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Kenya Airways Eyes Profitability in the Next Two Years

Kenya’s flag carrier seeks greener pastures come 2024.
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Founded in 1977, after the dissolution of East African Airways, Kenya Airways (KQ) became the first private African airline. It operates from a central hub at Jomo Kenyatta International Airport in Nairobi, and boats a fleet of 36 aircraft comprised mostly of Embraer ERJ 190-100 ARs.

The airline which is currently a public-private partnership and the fifth largest in Africa by fleet size has not seen a profit since 2012 and has even been suspended from trading at the Nairobi Securities Exchange (NSE). A much-needed restructuring plan that is set to see the national carrier return to winning ways post-COVID has since been sold to shareholders.

“We anticipate that we will be able to break even by 2024 with all the work that is ongoing which entails dealing with legacy issues mostly around cost. These are structural and complicated to deal with but we hope that by 2024 we will have broken even,” stated Allan Kilavuka, current Chief Executive Officer, during the company’s annual general meeting.

From then on we have a good basis for growth,” he added.

Restructuring plan

Talks of a significant restructuring of Kenya Airways have been around for a while now. Such a paradigm shift within the airline is expected to come with a serious change in how the company is run. Aviation consultant Seabury was hired in January to advise on returning to profitability.

Confirming the deal, KQ Board Chairman Michael Joseph said “They – Seabury Consulting – will assist with restructuring as part of the financial support from the National Treasury.”

Kenya Airways will be required to trim its network, rationalize frequencies of flights, operate a smaller fleet, and rationalize its staff complement. I will be proposing a budget allocation to meet the restructuring costs,” commented National Treasury CS Ukur Yatani on April 7th, according to The Standard.

Kenya Airways Embraer E190. The airline plans to trim its Embraer fleet 

Government bail-out

The airline in which the government has a 48.9% stake saw revenue cut in half at the height of the global health crisis two years ago which prompted The Kenyan government to once again come to its rescue by offering yet another round of funds within the same year.

The lifeline pledge of approximately $314 million came just weeks after the State Treasury had approved more than $170 million to help the airline stay afloat amidst a financial crisis making it the biggest corporate bail-out in the country’s history.

The allocation, contained in budget documents tabled in parliament and scheduled for the financial year that started in July, is expected to help the airline organize its structure and operations as it attempts to come back to life post-COVID.

Labeled a strategic government investment, the bail-out comes after the state dropped plans to nationalize the 36 aircraft fleet carrier.

Cost reduction

The airline which has been on a steady decline for over ten years, last month told shareholders that its turnaround plans are bearing fruit and are set to further reduce costs as well as grow revenue that will see it end a dividend drought in about two years.

The cost-cutting initiatives include renegotiating terms for leasing aircraft. The new terms with leasing firms are expected to see KQ save on aircraft ownership costs.

Other costs such as distribution and ground handling costs are set to be reduced by dealing with inefficiencies in these areas according to CEO Allan Kilavuka. He went on to add that it is unlikely for the carrier to cut its employees as it is currently not bloated. Instead, emphasis will be placed on employee productivity.

The carrier is also optimizing its fleet and network of routes, which might reduce the routes it flies as well as the number of aircraft it operates. The targeted aircraft are its Dreamliner and Embraer fleets which are set to be cut by four and five aircraft respectively.

Fuel prices have risen to record highs following Russia’s invasion of Ukraine with many airlines raising ticket prices to compensate for the growing expenses. As part of its cost-cutting measures, Kenya Airways is looking to hedge prices for 35% of its fuel needs.

Kenya Airways CEO, Alan Kilavuka

No more travel restrictions

The national carrier’s finances were not exactly in mint condition even before 2020, but the pandemic made the situation far worse as carriers around the world were forced to ground their planes. By the end of 2020, Kenya Airways’ total debt stood at $846 million and grew significantly since then as the pandemic advanced.

After two years of uncertainty, airlines are eyeing 2022 as a year for recovery with more passengers returning to the skies. However, Kenya Airways has the added challenge of it being an election year.

“If I am to take a good guess, I would think that there will be a 20% increase compared to last year. However, this is conditional on there being no further disruptions and restrictions of travel because of Omicron. We also hope that there will be no disruptions due to elections since traditionally we have seen a downward trend in terms of visitors come election time and August which is when the elections are going to take place is right in the middle of our high season,” CEO Allan Kilavuka told Reuters early this year.

A Pan-African Airline

Plans for a major alliance between Kenya Airways and South African Airways are in progress as the two struggling airlines hope to leverage their strengths to create a Pan-African airline partnership in-order to help quicken their recovery from their financial crises in the foreseeable future.

Kenya’s president spoke of the alliance in his New Year’s address saying:

“To boost tourism, trade, as well as social engagement, and to bolster continental integration, our national carrier Kenya Airways will join hands with partners in South Africa to establish a Pan-African airline with unmatched continental reach and global coverage.”

The two carriers are also seeking to recruit a third airline, preferably West African, once the alliance is off the ground.

With two government bail-outs, a cost reduction plan, reduced travel restrictions, and talks of a Pan-African airline among others; it should be interesting to see how Kenya Airways goes about implementing its highly anticipated overhaul plan. One can just hope it all works out for the parties involved.

 

 

 

By Ronnie Afema

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