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Nairobi / AFP
When Kenya Airways published the country’s worst-ever corporate results last month, the scale of the loss revealed the effects of several disastrous decisions that the national carrier is struggling to reverse. The airline’s “Pride of Africa” slogan rang uncomfortably hollow when the 26.22-
billion-shilling ($259-million) loss
was announced, driven by higher borrowing costs and unfavourable exchange rates.
Kenya Airways, founded in 1977
following the demise of East African Airways, was considered a cash
cow just a decade ago, but is now floundering, said independent analyst Aly-Khan Satchu. “In the history
of Kenya, no other listed company
has ever recorded such an important loss,” Satchu said.
A misguided expansion strategy launched in 2011 is the root of the catastrophic state of the firm, a move that called for the purchase of new Boeing planes with the objective of doubling the size of its network. But since then the Ebola virus and terror attacks on the continent have decimated Africa’s tourist numbers, while rivals such as state-owned Ethiopian Airlines and Qatar Airways have boosted their offerings. The firm has also lost out on rock-bottom fuel prices. Like many airlines, it “hedges” its fuel costs by entering into a fixed-price contracts. But Kenya Airways was locked into longer term contracts than most of its competitors, which gained a competitive advantage as fuel prices have plunged since mid-2014.
Foreign currency “and fuel hedging are exceptional items, yes, but a company like KQ (Kenya Airways) should be able to deal with this,” said Satchu about the airline’s latest results. To the dismay of Kenya Airways’ two biggest backers — Air France-KLM and the Kenyan government — the firm’s share price has dropped from 140 shillings in 2006 to 3.85 shillings. The company’s debts exceed a billion dollars.
NATIONAL PRIDE AT STAKE
Despite the gloom, analysts still see some cause for optimism in the numbers. Revenue was up five percent and operating losses shrank thanks to a series of shock treatments imposed on the airline by management last year.
“The operational result is what I’ll take from the latest results,” said Eric Musau, analyst at Kenya’s Standard Investment Bank. “KQ is on the right track, even if they could do a bit more in terms of assets sales,” he told AFP, describing the net loss as largely down to exceptional factors.