“The only people who see the whole picture are the ones who step outside the frame.” ― Salman Rushdie
Kenya Airways Limited is a Kenya-based company that operates in the aviation industry. Commonly referred to as KQ.
The Company is engaged in providing international, regional, and domestic carriage of passengers and cargo by air, the provision of ground handling services to other airlines, and the handling of import and export cargo.
The Company’s segments include Passengers, Freight and mail, Handling and Others.
It operates domestic flights and flies to around 60 destinations in Africa, the Middle East, Asia and Europe.
It has around 50 aircrafts, either owned or on operating leases.
These consist of around seven Boeing 777 wide body jets, six Boeing 787, five Boeing 767 wide body jets, 14 Boeing 737 narrow body jets, 18 Embraer regional jets and two Boeing 737 freighters.
The Company operates KQ Holidays, a leisure unit, which caters to the leisure traveler for family holidays, weddings and honeymoons, as well as the business traveler for all meetings and conference needs with additional incentive travel.
Historical Timeline
1977
Kenya Airways is established in January following the breakup of the East African Community and subsequent disbanding of the jointly-owned East African Airways.
1986
The Government makes the first move towards privatization by publishing the Sessional Paper No.1 of 1986 on ‘Economic Management for Renewed Growth ‘. The document for the first time, spells out the Government’s intention to divest from corporations which could be run better by the private sector.
1991
A new board is appointed at Kenya Airways in April under the chairmanship of Mr. Philip Ndegwa with a mandate to commercialize and prepare the airline for privatization.
1992
A policy paper on Public Enterprise Reform and Privatization setting out policy objectives is issued in July. The policy paper gives high priority to the privatization of Kenya Airways.
1993/4
Commercialization process produces the first profits.
1995
Shareholders’ Agreement and a Master Cooperation Agreement with KLM are concluded in December.
An IFC information memorandum is sent to 154 airlines in search of a ‘strategic partner’ culminating in the eventual selection of KLM. This takes place in May 1995.
1996
KLM acquires a 26% stake in KQ for $26 Million.
An Initial Public Offer for shares is issued in March.
1997
Delivery of the first of four new Boeing 737-300 aircraft dedicated to domestic and African regional services.
Kenya Airways Msafiri frequent flier programme merges with KLM’s Flying Dutchman frequent flier programme.
1999
Voted African Airline of the Year by African Aviation Magazine (UK based publication).
2000
Named African Airline of the Year for the second year running by African Aviation Magazine.
2001
Named African Airline of the Year for third year running by African Aviation Magazine.
2003
Kenya Airways acquires 49% shareholding in Precision Air, a Tanzanian carrier.
2004
Kenya Airways scoops triple win as Best Domestic Airline 2003, Best Regional Airline 2002 and 2003 and Best In-flight Magazine 2002 and 2003 by Travel News Lifestyle Magazine.
Delivery of the first state-of-the-art Boeing 777 as part of the airline’s fleet expansion and the 6th Boeing 767 aircraft.
2005
October 2005 – KQ achieves IOSA (IATA Operational Safety Audit) becoming the 1st carrier in sub-Saharan to get this rigorous safety certification.
Kenya Airways voted East Africa’s Most Respected Company.
Kenya Airways launches new route to Lubumbashi, Democratic Republic of Congo in February.
Delivery of a second new Boeing 777-200ER in April.
Kenya Airways announces record results for 2004/05, with profit after tax up 198% to Ksh. 3,882 million (US$ 50m).
Kenya Airways launches new route to Istanbul, Turkey in June.
Delivery of a third new Boeing 777-200ER in June.
Kenya Airways launches new route to Bamako, Mali and Dakar, Senegal in July.
2006
Kenya Airways announces another record profit after tax of Ksh. 4,829 million for the year ended March 31st 2006, being 24% above the previous year’s result of Kshs. 3,882 million.
Kenya Airways wins the prestigious African Aviation Award awarded by the African Aviation Magazine in March.
2007
Kenya Airways joins SkyTeam as an Assosiate Airline
Kenya Airways opens a Leadeship center – Pride Center
Kenya Airways opens a Flying Blue Service Center
Kenya Airways launches new routes to Monrovia, Cotonou and Mayotte.
