Why KQ, importers are having sleepless nights over coronavirus

The outbreak of coronavirus in China that has seen airlines around the world halt their operations in the Asian country, is likely to take a toll not only on the revenue of Kenya Airways #ticker:KQ, but also on businesses as Beijing is a major source of merchandise for many local traders.

When KQ announced that it was not cancelling flights to China last week before yielding to pressure, it knew the magnitude of what was at stake in regard to the revenue it gets from Asia.

Asia, which includes China, is at position three in terms of the total revenue that the airline earns from various regions.

In 2018, the airline earned Sh19 billion from Asia with the bulk of it coming from China.

Depending on the duration of the crisis, analysts say the move to halt flights to China will potentially dent the carrier’s bottom line in a big way. This will be a major setback for the national carrier which is struggling to fly out of its financial turmoil.

Economist Toni Watima agrees that the extent of the impact that the current crisis will have on the Kenya Airways’ profitability will depend on how long it will take for the disease to be contained.

“If the issue is resolved within a few days, then KQ can recover from the shortfall. However, if it takes months, then it will impact negatively on their bottom line,” he told Shipping& Logistics.

Guangzhou, Mr Watima added, is a lucrative route for KQ and other regional airlines given the high number of businesspeople who travel to the Asian country for trade.

KQ makes about three weekly flights to China bringing in over Sh150 million within that period. It has deployed a Boeing 787 Dreamliner aircraft for the lucrative route.

The current situation is reminiscent to what happened a couple of years ago when KQ was forced to pull out of some countries in West Africa following the outbreak of Ebola.

The move to halt flights will also impact negatively on tourism as it will reduce the number of visitors from China who visit Kenya.

Data from the Kenya Airports Authority indicates that last year, the Jomo Kenyatta International Airport received 84,208 visitors from Guangzhou alone.

In the region, Tanzania and Rwanda have all stopped their national carriers from flying to China with only Ethiopian Airlines yet to halt flights from that route.

China is one of the Kenya’s key trading trade partners with most business people from the country preferring China for their stocks of goods.

According to the Kenya National Bureau of Statistics, Beijing sold goods worth Sh250.78 billion in the January-September 2019 period.

The airline which last reported a profit of Sh4.1 billion in the year ended March 2011 has been issuing warnings in the last eight years, despite Treasury intervention.

The carrier’s half-year loss more than doubled to Sh8.56 billion in the last financial year, sinking shareholders into a deeper negative equity position of Sh16.18 billion.

The airline attributed the 112 percent widening of loss to increased operating costs in the wake of its expansion into new routes and the return of two Boeing 787 planes that had been sub-leased to Oman Air.

The company’s revenue jumped by 12.1 percent to Sh58.5 billion in the period, from Sh52.1 billion in the first six months of last year.

The World Health Organisation (WHO) has determined that the outbreak, which has left 213 dead and nearly 10,000 infected so far, constitutes a public health emergency of international concern.

The WHO reached the resolution at its fourth Emergency Committee meeting on Thursday.

Under the WHO's current regulations to manage such situations, the emphasis is on containing an outbreak at its source.

This requires countries to be transparent with information about the outbreak and be prepared to isolate those already infected.