June 22, 2018 / 12:25 PM / 3 months ago

UPDATE 2-Kenya Airways to hedge aviation fuel to counter volatility

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By Duncan Miriri

NAIROBI, June 22 (Reuters) - Kenya Airways will resume aviation fuel hedging in the second half of this year after price volatility drove up its costs, the airline’s CEO said on Friday.

The carrier, which is 7.8 percent owned by Air France KLM , suspended fuel hedging in 2016 after contract losses sent it deeper into the red following a prolonged business slump and a jump in finance costs.

Chief Executive Officer Sebastian Mikosz said the recent increase in the price of Brent crude had driven up fuel costs - a quarter of its total costs - forcing a rethink on hedging.

“The volatility of the fuel price has been really tremendous... Addressing this is our utmost concern,” he told a news conference after the company’s annual meeting.

Kenya Airways suspended hedging at a time when it was struggling to cope with a sharp drop in air travel to Kenya due to militant attacks and concerns about an Ebola outbreak in West Africa.

The airline has since restructured $2 billion of debt and Mikosz said now was the time for “a very lean, mean, conservative policy of buying insurance” against fuel price volatility.

“I’m absolutely confident that in the third or fourth quarter of this year, Kenya Airways will start opening hedge policies again. You can expect some hedging disclosures next year,” he said.

Kenya Airways has also opened talks with the Kenya Airports Authority (KAA), the state organisation that runs all Kenyan airports, on a partnership that would allow it to run Nairobi’s main airport.

Such a deal, which could come into effect before the end of this year, would provide the airline with fresh revenue streams such as landing fees from other carriers, said Chairman Michael Joseph, citing the example of Gulf-based rivals.

“For us to compete with them (Gulf carriers) and to offer the same benefits that they offer we need to almost copy them,” he told the news conference.

The proposal would enable Kenya Airways to increase its fleet from 32 to 55 and start flying to 20 new international destinations by 2022, an official government document seen by Reuters showed.

Mikosz said the airline remained interested in potential orders of Bombardier’s CSeries short-haul jets ($1 = 100.7000 Kenyan shillings) (Editing by Jon Boyle)

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