Kenya Airways travellers lose Sh4bn in expired ticketsThursday April 14 2022
Kenya Airways’ #ticker:KQ customers lost Sh4.48 billion last year after they failed to show up for their flights, leaving them with expired tickets.
The value of the expired tickets have been disclosed in the airline’s latest annual report.
KQ, as the carrier is known by its international code, books revenue from ticket sales whether customers fly or leave the tickets to expire.
Clients who cancel their flights can get credit – representing a discount on the cost of the ticket— which they can use within one year.
Myriad lockdowns and travel restrictions have been a major reason many people have missed or snubbed their flights since the outbreak of the Covid-19 pandemic in early 2020.
The expired tickets represent the biggest losses suffered by consumers in buying goods and services from one company. Telecommunications operators like Safaricom also have billions of shillings of unutilised loyalty points but they do not expire.
Safaricom #ticker:SCOM previously sold airtime with expiry dates but later changed its billing system to allow customers to choose between expiring and non-expiring purchases, with those opting for the former also likely to utilise the resources within the set timeframe.
Losses for KQ customers would have been higher had the airline not made a decision to prolong the period during which customers can utilise their tickets.
“Due to the suspension of operations [at the height of the pandemic], the airline issued tariff notices extending the ticket validity beyond the normal 13 months up to 31st December 2021 to allow passengers more time to travel as travel restrictions eases,” the firm writes in the report.
“At the expiry of the tariff notice, the group performed breakage on the tickets that remained unutilised in any form from the date of prime sale as per the 13 months estimation.”
Passenger ticket sales are accounted for as current liabilities and later recognised as revenue when customers fly or the tickets expire.
KQ’s aircraft were grounded between April and July 2020 as the Kenyan government banned domestic and international travel to curb the spread of coronavirus.
The airline also cancelled numerous flights as various governments around the world announced bans on flights from other countries, including Kenya.
The struggling carrier, like its peers across the world, last year asked customers to accept vouchers that allow them to travel in the future, while conserving the much-needed cash to remain afloat, instead of making refunds.
“The timing of revenue recognition for expired unused tickets requires judgment due to the timeframe over which revenue documents can be utilised,” the company’s external auditor, PricewaterhouseCoopers (PwC), wrote in the report for the financial year ended December 2021.
“The management determines the value of unused tickets revenue using a combination of terms and conditions of the underlying documents and historical expiry trends.”
Revenue recognition from the Sh4.48 billion expired tickets helped the airline end last year with advanced passenger and freight sales of Sh10.89 billion compared with Sh13.91 billion in the prior year when there were more Covid-related flight suspensions and cancellations.
KQ more than halved net losses last year to Sh15.88 billion compared with a record Sh36.57 billion the previous year, helped by increased flights on key routes on the back of the easing of travel restrictions.
The airline flew 2.2 million passengers on its planes last year, a 25 percent growth over the previous year, while the cargo business posted a 29 percent growth to 63,726 tonnes.
“Following the worst year on record for the aviation industry (2020), the industry is seeing strong signs of recovery, particularly in US domestic travel and more moderate recovery in international travel,” KQ chairman Michael Joseph said on March 29.
The airline has largely benefited from a number of State bailout packages which have helped keep it afloat, the latest being Sh20 billion in the supplementary budget recently passed by the National Assembly.
Last year’s loss meant the carrier has not made a profit in nine straight years, extending its accumulated losses to Sh144.64 billion.
The airline last made a profit in 2012 when it closed with net earnings of Sh1.66 billion.
The huge accumulated losses have seen KQ slip into negative equity, meaning it is technically insolvent.
The firm’s negative equity deepened to Sh83.4 billion at the end of last year from Sh64.2 billion the previous year.