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A Kenya Airways plane. FILE PHOTO | NMG
Rising global fuel prices inflicted a ninth consecutive half-year loss on national carrier Kenya Airways (KQ), increasing its default risk and sinking it Sh15 billion deeper into a negative equity position.
KQ, which has been surviving on State bailouts since the Covid-19 pandemic, reported a Sh9.8 billion loss Wednesday — a better performance than the Sh11.48 billion loss it recorded in the same period a year earlier.
It booked a further Sh5.3 billion loss on hedged foreign exchange differences, driving its total comprehensive loss to Sh14.9 billion, a worse showing than the Sh9.8 billion reported in a similar period in 2021.
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The airline, which has remained in the red since 2012, attributed its negative performance to a global spike in fuel prices which has raised fresh concerns about the management’s decision on fuel hedging in a year when it needed the strategy to work the most.
The accumulated losses have seen KQ slip further into negative equity, which means it is technically insolvent.
The airline’s negative equity deepened to Sh98.3 billion at the end of June from Sh83.3 billion in December, having widened by Sh15 billion in six months.
This shows how much the airline is straining to meet its operation costs, having depleted its reserves. Should it continue on its current path, it would be staring at a 10th consecutive full-year loss.
The performance came as its revenues jumped 76 percent to Sh48.10 billion on higher revenues as pent-up demand for travel spurred more bookings.
The performance was, however, weighed down by higher operating costs, which surged by half to Sh53.11 billion anchored by a sharp rise in global prices of fuel, said the airline.
KQ revealed yesterday it missed the opportunity to resume aviation fuel hedging after price volatility drove up its costs despite intentions to do so.
“We did not hedge fuel this period because any decision on this would have been made last year,” KQ chief executive officer Allan Kilavuka said.
The carrier suspended fuel hedging in 2016 after contract losses sent it deeper into the red following a prolonged business slump and a jump in finance costs.
KQ tapped US-based advisory firm Seabury Consulting in early February to advise it on financial restructuring and a revival plan amid continued losses that have seen the company rely on State bailouts to keep operating.
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Jet fuel, which was the largest contributor of overheads in the half-year period, pushed overall operating expenses to Sh53.1 billion from Sh34.6 billion in the corresponding period last year.
KQ board chairman Michael Joseph said the airline would have returned an operating profit of Sh1.5 billion in the half year had the fuel prices not run out of control.
Mr Joseph said the cost of fuel was up 65 percent year on year, weighing down the carrier’s recovery plan in the half-year period.
Fuel prices have been on a steady rise since the beginning of the year on the back of the Russia-Ukraine war that interrupted global supply.
“KQ could have done more. Restructure its operations model to make it flexible in the light of fuel price volatility, for example, match pricing to costs, focus on fuel-efficient planes, and share the costs of routes with partners to have a route map that exploits its strengths and avoid routes that can’t be profitable,” said Deepak Dave of Riverside Advisory.
The cost of jet fuel between January and June rallied by 89 percent to hit a high of $179 per barrel in the period.
The airline last made a profit in 2012 when it closed with net earnings of Sh1.66 billion.
KQ’s revenues in the review period grew 76 percent to Sh48.1 billion, buoyed by a rebound in the number of passengers.
The airline carried a total of 1.61 million passengers during the period, representing an 85 percent growth compared to 870,000 passengers the previous period.
This was, however, 33 percent lower than the pre-pandemic period of 2019.
Cargo tonnage ferried by KQ increased 39 percent compared to the same period in 2021, as the air airfreight services recovered.
“During the first half of 2022, operations were positively impacted by pent-up demand and the removal of travel restrictions, resulting in a strong and sustained recovery in trading performance compared to a similar period in the prior year,” said Mr Kilavuka.
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The Covid-19 pandemic, which hit Kenya in 2020, hurt the travel industry, with KQ having to ground its services for months to curb the spread of the virus.
The airline has benefited from several State bailouts, the latest being Sh20 billion in the supplementary budget before the National Assembly.
The Ministry of Transport said in July that the Sh36 billion bailout to be disbursed to KQ in the current financial year is conditional and will only be released to the airline after achieving targets.
***Updated

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