weekly flights on both routes.

"It is amazing. It was something that was unheard of two, three years ago," Naikuni said.

African governments, however, needed to eliminate visas for Africans travelling from one nation on the continent to another, and to open their airspace to African carriers, to fully realise the continent's potential, one shareholder warned.

"Why should we be restricting Nigerians or Ghanaians from freely coming to us? How can we trade with each other if we don't open our countries with each other?," said Chris Kirubi, a local investor in Kenya Airways.