2008
Travel News Lifestyle Magazine votes Kenya Airways as African Airline of Choice, Best Regional Airline, Flying Blue voted the best Frequent Flier program and Msafiri – Best inflight magazine.
2009
KQ Partners with Chartis Kenya to Launch Travel Insurance.
KQ customers to use mobile money transfer system, M-PESA to buy tickets.
Kenya Airways acquires a sixth Boeing 767-300 ER to increase its aircraft fleet.
Kenya Airways installs modern In-Flight Entertainment (IFE) System that offers passengers real value for money.
Kenya Airways signs a Code Share Agreement with Nigerian Eagle Airlines to strengthen its presence and increase market share in West Africa.
Kenya Airways launches direct flights to Gaborone, Botswana, Ndola, Zambia, Bangui, the largest city in the Central African Republic and to Kisangani; the Democratic Republic of the Congo.
Kenya Airways (KQ) takes delivery of its fourth Boeing 737-800 aircraft.
2010
Kenya Airways joins the ranks of global airlines as a full SkyTeam member
Kenya Airways starts flights to Juba, Muscat, Luanda, Nampula, Rome and Malindi
Kenya Airways named Africa’s Business Airline of the Year
Kenya Airways to acquires more aircrafts – Embraer E190 and (2) 737-300
Jet Airways and Kenya Airways enter into Codeshare and Frequent Flyer Partnership
Kenya Airways announces its Code Share with Qantas
Kenya Airways signs full content agreement with Travelport
2011
Kenya Airways and Boeing finalize order for 9 B787 Dream liners
Kenya Airways unveils new Embraer Flight Simulator
Kenya Airways launches a passenger Carbon offsetting program to cut carbon emissions
Kenya Airways opens new Premier World domestic lounge at the JKIA
Kenya Airways surpasses 3million passenger mark
Kenya Airways Chief Executive appointed to IATA Board of Governors
2012
Kenya Airways Launch Freighter Service
Kenya Airways Starts Direct Flights to New Delhi
Kenya Airways rolls out SkyPriority Service in Partnership with SkyTeam
Kenya Airways and Barclays Bank of Kenya Unveil KQ Msafiri Visa Credit Card
GHS Aviation teams up with Kenya Airways to open African regional office
Kenya Airways adds 10th Embraer to its growing fleet
2013
Kenya Airways receives first Boeing 777-300ER aircraft
Kenya Airways wins in World Travel Awards 2013
Kenya Airways awarded “Best International Airline”
Kenya Airways Cargo wins prestigious Global Award
Kenya Airways CEO feted for ‘Contribution to Air Transport Business’
Kenya Airways and Etihad Airways in Codeshare Deal to Enhance their Global Network Coverage
Kenya Airways and Safaricom launch “Fly with bonga points” pact
Kenya Airways and Kenya Tourism Board sign joint marketing initiative
Kenya Airways Launch Direct flights to Livingstone, Blantyre and Abu Dhabi
2014
Kenya Airways receives first Boeing 787 Dreamliner aircraft
Kenya Airways receives second Boeing 777-300ER aircraft
Kenya Airways wins Best Cargo Airline in Africa Award
Kenya Airways wins International Safety Award 2014
2015
Kenya Airways Technical appointed an Embraer Authorised Service Centre
Kenya Airways wins Africa’s Leading Airline-Business Class in the World Travel Awards 2015
Kenya Airways Cargo wins African Cargo Airline of the Year Award 2015
2016
Kenya Airways partners with SITA, a global air transport communications provider, in providing the airline with access to high-speed, secure connectivity communication linking employees and sales offices around the world to KQ’s central systems.
Airline Industry
Passenger trips globally are likely to double over the next 20 years given the current policies in place. This will be largely driven by growth in China, the US and India.
In the Emerging Markets, as living standards increase there is likely to be more flights per capita as the various economies grow, however, the correlation may not be the case for developed economies.
In the Africa and Middle East region, Revenue Passenger Kilometers (RPKs) are well above the industry average of 4.6%. In May 2016 Middle East recorded a y/y growth of 11.2% and Africa 8.6%.
Cargo performance has not been the best so far, globally growth in Freight Tonne Kilometers (FTKs) has grown slightly at 0.9% y/y. FTKs in Africa stand at a mere 0.3% y/y growth while in the Middle East growth stands at 3.2% y/y.
