Kenya Airways counts $8m in lost revenue after flying out of China route

Kenya Airways (KQ) has lost $8 million in revenue in about one month since it suspended flights to China as a precaution against the deadly coronavirus outbreak.

The losses on the Nairobi-Guangzhou route include foregone passenger and cargo revenue.

Acting chief executive Allan Kilavuka told The EastAfrican that China is a key cargo origin as well as a main feeder to the regional freighters, and the suspension of flights since the end of January has dealt a big blow to the airline’s revenues.

“We are looking at lost revenue of about $8 million, both passenger and cargo. However, various initiatives are in place to increase passenger and cargo revenues on other routes to minimise this impact,” said Mr Kilavuka.

The coronavirus has so far infected more than 75,000 people globally and killed over 2,200.

“I am optimistic that the situation in China will be under control soon and we will resume our service that continues to create convenience and a good flying experience for all our guests,” he added.

He said that KQ switched the aircraft that operated the route to China, to Dubai, from February 11, and changed the timing of the Bangkok flight from a midnight departure to early morning as a way of maintaining operational efficiency and minimising disruption to passengers.

“Due to our additional precautionary measures we have faced some delays in operations. We are working closely with the port health teams from the Ministry of Health as guided by the World Health Organisation who continue to monitor and advice on the next steps to take with regards to the coronavirus,” he said.

FALLING STOCK

KQ’s stock on the NSE has fallen by 1.29 per cent over the past month to trade as low as Ksh2.29 ($0.022) per share on Thursday last week.

In the past seven years, the share price has dropped by over 75 per cent from a high of Ksh9.40 ($0.094) in 2013.

KQ, which is set to be delisted from the Nairobi Securities Exchange after parliament approved its takeover by the State, widened its losses for the year 2018 to Ksh7.5 billion ($75 million) from Ksh6.4 billion ($64 million) in 2017.

Its net loss for the six months’ period to June 30, 2019 more than doubled to Ksh8.5 billion ($85 million) from Ksh4 billion ($40 million) in the same period the previous year (2018).

Globally, the International Air Transport Association (IATA) forecast the aviation industry will lose $29 billion worth of passenger revenues this year, of which $40 million will be from African airlines.

According to IATA, carriers outside the Asia-Pacific are forecast to lose $1.5 billion, assuming the loss of demand is limited to markets linked to China.

Global traffic is forecast to drop, causing the first overall decline in demand since the Global Financial crisis of 2008-2009.

“This will be a very tough year for airlines,” said Alexandre de Juniac, IATA’s director general and chief executive.

“It is clear the airlines are struggling. Our initial analysis suggests that we are facing a 4.7 per cent hit on global demand. That could more than eliminate the 4.1 per cent growth we forecast for 2020 in December.”

Kenya Airways flies to Guangzhou, China’s third-largest city, three times a week.

Before the suspension of the flights, a passenger from China was quarantined after being suspected to have contracted the deadly flu-causing virus.

Regional airlines such as RwandAir and Air Tanzania have also suspended flights to China over the viral outbreak.

Globally, Virgin Atlantic, Germany’s Lufthansa, Air France and KLM SA have also stopped flying to China.

NATIONALISATION

Kenya’s lawmakers have approved the nationalisation of KQ to save the airline that has been run down by mismanagement and mounting debts.

The government has adopted a plan to buy out KQ's minority shareholders and convert shares held by commercial banks into debt.

Under the plan, the government will also create a special purpose vehicle — Aviation Holding Company (AHC) — to manage Kenya’s aviation sector.

The AHC will have four subsidiaries — Kenya Airways, Kenya Airports Authority, Jomo Kenyatta International Airport and a centralised Aviation Services College, which will be run independently.

KQ is 48.9 per cent owned by the government, and a group of 11 local banks which own 38.1 per cent of the shares.

Other shareholders include KLM Royal Dutch Airline (7.8 per cent), employees (2.4 per cent) and other shareholders at 2.8 per cent.

However, the airline is facing difficulties keeping up with its competitors such as Ethiopian Airlines, Rwandair, Emirates, Qatar and Etihad, which are all fully state-owned and subsidised, and have engaged in aggressive growth strategies focused on volume and market share.

KQ’s former chief executive Sebastian Mikosz quit in mid-December after he declined to extend his three-year contract, which expired on December 31, citing personal reasons.

In July last year, chief operating officer Jan De Vegt resigned after serving for three years, and chief financial officer Hellen Mathuka was suspended in September.

KQ was listed on the NSE in 1996 after the government offered a 51 per cent stake to the public at an offer price of Ksh11.25 ($0.11) per share.