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Back to profitability

After recording a slump of 60 per cent in its profit margin last year, the national carrier-Kenya Airways is now back to profitability.
17 November 2004 - Deremo Maiko

Riding on the back of tourism recovery in the country, turnover for the last six months ending 30 September increased by 38 per cent to US$240 million. According to the airline’s chairman Omolo Okero, passenger numbers and yields were up with overall growth in traffic only 20 per cent short of 1 million passengers.

The strong growth in markets recorded in Europe and the Far East can be attributed to the highly successful deployment of the Boeing 777 and the opening of the Bangkok-Hong Kong route. The rising profitability is also attributed to the continued success of the management initiated KQ Turn Around Project [KTAP], which was tasked with the responsibility of enhancing revenue generation capability and rationalizing cost structures. It is against this background that the airline embarked on a restructuring process, which included the painful exercise of downsizing of staff. Significantly, the airline also embarked on an ambitious expansion and modernization plan to achieve its vision of becoming a World Class airline network by 2005.

The initiative comprised 57 projects covering improved revenue generation and the retrenchment of 10 per cent of the workforce since the beginning of the year. The restructuring process - which began in early October 2003- saw five directors sacked in just one day. Another measure the airline adopted was the absorption of the loss-making domestic franchise - Flamingo Airlines, with its 66 employees into the main airline.

The phasing out of Flamingo Airlines was followed in December by a 28 per cent cutback on domestic flights. Kenya Airways Managing Director Mr Titus Naikuni attributed the fewer seats on the airline’s local flights to what he called “tactical cutbacks” in operations to destinations like Entebbe, Zanzibar, Mombasa and Kisumu. The Mckinsey report- prepared by the Philadelphia-based Hay Group Consultancy- recommended that a third of the airline’s 3500 workforce be sent packing.

Due to the cost cutting measures, profit before tax rose by an impressive 343 per cent to US$29.4 million. The half year results were mainly driven by improved traffic demands from the expanded network, additional frequencies and new destinations, riding on the back of increased capacity form the B777 and the acquisition of a sixth B767-300 aircraft.

The relaxation of the negative travel advisories issued by the UK and US against Kenya and East Africa, the launch of the Bangkok-Hong Kong route and increased benefits from the wider African traffic base boosted KQ’s sales drive. According to Okero, all African destinations registered a 15 per cent growth. Cargo tonnages and yields continued to grow across the network. It is also worth noting that increase in passengers and cargo has contributed significantly towards tourism and agricultural sectors recovery in the country.

It has not been smooth sailing for the airline though. The global fuel prices during the period under review were 15 per cent higher than the corresponding period last year. The airline also faced stiff competition from the Middle Eastern carriers such as Egypt Air, Emirates, Oman Air and Qatar Airlines, particularly between the Dubai and West African routes.

Whereas the airline directors remain reasonably optimistic about the operations for the remainder of the financial year, concerns are being raised about the current high fuel prices, which have more than doubled in the last 12 months, leading to increase in ticket prices and locking out a number of potential passengers. Needless to say, the future profitability highly depends on the level of oil prices.

Despite its ups and downs, Kenya Airways remains one of the few formidable airlines on the continent, with an enviable network of partners, along with South African Airlines. Kenya Airways boasts partnership with its 26 per cent shareholder but loss-making KLM, which has teamed up with Air France.

The airline – code-named KQ - has also formed alliances or code-sharing arrangements with a number of airlines in Africa, Asia and Europe. The airline is also currently contributing to the development of Nairobi’s Jomo Kenyatta International Airport with a view to transforming it into a premier hub on the African continent.

The airline, which launched direct flights to Bangkok and Hong Kong in September 2003 said it intends to increase revenue by opening up new markets in Africa and increasing flight frequencies to Nigeria, Cote d’Ivoire, Ghana and the Far East. “If you look at Africa, we are not so much in Francophone Africa. There are a lot of African countries we haven’t gone to”, said Mr Naikuni. The Bangkok-Hong Kong flights are to be increased from the current three to five weekly.

Other recent actions taken by the airline to get a profitable foothold in the increasingly competitive African skies include the introduction of an additional frequency on the Khartoum to Cairo route and direct flights to the South African port city of Cape Town. The airline has also introduced bigger planes on its Zambia, Malawi and Zimbabwe routes.

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