Kenya Airways slumps to record Sh38.2 billion loss

Kenya Airways flight taking off at the Jomo Kenyatta International Airport in Nairobi. October 15, 2022 [Elvis Ogin,Standard]

Kenya Airways (KQ) has sunk deeper into loss-making, reporting yet another record loss after tax of Sh38.26 billion for the year to December 2022.

This is in comparison to the Sh15.89 billion loss after tax it reported in 2021. It is also in comparison to the Sh36.2 billion loss that the national carrier made in 2020 following the outbreak of Covid-19 that saw it ground nearly all its operations.

The airline said the performance last year was due to a one-off loan reclassification that saw it incur a Sh18 billion foreign exchange loss. This resulted in a huge increase in its financing costs.

It was also affected by the sharp rise in the cost of fuel earlier last year, which went up 160 per cent on the back of the weakening of the shilling.

Despite the huge loss, the airline's revenues grew 66 per cent to Sh116.79 billion over the period, up from Sh70.22 billion in 2021, which it attributed to a recovery in passenger travel.

KQ management on Monday, March 27 expressed confidence the airline would break even next year and report a profit in 2025.

This is even as the government said it would not offer the carrier additional financial support beyond the end of this year.

Chief Financial Officer Hellen Mathuka speaking during a virtual briefing yesterday said the biggest impact on its performance was absorbing the foreign exchange losses that came with the takeover of a dollar-denominated loan by the government.

The process saw its "other costs" increase 250 per cent to Sh32.89 billion during the year from Sh9.39 billion in 2021.

"The net finance cost increased by Sh23 billion," said Ms Mathuka.

"This is because of a one-off transaction that was taken during the year, pertaining to the takeover of a US dollar-denominated loan by the Kenyan government, which converts the US dollar to Kenya shilling. This required us to recycle the foreign exchange loss in the profit and loss account, having the impact of Sh 18 billion within the financial year."

KQ's operating costs also rose sharply to Sh122.4 billion from Sh77 billion in 2021, which was largely on account of higher fuel costs.

Ms Mathuka said aside from the on-off cost, the carrier is well on its way to recovery, noting its fundamentals are sound.

"Fundamentally, the airline is generating cash and its fundamentals from an operating perspective are strong. If we had neutralised the impact of the foreign exchange loss and the impact of higher fuel costs, we would have reported a profit," she said.

Chief Executive Alan Kilavuka was also confident that the carrier would report a profit in 2025.

This is, however, a year later than 2024 when KQ management had earlier targeted a return to profitability.

Other than fuel and finance costs, Mr Kilvuka also said the weakening of the shilling had also affected the carrier, noting that KQ gets a majority of its revenues in local currency but nearly all its expenses are in dollars.

"A significant portion of our revenue is in shilling but most of the expenditure, especially lease costs and technical expenses, is in dollars, so this one usually affects us adversely," he said, adding that without the significant impact of such happenings as the higher fuel prices and finance cost "we are a profitable business."

The carrier said it planned to cushion itself against another surge in fuel costs by hedging.

"We are in the market, analysing the conditions. Once prices are okay from a pricing perspective, we will hedge," said the CFO Ms Mathuka.

"We do not hedge beyond 40 per cent of our fuel consumption and hedge 12 months in advance... it is on the table for 2023."

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