KQ loss more than doubles to Sh38.2bn in 2022

Kenya's national carrier, Kenya Airways sunk deeper into losses for the year ended December 31, 2022, on high global fuel prices and a tight foreign exchange market.

The airline's financial statement for the period under review shows its loss more than doubled to Sh38.2 billion compared to Sh15.8 billion reported the previous financial year. 

Speaking during the investor briefing held yesterday, KQ CEO Allan Kilavuka said despite the opening up of markets post-covid, the aviation operating environment was affected by fuel costs that increased by 160 per cent year on year, deterioration of the dollar and its effect on direct operating costs and global geopolitical issues.

"The tight forex demand had a significant impact on Kenya Airways’ financial transactions which are mainly carried out in the major foreign currencies specifically the devaluation of the Kenya Shilling,'' Kilavuka said. 

His sentiments are echoed by the firm's chief financial officer, Hellen Mathuka, who says that the devaluation of the shilling and abnormal increase in fuel cost increased the cost of operations, negatively impacting overall financial results.

"Our overheads increased by 31 per cent due to foreign currency losses driven by the weakening of Kenya shilling against major world currencies and the abnormally high cost of aviation fuel during the year,'' Mathuka said. 

The shilling has in the past year dropped close to 14 per cent in value against the greenback. It closed to another new low of 131.60 against the US dollar on Monday. 

As a result, the Group's total operating costs increased by 59 per cent, with direct operating costs increasing by 93 per cent, mainly driven by increased operations and a huge increase of 160 per cent in the cost of global fuel prices throughout the year.

In addition, the fleet ownership costs increased by six per cent driven by the provision for early aircraft returns.

The firm also blamed the loss on the pilots' strike late last year that saw the airline suffer a Sh1.3 billion loss. 

Even so, the airline's revenue stood at Sh117 billion, a 66 per cent increase from the previous year.

This is five per cent below the pre-pandemic reported revenue, indicative of the group's projected recovery by 2024.

The growth in revenue was driven by a significant increase in passenger numbers which grew by 68 per cent to 3.7 million passengers, and over 65,000 tonnes, a 3.5 per cent increase in cargo tonnage.

The deployed capacity in Available Seat Kilometers (ASKs) increased by 75 per cent, closing the year 2022 at 10.3 billion compared to 5.9 billion reported for the same period in 2021.

As a result, passenger load factors for 2022 were only 3.9 percentage points below the load factors achieved before the pandemic in 2019.

Speaking at the investor briefing, KQ chairman Michael Joseph, said that global air passenger traffic gained momentum and recovered substantially as governments lifted covid-19 travel restrictions and passengers grasped the opportunity to resume travel.

"In 2022, KQs operations were impacted positively by pent-up travel demand, the removal of travel restrictions and KQs efforts to increase frequencies across its network resulting in a strong and sustained recovery,'' Joseph said. 

As a result, global passenger traffic recovered from 41.7 per cent of 2019 levels in 2021 to 68.5 per cent in 2022. " Joseph said.

According to Group Managing Director and CEO Allan Kilavuka, the airline would have reported a profit at the operating level notwithstanding the impact of the aforementioned challenges that included the devaluation of the Kenya Shilling against major currencies.

“The airline recorded forex losses occasioned by the restructuring of the guaranteed Government of Kenya loans as part of the ongoing financial restructuring program, negatively impacting the income statement by Sh26.4 billion,'' Kilavuka said. 

He adds that, if the impact of the forex losses and the abnormal fuel cost increased by 160 per cent, the firm could have made an operating profit.

"We are on course to turn around the business by 2024. We are confident that this will be achievable with the support we are getting from our stakeholders,'' Kilavuka said. 

He revealed that the debt restructuring process is ongoing and includes restructuring the government-guaranteed debt. As a result, there is a charged finance cost of 18 billion in our 2022 income.

The firm has vowed to continue with the process to reduce operational costs by 10 per cent by 2024 at 60 per cent completion rate.

Already, the lease cost reduction is at 22 per cent, approximately Sh4 billion, have been negotiated. The full benefits are to be realized in 2023.

According to the International Air Transport Association (IATA), a return to profitability is expected for the global airline industry in 2023 as airlines continue to cut losses stemming from the effects of the Covid-19  pandemic on their business in 2022.

As a result, in 2023, airlines are expected to post a small net profit of $4.7 billion—a 0.6 per cent net profit margin.

It is the first profit since 2019 when industry net profits were $26.4 billion (3.1 per cent net profit margin).