Kenya Airways cuts losses by more than half despite falling revenues

National carrier Kenya Airways cut its losses by more than half to Sh4.8 billion in the six months to September raising hopes that it may be flying out of its turbulence.

The airline, which posted a Sh11.9 billion loss over a similar period in 2015, in one of its worst performances, attributed the improved performance to an increase in the number of passengers and lower cost of operations after the downsizing of its fleet.

The airline, however, saw a dip in its revenues, which declined to Sh54 billion in the six months period to September 30, down from Sh56 billion.

This was due to reduced number of airplanes after its fleet rationalisation that left the firm with a fleet of largely narrow body planes, reducing the amount of cargo hauled during the period.

"Turnover marginally down despite increase in passenger numbers on the back of fuel and currency impacts," the airline said in a statement after an investor briefing yesterday.

"The reduced capacity saw revenues drop by 3.5 per cent to Sh54.7 billion. The airline uplifted less tonnage during the period due to decrease in wide body capacity leading to revenue from cargo decreasing by 20.9 per cent."

Other factors that affected the airline are fluctuations in currency and oil prices as well as high cost of borrowing.

The US dollar strengthened against the shilling during the period with the average exchange rate rising to Sh101.6 to the dollar compared to Sh98.76 the previous year.

"This led to a foreign exchange loss of Sh1.6 billion. The group's cost of borrowing increased during the period to Sh3.8 billion," said the airline.

Cumulatively, the airline has now lost more than Sh55 billion in the last three years. It is now counting on a painful turnaround plan to break out of the three-year loss curve, a plan that has seen the exit of at least eight directors and top managers.

The most recent exit was that of the chairman, Ambassador Dennis Awori, who was replaced by former Safaricom Chief Executive Michael Joseph.

It has already sacked hundreds of employees and also sold several assets among them aircraft, land and a parking slot in London to help plug its cash flow problems. The fate of more than 500 other employees still hangs in the balance.

These initiatives, the airline said have seen a substantial reduction in the net loss, as well as an operating profit of Sh949 million. They are also a strong indicator of a possible return to profitability. Investor sentiments remained mixed after the shares closed at Sh6.20 a share, down from Sh6.75 on Wednesday.

During the investor briefing, KQ Chief Executive Mbuvi Ngunze said the firm is on course to achieving the goals of its turnaround strategy.

The strategy dubbed Operation Pride focuses on three main priorities - closing the profitability gap, refocusing the business model as well as optimising the capital of the company – whose full outcome is expected within 18 to 24 months.

"One of our key goals of Operation Pride is to improve our results and we are on course. We continue reviewing our operations to ensure we remain competitive in the market. We now operate a leaner but efficient airline," said Ngunze.

As part of its growth strategy, Ngunze added that the airline will introduce 30 new flight frequencies across the network this year. A majority of these new frequencies will be to African cities.

"We are constantly re-looking at our network to ensure we continue wining in Africa by offering the most reliable connectivity through our hub Nairobi. We have seen connectivity in the region improve by 14 per cent and are optimistic with our improved efficiency this will increase with the new schedule," said Ngunze.