Kenya Airways released its annual financials a week ago with loss making headlines. We decided to take a step back and try and break down the numbers. In this piece we will focus on Revenues and the General Airline Industry Growth.
It would be essential to read the definition of terms used in the Aviation Industry in order to understand this musing.
According to IATA it projects a Global 6.8% passenger capacity in 2016 compared to 6.7% capacity (ASK/Available Seat Kilometers) in 2015. In regards to Passenger Traffic (RPK/Revenue Passenger Kilometers) IATA expects 2016 to grow at 6.2% compared to 7.4% in 2015. This indicates a projected slowdown in regions such as North America, Europe, Asia Pacific and Latin America.
On the flip-side Africa and Middle East are forecasted to continue having positive traffic growth year on year compared to 2015.
Middle East has consistently outperformed the Industry RPKs benchmark. Africa Slumped below industry average RPKs between mid 2013 and 2015, however there is resilience in 2016 and has outperformed the industry average. (See chart below)
Note that in the Africa & Middle East Region growth has been recorded amongst key routes apart from Africa-Europe which has slowed down.
In terms of capacity growth both pax (passenger) & freight capacity for Middle East and Africa have grown higher than the industry average.
The downside is that both pax & freight load factors are below industry averages.
In Africa there is a small uptake in Widebody Aircrafts in 2016 with 18 deliveries made compared to 17 deliveries made in 2015. On the other hand Narrowbody Aircrafts have received 46.2% increase in deliveries compared to 2015’s deliveries made.
Kenya Airways Revenues
In light with the overall industry data, Kenya Airways has managed to grow its revenues consistently from 2004 to date. It made revenues of KES 116 Billion in year ending March 2016 which is a historic high as shown in the chart below.
Passenger growth has been consistently on a rise since 2004 from having 1.7 million passengers to a current 4.23 million passengers in 2016.
From a longer term perspective load factors dropped from 2012 from 71.7% to 63.6% in 2015 but has improved by 5% to 68.3% despite a fall in capacity by 4%.
Since 2004 Kenya Airways has had 8 years of profitability and 5 years of losses. In the period under review, the highest profit before taxes made was in 2006 standing at KES 6.9 Billion as shown below. This was on the back of roughly KES 52.8 Billion in revenues.
Since 2013 Kenya Airways has not been making any profits despite record high revenues and increase in passenger numbers. 2015 was the worst hit. This might be an indication that lean management should be the way forward in order to find an optimum point where the airline can remain in profitability.
Something to note is that IATA forecasts Africa as the least profitable region, however we believe Africa can position itself in becoming relatively profitable.
In our next musing we will do a deep dive into the reason why the losses came about and possibly seek to find a remedy.
Sources: (IATA, Kenyan Wall Street, Kenya Airways)
