Kenya Airways, feeling the effects of the political unrest in North Africa and the rising cost of fuel, has warned that its full-year profits will be 25 per cent lower.
The airline’s management said in a note to the Capital Markets Authority and Nairobi Securities Exchange, where it listed in 1996, that coupled with the Eurozone financial crisis, these factors had negatively impacted on its second half operating results for the financial year 2011/12 that ends in March this year.
From a net profit of Kshs3.5 billion in the 2010/2011 financial year, the airline is now projecting to earn Ksh2.6 million, just Kshs600 million shy of the 2009/10 figure of Kshs2 billion. “In the first half of the year,” Kenya Airways said in the statement signed by its chairman, Mr Evanson Mwaniki, “the aviation industry faced major challenging economic and geopolitical environment.”
In spite of these challenges, he noted KQ, Kenya’s flag carrier and one of the biggest and unarguably most successful airlines on the continent, recoded good performance, achieving Ksh2.8 billion profit before tax for the half-year ending September 30, 2011, supported in large parts by its expansion into new markets in Africa and Asia.
But things got turbulent in the second half, as political unrest that was touched off by a street vendor Mohamed Bouazizi who set himself aflame in December 2010 to protest police harassment in Tunisia, spread to Egypt, Liby and toppled the countries’ dictatorial presidents. This is meant less business for airlines in this region, more KQ whose business hinges on Africa, as airspaces was closed, while fuel prices escalated as production was cut in Libya, one of OPEC’s top producers.
The situation has not been helped by religious tension in Nigeria, another key OPEC member, where clashes have also affected production. “The above factors are negatively impacting on the second half of Kenya Airways operating results,” said Mr Mwaniki.
“It is predicted that projected earnings for the current year will be at least 25 per cent less than the level of earnings in the previous year.” This announcement will get investors and analysts by surprise, and likely push its stock price at the NSE down when the stock markets opens on Monday. The company’s stock closed Friday at Kshs20.25.
Despite the challenges facing the entire aviation industry, Mr Mwaniki said, KQ’s board of directors expected the airline to remain profitable although lower than the previous year. “However, the airline’s strategy to grow its network in Asia and Africa as well as renewal of its fleet continues to improve efficiencies and outlook for the future.”