Thursday, 29 March 2018

KENYA: Kenya Airways, Air France And KLM In Partnership - Higher Fuel Costs Reason For KQ High Losses

Air France has formally joined the Kenya Airways and KLM joint venture (JV), as the French carrier launched direct flights between Nairobi and Paris.

The new agreement, which was signed Monday, allows passengers to connect to 26 and 57 other destinations beyond Nairobi and Paris, respectively.

Air France, which merged with KLM in 2004, will operate three weekly flights between Nairobi and Paris.

The airline will fly the latest-generation Boeing 787 on this route, the Dreamliner with 30 seats in Business class, 20 in Premium Economy class and 225 seats in Economy class.

Air France, KLM and KQ customers will also reserve flights operated on a code share basis by one of the three airlines on Amsterdam and Nairobi routes following signing of the partnership.

We are back on the Nairobi and Paris route because of the growing economic ties between the two countries.

To date, we have over 80 French companies that have selected Nairobi as their regional hub and this is one of the many opportunities we are looking to tap.

Our latest route will serve to strengthen our African routes, said Air France, senior vice president Africa, Frank Legre.

The agreement allows the three carriers to conduct concerted marketing and sales activities, align and coordinate pricing of tickets as well as exchange of staff in select areas.

KLM and KQ entered into a master co-operation agreement in 1995, which has seen them share revenues on certain routes based on a pre-determined ratio after deducting expenses.

We are accelerating our offensive on the long haul flights by forging partnerships and new alliances. We are set to unveil new routes and partnerships soon said Air France, Executive Vice President, Customer Division, Anne Rigail.

Meanwhile, Kenya Airways is set to introduce a more spacious but higher-priced Economy class on its nine Dreamliner aircraft in a bid to grow its revenues.

The national carrier, known as KQ by its international code, says it will increase the recline angle and legroom on 27 seats currently assigned to Economy class and charge up to Sh10,200 more for the convenience.

KQ made the announcement Wednesday when reporting that its revenue for the nine months to December stood at Sh80.8 billion and that its net loss for the period was Sh6.1 billion.

Any time one of the aircraft is grounded for an extended period, we shall make the necessary adjustments to the first three rows in Economy, said Vincent Coste, KQ’s chief commercial officer.

Customers can book these seats for between $50 and $100 depending on the season and length of the flight.

Airlines have over the years increasingly paid more attention to business class customers who pay significantly higher than their fellow passengers on the same trip.

Offerings such as bars and lie-flat beds aimed at increasing the cabin space for this special set of passengers have, inevitably, disenfranchised those who sit in Economy class.

KQ is now looking to book extra ancillary revenue from this new offering which it says has proved successful including among its partner airlines such as KLM and Air France.

Dreamliners are the commonly used aircraft on long-haul routes such as Europe and the upcoming one to New York hence KQ’s decision to retrofit for extra comfort to woe customers.

This aircraft has 30 seats in Premier World or Business class and 204 in Economy.

At the moment, the airline charges between Sh3,100 and Sh11,780 for passengers in need of seats with extra legroom, with the cost varying depending on the length of the flight and your loyalty programme ranking.

National carrier Kenya Airways’ shareholder value has moved into positive territory riding on last year’s balance sheet restructuring that reduced its annual debt payment obligations, leaving room to revamp its operations.

KQ’s equity position stood at Sh417 million in the nine months between April and December 2017 compared to negative Sh45 billion in the year to March 2017, according to a financial report that was released.

The change in fortunes follows a complex restructuring of the business that saw Kenya Airways main creditors, 10 commercial banks and the government convert Sh44.2 billion loans into equity to save it from total collapse.

Financial results that were released on Wednesday, however, show that Kenya Airways is still a multi-billion shilling loss-making operation that produced a Sh6.08 billion loss for the nine months to December 2017.

The results do not have a comparable period because KQ has changed its reporting period from March to the calendar year.

Michael Joseph, who chairs the company’s board, said the change in reporting cycle has been done to sync the airline’s books with those of stakeholders such as travel agents, financiers and lessors.

We are now concentrated on the industrial restructuring of the business, which includes finding ways of increasing our revenues and keeping costs at a manageable level, he said.

KQ’s precarious equity position that left it with less assets than its debt load meant that if it were to be liquidated, shareholders would be left with nothing.

Kenya Airways’ total debt now stands at Sh139.6 billion compared to total assets of Sh140.1 billion.

The airline made loan repayments of Sh9.1 billion during the period under review, a significant drop from the Sh25 billion paid out in the full year to March 2017.

Despite this improvement in its leverage, the carrier posted a loss for the nine months to December mainly driven by a 14 per cent increase in fuel costs and a 20 per cent drop in customer numbers.

KQ airlifted 3.4 million passengers during the nine months to December earning Sh80.8 billion in revenues but its operating costs consumed Sh79.5 billion.

Sebastian Mikosz, the airline’s chief executive, said attention is now turning to route expansion, cost optimisation and improvement of service delivery.

Top on the list are the direct and daily New York flights set to commence in October and which Mr Mikosz expects to boost KQ’s revenues by between eight and 10 per cent.

Kenya Airways (KQ) has posted a Sh6.1 billion net loss for the nine months to December as it announced a change in its financial calendar to sync with the calendar year.

The national carrier's management has attributed the loss position to higher fuel costs and the negative impact of a prolonged electioneering period.

Fuel costs, which went up 14 per cent in the period, remain the biggest challenge to KQ's profitability.

However, the airline is optimistic of 2018's outlook amid a planned rollout of daily flights between Nairobi and New York this October, non-stop flights to Cape town and direct flights to Mauritius.

Chief executive S├ębastian Mikosz said the full financial impact of the new US route will be felt in 2019, adding he expects a revenue boost of between 8 and 10 per cent.

The firm will be recalling its Dreamliner from Oman Air to serve this long haul route.

Kenya Airways will, in partnership with its European partners, roll out economy comfort class on all aircraft in the next 12-15 months as part of its strategy to increase revenues.

Michael Joseph, KQ's chairman, said Wednesday at an investors' briefing that Polish consultants are still part of the team alongside consultants from other countries, adding that focus on the Polish misplaced.

Tourism Observer

No comments: