Once one of Africa’s best told financial stories, Kenya Airways (KQ) is turning into a sad financial mess. It was aptly dubbed the “Pride of Africa”, when it made huge financial gains after being privatized in the 1990s. The airline is now struggling to make ends meet. It now needs more than 1-billion USD (KSH 100-billion), to “chip out of the rough”.
Kenya Airways is the country’s flag carrier. It was founded in 1977 after East Africa Airways was dissolved. The airline’s largest shareholders include: The Kenya Government 29.8% and KLM who owns 27%. KQ was ranked fourth amongst top ten African Airlines in 2013, behind South African Airways, Ethiopian Airlines, and EgyptAir.
The cause of KQs Financial Problems
What started the airline’s financial problems? The company’s managers blame competition from larger airlines like Emirates, and regional rivals Ethiopian Airlines. Other problems such as reduced travel to East Africa over terrorism fears, and overvalued hedge on fuel prices added to the losses.
The company seemed to have expanded faster than it could market itself. Large aircraft purchases also contributed to its large losses. Loss of the company’s “special skills” staff such as pilots to other airlines was a drawback, especially after the company paid for the training.
The company also suffered losses due to the collapse of the Kenya Airways Cargo unit. An audit report shows that Kencargo International Limited (KK) lost billions before it was shut down in 2004. Kenya Airways re-launched the unit as KQ Cargo. The cargo handling company African Cargo Handling Limited is a wholly owned subsidiary of Kenya Airways.
The audit report by Deloitte Consulting Limited also says that KQ may have lost up to KSH 60-billion in underpriced ticketing. The tickets were undervalued while marketing new routes and trying to compete with other airlines.
Kenya Airways made a net loss of USD 258 million (KSH 26.2-billion) this year (2015/2016), and a loss of USD 253 (KSH 25.7-billion) the year before. Kenyan Members of Parliament have even called for the prosecution of management over the huge losses.
Management has said that the company had increased 5% of its revenue for the year 2015/2016, and that the operating loss narrowed from Ks16.3bn in 2014-15 to Ks4.1bn in 2015-16.
KQ was forced to sell some of its aircraft, land, and other assets. The company started on its employee reduction schedule last year. It plans to lay off 15% of its workforce (600 employees).
The Airline is now in talks with around 4 foreign potential investors. There are some who don’t think that this will solve the problem. The Kenyan Government has already sunk in several billions of tax payer’s money, but it hasn’t gotten them out of the rut. “It seems that there is a mismanagement issue” one of the MPs implied.
The company CEO Mbuvi Ngunze has said that the airline has started more routes to China and Cape Town as part of its strategy to increase revenue. The company is also hopeful that it will get a new market once direct flights are cleared from Kenya to the US (See Direct Flights from the United States to Kenya).