KQ flying into recovery, Murkomen tells Senators

Kenya Airways is on the road to financial recovery after being battered by the effects of Covid-19 and other challenges in the last six years, Roads and Transport Cabinet Secretary Kipchumba Murkomen has said.

This is after KQ, as the airline is known by its international code, for the first time in the first half of financial year ended 2023 in six years reported an operating profit of Sh998 million compared with the same period in the previous year, when there was a reported loss of Sh5billion.

Responding to Nandi Senator Samson Cherargei’s question at the plenary yesterday, Murkomen attributed the growth to a 56 per cent increase in group revenue, reaching an impressive Sh75 billion.

“Could the Cabinet Secretary provide an overview of the performance metrics of Kenya Airways (KQ), particularly the gross and operational profit or loss for the half-year ended June 2023, explaining how the profits or loss compare against other key industry players,” posed Cherargei.

According to Murkomen, the passenger numbers surged to 2.3 million, an impressive 43 per cent growth from 1.6 million, and the earnings before Interest, Tax, Depreciation, amortisation and rent costs (EBITDAR) witnessed a commendable upswing of 7 points.

Huge forex losses

“Our gross profit improved by an impressive 131 per cent, resulting in these commendable outcomes. We acknowledge that our legacy debt did bring down the impressive operating results primarily due to the huge forex losses because of the depreciation of the Kenya shilling against US dollar,” the CS said.

He went on: “These forex losses were primarily due to the revaluation of the US dollar-denominated loans and liabilities. These finance charges in total amounted to Sh22 billion and heavily impacted our overall results.”

Murkomen told Senators that the airline industry is highly competitive and therefore profit margins in the industry are thin, adding that according to the International Air Transport Association (IATA), the average net profit margin for the global airline industry is typically less than five per cent.

“Airlines are highly vulnerable to external factors that can impact their profitability, including fluctuations in fuel prices, currency devaluations, supply chain challenges and geopolitical events,” said Murkomen.

He further explained that airlines require significant capital investment in aircraft, maintenance and infrastructure which can limit their profitability which is unlike other businesses that do not have the same level of capital intensity.

According to Murkomen, the airline industry is cyclical and can be sensitive to economic cycles. During economic downturns, demand for air travel may decline, affecting airline profitability and airlines are subject to extensive regulations, including safety and security requirements, which can add operational costs.

“The airline industry is highly competitive, with many players operating in the market. Competition can lead to price wars and reduced profit margins. Airlines face operational challenges, including maintenance, scheduling, and workforce management, which can impact costs and profitability,” he added.

The CS said that while airlines provide essential transportation services, their profit margins are typically lower compared to many other industries, and their profitability is subject to a range of external factors and competitive pressures. According to IATA, the global airline industry is expected to return to profitability in 2024, but financial performance across regions remains diverse.

“The industry financials are improving in all regions from the Covid-related depths of 2020, although not all regions are expected to deliver a profit this year. Africa remains a difficult market to operate an airline, with economic, infrastructure and connectivity challenges impacting the industry performance,” said Murkomen.

Industry profitability

He went on: “Despite these challenges, there is still robust demand for air travel in the region which underpins the continued move towards a return to overall industry profitability. Kenya Airways’ current performance and FY2024 projections are predicated on a return to profitability in FY2024.”

Murkomen said KQ was not the only recipient of government assistance, especially to cope with the negative impact of Covid-19. Various governments in and outside Africa have directly supported their airlines.