The main reason for the decline in FTKs y/y in the African Market is due to declining business with Europe, the largest market. This may be an indicator of the current economic situation in Europe.
Q1 2016 Earnings before Interest and Tax (EBIT) margins in Africa and Middle East improved and outperformed the benchmark with an average 8.7% margin against the industry’s 8.0%.
Kenya Airways Financial Highlights
For the fiscal year ended 31 March 2016, Kenya Airways revenues increased 5% to KES116.16B compared to the previous year. 2016 revenues are the highest the airline has ever touched.
Passenger numbers stood at 4.23 million, this further shows that topline performance is still solid given that the overall economic environment is quite tough.
In terms of operations the Airline made an operating loss of KES 4B an improvement from 2015’s 16.3B loss which was one of the worst performance in the airline’s history. In as much as the airline is still in loss making territory they have improved from the previous year’s position. The last time Kenya Airways made profits was for the fiscal year ending 31 March 2012. Overhead costs have been generally high which need to be kept at a minimum.
Losses on fuel derivatives arose in FY15 and FY16 due to general oil price declines since 2015 to date that has put the airline in a severe ‘out-of-the-money’ position. The Chief Executive of the Airline told Business Daily (Kenyan business media house) that, “My position is that we have put on hold new hedging contracts, no contract was entered this year. The existing ones were entered much earlier.” With that in mind we expect Kenya Airways has ceased this hedging operation and would strip it out in their operating activities going forward.
Volatility in the currency markets in Sub Saharan Africa (e.g Nigeria) affected Kenya Airways costs in FY16 which brought about a foreign exchange loss of KES 9.7B.
Interestingly in 2006 KQ had its best year which still stands as the best one making profits before tax of KES 6.96B that year while in 2016 it made a loss before tax of KES 26.1B ten years later a huge divergence, however, profits are still attainable. In a recent interview with the Kenya Airways Chief Executive with CNN he expects the airline to come back to profitability soon (possibly 12 – 18 months). (Watch Video Below).
Share Price Analysis
Total Number of Shares: 1,496,469,035
Average Volume: 197,650
Top 10 Shareholders
- •Permanent Secretary to the Treasury – 445,920,557 shares (29.8%)
- •KLM – Koninklijke Luchtvaart Maatschappij – 400,020,026 shares (26.7%)
- •Standard Chartered Nominees Ltd Non Resident A/c KE11752 – 143,000,000 shares (9.6%)
- •Standard Chartered Nominees Ltd A/c KE17682 – 71,116,080 shares (4.8%)
- •Standard Chartered Nominees Ltd A/c 9187 – 35,906,095 shares (2.4%)
- •Standard Chartered Nominees Ltd A/c 9230 – 20,630,773 shares (1.4%)
- •Gulamali Ismail – 10,424,100 shares (0.7%)
- •Vijay Kumar Ratilal Shah – 9,309,160 shares (0.6%)
- •Mike Maina Kamau – 8,003,940 shares (0.5%)
- •Old Mutual Life Assurance Co. Ltd – 7,477,369 shares (0.5%)
Notable Institutional Holders
– Old Mutual Life Assurance Company
– Parametric Portfolio Associates
– Boston Management & Research
– International Finance Corporation (IFC)
In the maxed out chart below since 1996 to date, the company’s share price has experienced some periods of wild rides. The share price shot up to an all-time high of 142.74 on September 2006 which was the year the company made historic profits which still stand out as the best in the airlines history.
If Kenya Airways strategic partner, KLM, which invested $26 Million decided to exit today on the open market, it would be making roughly a $10 million loss roughly a 42.1% investment loss. We estimate a break-even exit value of KES 6.6/share. KLM is still a crucial business partner and would help Kenya Airways in expanding it’s network at a lower cost. Kenya Airways believes that the partnership is a key enabler in achieving the turnaround strategy in the short term.
Note in 2012 Kenya Airways had a rights issue at an offer price of KES 14/share raising KES 14.5 Billion.
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Sources: (Kenya Airways, IATA, IFC, CMA Statistical Bulletin, NSE, Financial Times, Kenyan Wall Street)
