Roads and Transport Cabinet Secretary Kipchumba Murkomen has said that Kenya Airways is on its way to salvage its financial status after being hard hit by effects of Covid-19 and other challenges in the past six years.
Murkomen who appeared before the Senate plenary to answer questions asked by Senators on Wednesday said that the national carrier has for the first time in six years reported an operating profit of Sh998 million in the first half of financial year 2023 compared to the same period in the previous year when there was a reported loss of Sh5 billion.
The CS who was responding to Nandi Senator Samson Cherargei on the performance of Kenya Airways told the Senate that the growth can be linked to 56 per cent increase in group revenue, reaching an impressive Sh75 billion with passenger numbers moving up to 2.3 million.
“I would like to inform the Senate that the gross profit for Kenya Airways has improved by 131 per cent, the accrued debts did not bring down the impressive operating results primarily due to the huge Forex losses because of the depreciation of the Kenya shilling against US dollar,” said Murkomen.
He explained that the forex losses were primarily due to the revaluation of the US dollar-denominated loans and liabilities and the financial charges which amounted to Sh22 billion heavily impacted overall results.
Murkomen said that the airline industry is highly competitive and profit margins are low. He noted that according to the International Air Transport Association the average net profit margin for the global airline industry is typically less than five per cent.
The Cabinet Secretary told the senators that airlines globally are highly vulnerable to external factors that can impact their profitability including fluctuations in fuel prices, currency devaluation, supply chain challenges and geopolitical events.
“Airlines require significant capital investment in aircraft, maintenance and infrastructure which can limit their profitability which is unlike other businesses that do not have the same level of capital intensity,” said Murkomen.
He explained that the airline industry is cyclical and can be sensitive to economic cycles during economic downturns, demand for air travel may decline, affecting airline profitability and that airlines are subject to extensive regulations, including safety and security requirements which can add operational costs.
Murkomen further said that the airline industry is highly competitive with many players operating in the market leading to price wars and reduced profit margins. He noted that airlines face operational challenges, including maintenance, scheduling, and workforce management, which can impact costs and profitability.
“International Air Transport Authority indicates that the global airline industry is expected to return to profitability in 2024, but financial performance across regions remains diverse, the industry financial status is improving in all regions from the COVID-related challenges of 2020,” he said.
He pointed out that while not all regions are expected to deliver profit this year, Africa remains a demanding market in which to operate an airline, with economic, infrastructure and connectivity challenges impacting the industry performance.
Murkomen said that despite these challenges, there is still robust demand for air travel in the region which reinforces the continued move towards a return to overall industry profitability with Kenya Airways current performance and projections predicated on return to profitability in this financial year.
The Cabinet Secretary said that Kenya Airways was not the only recipient of government assistance in Africa to cope with the negative impact of Covid-19.
“Senegal pumped Sh17.1billion relief package for its tourism and air- transport sector with Seychelles waiving all landing and parking fees for the period from April to December 2020 while Ivory Coast waived its tourism tax for transit passengers,” he said.
The Nandi Senator had also sought to have Murkomen provide a comprehensive account of all financial support, including Government bailouts and loans from the Export-Import Bank of the United States of America, extended to Kenya Airways over the last 10 years emphasizing on the respective amounts received and the purposes for which the support was extended.
Murkomen said that Kenya Airways has no loan facility from the Export-Import Bank of the United States of America (US Exim) with the US Exim Bank being a guarantor of a facility of Sh111.2 billion to procure six 787-8 aircraft, one (1) 777-300ER aircraft and one Genx engine.
The CS told senators that this is 90 per cent of the total facility of Sh112.3 billion provided by Citibank N.A and JP Morgan Chase Bank N.A.
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