Kenya Airways sees grim year on security situation

NAIROBI Tue Nov 6, 2012 10:44am EST

A Kenya Airways Boeing B777-200ER plane is seen during a media tour at their maintenance hangar in Nairobi October 2, 2008. REUTERS/Antony Njuguna

A Kenya Airways Boeing B777-200ER plane is seen during a media tour at their maintenance hangar in Nairobi October 2, 2008.

Credit: Reuters/Antony Njuguna

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NAIROBI (Reuters) - Kenya Airways expects to recover from a first-half loss but full year profits will still be less-than a quarter of last year's, hurt by the euro zone crisis and insecurity at home, the airline said on Tuesday.

The carrier, which is 26.73 percent owned by Air France-KLM (AIRF.PA) and is one of Africa's largest, said earnings were mainly hobbled by lower travel demand and a jump in costs.

With a fleet of 37 passenger planes and 59 destinations, Kenya Airways has been hit hard by the debt and deficit crises in the euro zone, which sapped demand for travel on the routes that bring in nearly a third of total revenue.

Demand on key European routes like London further took a knock from grenade attacks and frequent unrest along Kenya's coast, which curbed the leisure travel market, forcing Kenya Airways to cancel some flights to the British capital.

That sent the airline's revenue passenger kilometre down by 3 percent, resulting in a 9.6 percent drop in total revenue for the period to 49.8 billion shillings.

The company posted a pretax loss of 6.589 billion shillings in the six months to the end of September, briefly sending its shares falling by as much as 4.8 percent.

"We are hoping that we will reverse some of the losses within the next five to six months but again it depends on a lot of things in the market place going right," Titus Naikuni, the chief executive, told reporters.

New routes in Africa and Asia could pick up the slack from the fall in demand on European routes, the company said, although it added that uncertainty over an election due in Kenya in March could hurt the travel business.

"We do not believe we will be able to reverse the situation to a point where we will be profitable within 25 percent of last year's profits," said Alex Mbugua, the airline's finance director.

Kenya Airways posted a profit of 2 billion shillings in the year to end-March.

The situation in the first half of this year was worsened by an unfavourable exchange rate as well as 826 million shillings of one-off costs related to job cuts expected to save the airline 1.2 billion shillings a year.

Analysts said they were dismayed by the weak performance.

"The numbers are very disheartening because revenue is not growing," said Mwenda Rarama, a research analyst at Kingdom Securities.

Labour unions are challenging the airline in court over the job cuts, sparking negative press for the airline. This worsened after the parliamentary committee on labour summoned the airline's bosses to explain the company's planned lay-offs.

(Editing by James Macharia and Keiron Henderson)

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