Kenya Airways hopes to reverse financial losses into profits

Kenya Airways Chief Executive Officer Mbuvi Ngunze addresses the media during the release of the company's half year results at Intercontinental hotel, Nairobi, on November 12, 2015. He attributed the company's massive losses to several factors such as intense competition from Middle East carriers. PHOTO | SALATON NJAU | NATION MEDIA GROUP

What you need to know:

  • In March, KQ announced that it had recorded a pre-tax loss of Sh29.7 billion during the 2014-2015 financial year, compared to Sh4.8 billion loss posted in the 2013-2014 financial year.
  • Mr Ngunze attributed the massive loss to intense competition from Middle East carriers, volatility of exchange rates, terrorism and travel advisories as well as fluctuations in fuel prices.
  • Mr Ngunze said then that an elaborate plan, backed by its key shareholders, including KLM and the government, would turn around the airline’s fortunes.

National carrier Kenya Airways (KQ) upbeat of revival strategy sought after a turbulent year in 2015 marked by shareholders' despair and shocking losses.

For the better part of 2015, top KQ managers were at pains to explain the prospects of the flag carrier in the wake of successive huge losses.

It all started in March when KQ announced that it had recorded a pre-tax loss of Sh29.7 billion during the 2014-2015 financial year, compared to Sh4.8 billion loss posted in the 2013-2014 financial year.

The Sh25.7 billion loss after tax for the period ending March was unprecedented in Kenya’s corporate history, prompting queries on the airline’s sustainability.

The dismal performance earned the national carrier the dubious distinction of being one of the highest loss-making companies in East Africa.

A committee established by the Senate to look into KQ crisis questioned the managers’ investment and operational decisions, including a controversial fuel hedging strategy, fleet and route expansion, as well as expensive tickets.

Led by Group Managing Director and Chief Executive Officer Mbuvi Ngunze, Finance Director Alex Mbugua and Chairman Evanson Mwaniki who has since retired, the team had a hard time defending KQ board’s decisions.

Mr Ngunze attributed the massive loss to intense competition from Middle East carriers, volatility of exchange rates, terrorism and travel advisories as well as fluctuations in fuel prices.

THE CHALLENGES
But critics blamed the airline’s woes on a different set of challenges.

These include questionable routing arrangements and partnerships which had led to massive losses of revenue; faulty human resource policy and practices that caused long-drawn industrial unrest; and frequent cancellation of flights, causing inconvenience and poor relationship with passengers.

The massive loss sparked fears that KQ, once one of the most profitable airlines in the world for its size, could be headed for collapse.

Analysts questioned why KQ had continued to procure its fuel under the hedging arrangement yet it had failed to achieve its objectives in the face of low global oil prices.

The airline executives insisted the arrangement insured it from the volatility of the oil market.

In September, the flag career extended its poor performance for the third year in a row in its half-year profits.

It announced a loss after tax of Sh11.9 billion for the six months ending September, compared to a net loss of Sh10.4 billion last year in the same period.

At a much-awaited investor briefing, KQ executives remained bold in the face of a series of poor performance.

They insisted that a turnaround strategy involving a long-term capital raising plan and an operational restructuring currently being executed by the carrier would bear fruit.

In a similar script, they blamed forex losses, flat revenues, reduced capacity, as well tough competition from Middle East carriers for eating deeply into the airline’s revenue margins.

“Rome was not built in a day and we are doing our very best under these circumstances to ensure things change for the better,” Mr Ngunze told journalists.

PATH TO RECOVERY
Mr Ngunze said then that an elaborate plan, backed by its key shareholders, including KLM and the government, would turn around the airline’s fortunes.

The airline has hired consultants, McKinsey and Seabury to spearhead revival strategy.

Mr Ngunze and his supporters insisted that despite the losses the airline had shown signs of recovery, with a significant reduction in its operational losses.

Analysts however said the airline must sell more seats to have any chance of getting back on track.

“We are doing our very best to ensure things change for the better,” Mr Ngunze said during an investor briefing in Nairobi.

But if the airline hoped to cap the year on a high note, it was not to be, as the Senate Committee said in a report that the top management was not qualified to run it.

Around the same time, bad news hit the airline’s employees as they faced uncertain Christmas after the airline said it was unable to pay them November salaries due to a cash crunch.

It remains to be seen what 2016 holds as KQ’s future.