Kenya Airways’ losses justify cost-cutting measures

(eTN) – The announcement yesterday of Kenya Airways’ half-year financial results brought home the reality of what the company’s management has been saying for a while now, that sharply risen cost put a deep dent into the bottom line and red ink leaked into the provisional balance sheet.

The 4.6 billion Kenya shillings loss, in part caused by the European market weakening as a result of the euro crisis and hard-hitting, anti-travel advisories against Kenya seeing passenger numbers on key routes like London and Amsterdam reduce and Rome flights being halted, the faltering financial performance is, however, largely attributed to militant unions. In the face of the global aviation crisis, saddled with record fuel cost, and increased competition by Gulf airlines siphoning off market share from Kenya Airways’ crucially important African market, have unions – regularly ignoring court orders – inflicted slow gos and strikes on the airline, extorting increases in terms and conditions which, if to continue, might drive the carrier into financial ruin. Attempts by politicians, seeking to garner favors with the union radicals ahead of Kenya’s general election in March next year, did not help either, ruffling feathers with shareholders when suggesting government take greater control over the airline.

Cost-cutting measures introduced by the airline in recent months are expected to turn the tide, given that no unforeseen additional challenges arise ahead of the elections, as memories of 2008 are re-emerging, potentially further depressing demand in travel to Kenya.

The airline’s management, in line with Capital Market Authority requirements, issued a profit warning for the full-year results, signaling that the way to financial recovery continues to be paved with thorns as forecasts remain divided between leading aviation pundits on the impact of global economic challenges and regional aviation developments. It remains to be seen to what extent the expected launch of Kenya Airways’ own answer to so called low-cost carriers, Jambo Jet, will fulfill expectations in protecting market share for the group.

Furthermore is the congestion at Kenya Airways’ hub at Jomo Kenyatta International Airport to a large extent held responsible for customer dissatisfaction. The opening of the new terminal, besides the start of “Project Greenfield” under which an urgently needed second runway and a new mega terminal are due to be constructed, cannot come soon enough to provide facilities on the ground commensurate with KQ’s ambitions to become a world class carrier.

Full details on the financial performance will be published on www.kenya-airways.com