Kenya Airways: Summary unaudited group results for the period ended 30-Sep-2013

13-Nov-2013

Kenya Airways recorded improved performance for the first half year ended 30th September 2013 with a profit compared to the prior year losses. This has been made possible by amongst others the stabilisation of the Euro-zone economies; favourable prices of jet fuel; robust business environment in Kenya following the peaceful elections and management focus to prune loss making operations.

However, the unfortunate fire incident at JKIA in the period slowed the traffic recovery by adversely affecting the flow of transit passengers through Nairobi and most of the traffic originating from other countries. The incident happened during what is traditionally a peak season for the airline causing some sales challenges. Management's concerted efforts ensured that the problem was mitigated in record time. The terrorist attack at Westgate Mall in Nairobi was an additional setback in the period and we saw a traffic dip especially after some countries issued advisories against travel to Kenya.

In the six months, the airline successfully commenced operations to Livingstone in Zambia, Abu Dhabi in the United Arab Emirates and Blantyre in Malawi. However, changing market dynamics coupled with civil unrest in some countries led to suspension of operations to Libreville in Gabon; Bangui in Central African Republic; Ouagadougou in Burkina Faso and Cairo in Egypt.

The Board is pleased to announce that Kenya Airways achieved Kshs 384 million profit after tax compared to prior year loss of KShs 4,788 million. The result produced a net profit margin of 0.7% compared to a loss margin of 9.6% in prior year. The turnover achieved during this period was KShs 54.3 billion with an increase of KShs 4.5 billion compared to last year mainly from increased passenger revenues. Direct operating costs at KShs 37.3 billion were lower than prior year by KShs 2.6 billion largely driven by savings in fuel from lower fuel prices.

REVENUE

Passenger
The airline offered to the market a capacity of 7,106 million measured in terms of Available Seat Kilometres (ASK) which remained at the same level with that of prior year same period. Uptake of this capacity measured in Revenue Passenger Kilometres (RPK) at 4,979 million was also at the same level with that of prior year. However, the achieved Passenger yields including fuel surcharge in US cents grew by 5% year on year.

The Passenger revenue for the period was KShs 46.8 billion, an improvement from KShs 43.6 billion achieved last year primarily influenced by better yields.

Capacity offered into Europe shrunk by 5% owing to the withdrawal of all daylight operations on the London route as part of turnaround measures taken by management to trim unprofitable operations. The Middle East and Far East regions witnessed a 7% increase in capacity made possible by the introduction of daily flights to Guangzhou via Bangkok and swapping some operations to Mumbai previously served by B767 with B777 (which are 50% larger). The B777 capacity was available from the freed up equipment on London daylight operations. Both actions enhanced the connectivity of intra Africa traffic with the East in line with the company strategy of growing the business by linking these two continents.

There were remarkable adjustments to capacity in the African market following the addition of Livingstone and Blantyre into the network, together with the introduction of a third daily frequency to Juba; night time flights to Lusaka and Lilongwe; daily early morning departures to Entebbe and night stop operations to Dar es Salaam. However, due to management focus on improved performance there was urgent need to suspend services to N'Djamena, Libreville, Bangui, Ouagadougou and Cairo hence the net capacity put in Africa, excluding Kenya, fell by 5% compared to prior year.

The domestic market saw an increase in capacity by 17% due to the introduction of two daily flights to Kisumu including a night stop as well as Eldoret that had been launched in October 2012. The steady improvement in Kenyan air travel has continued to spur positive results for new capacity made available.

Cargo
The company's cargo business profile changed fundamentally in the year due to the conversion of two of the B737-300 from passenger airplanes to freighters, besides the B747-400 freighter that is jointly operated with MartinAir. However, the global freight business landscape has been weak following the slowdown of the emerging economies in the East resulting in a reduction of 5.7% in total cargo volume uplifted.

Exchange rate
During the period under review, the Kenya Shilling weakened marginally against the US Dollar with the average exchange rate at KShs 85.52 per US Dollar against a prior year average of KShs 84.33.

COSTS

Direct Operating Costs
Direct operating costs reduced from KShs 39.9 billion to KShs 37.3 billion due to reduced fuel prices and management efforts to improve performance among others. Fuel cost, being the single largest component at 37% of total operating costs, accounted for the biggest saving of KShs 1.9 billion because the average price of jet fuel per gallon in US cents declined by 10% compared to last year.

Overheads
Overheads at KShs 9.4 billion indicate an 8% saving on prior year. The bulk of this saving was realised in employee costs that came down year on year by KShs 557m due to a lower staff complement. Management efforts to curb controllable costs remains unwavering as demonstrated by the reduction of non-employee costs by the same 8% despite the activity level remaining unchanged compared to prior year.

PROSPECTS

The latest forecast from IATA estimates the industry will achieve a profit of USD 11.7 billion for 2013. This projection takes cognisance of weakening cargo but strengthening travel outlook with slowing emerging economies but rebounding developed economies. The management remains focused in closely monitoring the market dynamics in order to maximise performance.

The Board and management of Kenya Airways have remained resolute in taking actions necessary to steer the company back to profitability.

The Board takes this opportunity to thank all its customers, staff, management and suppliers for their dedicated contribution to the growth of the airline.

Refer to full documentation in attachments box, located at the top left, below the headline.