Direct US flights struggle as KQ posts Sh7.55 bn loss

Kenya Airways posted a Sh7.55 billion net loss for the year ended December 2018 as higher costs offset a jump in revenue, even as the carrier’s management admitted that the new much touted US route is ‘difficult’.

The airline’s chief executive Sebastian Mikosz said Tuesday that while the Nairobi-New York route is crucial for the national carrier’s growth and positioning in the region, it would not form KQ’s bread and butter or financial lifeline.

“I do not consider it to be a lucrative route. There is nothing lucrative about flying to New York. The route is necessary but difficult,” Mr Mikosz explained as he announced the airline’s performance.

“New York is performing in the range that we expected. It is feeding our African network. It positions us differently,” he added.

The direct US flights, launched in October last year, are to date the most marketed route since Kenya Airways began its turnaround plan. The flights now offer the fastest connection from East Africa to New York City.

The 2018 results mark the sixth year in a row in which the NSE-listed airline that is in the middle of a turnaround remains in the red. The performance sent its shares tumbling by three percent on Tuesday to close at Sh4.71

Despite the loss, Mr Mikosz - a Polish native, who helped turn around flag carrier LOT Polish Airlines as its CEO - said he drew encouragement from an improvement in the company’s underlying performance.

“These are decent results. They are not an explosion of success,” he said. “The overall situation is improving. The investments are paying. And the losses are trimming.”

Mr Mikosz, whose terms ends in June next year, said he is betting on fleet expansion, adding new routes and collaboration with African airlines that are seen to pose a threat to KQ’s regional market share for a better outlook in 2019.

KQ’s revenue in 2018 hit Sh114.18 billion, largely driven by passenger bookings. Its revenue in the previous 9-month period stood at Sh80.7 billion.

KQ’s total operating costs stood at Sh114.87 billion in the period under review.

"Fuel, personnel and the cost of aircraft remain the top three drivers of airline costs contributing to about two thirds of total operating cost for the airline," said KQ which last year resumed a controversial fuel hedging policy.

The airline’s chairman, Michael Joseph said the carrier is still betting on clinching a controversial deal to run the Jomo Kenyatta International Airport (JKIA) to boost fortunes, but added that KQ would still survive if the deal fell through.

The National Assembly’s Transport and Housing Committee is set to conclude its report on the controversial proposal.

Mr Mikosz maintained being allowed to manage JKIA will help the airline to remain relevant in the market at a time when carriers are witnessing increased competition.