UPDATE 2-Kenya Airways swings to first-half profit

* H1 pretax up 17 percent to 1.23 billion shillings

* Says a weaker shilling helped passenger yield

* Cargo volumes hit by the economic slowdown

By Duncan Miriri

NAIROBI, Oct 30 (Reuters) - Kenya Airways (KQNA.NR) swung back into profit during its first half ended September, thanks to a favourable foreign exchange rate and the resurgence of crude oil prices.

Ranked among the leading carriers in Africa, the airline -- known locally as KQ after its flight code -- posted a 17 percent rise in pretax profit to 1.23 billion Kenya shillings ($15.9 million), despite significant pressure on its passenger numbers and cargo volumes.

The results mark a turning point for the airline after it posted its first full-year loss since privatisation in 1996 for the year ended March due to fuel hedge bets that turned sour. [ID:nL58257]

"The average shilling/dollar rate last year was 64.00, this time it was 78.00 and because the fuel price has gone up, the difference between the market and the hedge ... has been much less," KQ Group Finance Director Alex Mbugua told Reuters.

The company made a net gain on fuel derivatives of 1.73 billion shillings, up from 1.43 billion in the same period a year earlier. Unrealised fuel hedging losses in the second half KQ's last financial year plunged the company into the red.

Shares in KQ edged 1 percent higher after the results. They were trading at 24.50 shillings in the last hour of the session.

Mbugua said the airline had put in place several initiatives to maintain the good performance during the second half.

KQ said revenue from its cargo business fell by 16 percent to 2.59 billion shillings after volumes slid by 15 percent.

"Whenever you have a blip in the world economy, the first impact seems to hit air freight business. People prefer sea freight, they would rather wait a bit longer than have the luxury of air freighting," Mbugua said.

Passenger numbers were also under pressure during the first half but foreign exchange gains helped cap the drop in overall revenue to 1.7 percent.

"Indications are that the pressure will ease a little sooner on passenger numbers than cargo," Mbugua said, citing the International Air Transport Association (IATA).

He said the company had just taken delivery of a replacement aircraft after one of its Boeing 767s was returned a few weeks ago upon the expiry of its lease.

KQ, which is 26 percent owned by Air France-KLM (AIRF.PA), would also continue to talk to Boeing (BA.N) and Airbus (EAD.PA) in a bid to modernise its ageing fleet.

This year, it has been opening new African routes in line with its strategy to link African travellers to the rest of the world.

IATA has predicted that losses incurred by the global aviation industry would fall in 2010 as the world emerges from its economic downturn.

"Aviation is not ready for party time," said Bram Steller, KQ's chief operating officer. (Editing by David Clarke and David Holmes) ($1=75.30 Kenyan Shilling)