Kenya Airways saw operating costs increase 93% in 2022
Kenya Airways (KQ) released its full-year financial results for the year ending December 31, 2022. At a virtual investor briefing, the airline highlighted an increase in revenue, losses, and operating costs.
The latest statistics released on March 27 show that the group’s total revenue in 2022 stood at $890 million, a 66% increase from the previous year. However, the group’s operating costs increased by 93% due to the rise in operations and fuel costs.
2022 revenue increase
KQ’s revenue for 2022 increased by 66% to $890 million compared to 2021. The group has projected sustainable recovery by 2024 as the revenue is only 5% below pre-pandemic levels. A total of 3.7 million passengers were uplifted in 2022, registering a 68% increase compared to 2021.
The increase in revenue was attributed to the increase in travel demand as the world has opened up. While passengers increased by 68%, over 65,000 tonnes of cargo were airlifted by KQ, which is a 3.5% increase.
The deployed capacity in Available Seat Kilometers (ASKs) increased by 75%, ending 2022 at 10.3 billion compared to 5.9 billion in 2021. As a result, the passenger load factors were only 3.9% below the load factors achieved before the pandemic.
Speaking at the investor briefing, Kenya Airways Chairman Michael Joseph said that global air passenger traffic gained momentum and recovered sustainability as governments lifted COVID-19 travel restrictions and passengers grasped the opportunity to resume travel, which was reflective of KQ’s performance. He added;
“In 2022, KQs operations were impacted positively by pent-up travel demand, the removal of travel restrictions and KQs efforts to increase frequencies across its network resulting in a strong and sustained recovery in performance compared to a similar period in the prior year. As a result, global passenger traffic recovered from 41.7% of 2019 levels in 2021 to 68.5% in 2022.”
Losses recorded in 2022
In 2022, the airline also recorded significant losses. Financial performance was impacted by the devaluation of world currencies against the dollar, an increase in fuel prices, and forex losses due to the current financial restructuring. KQ’s direct operating costs increased by 93% due to the increase in operations.
The net loss grew by 1.4 times to $170 million compared to the $120 million loss in 2021. This brings the carrier’s accumulated loss to $1.3 billion. Costs grew from $660 million to $1.2 billion, which can be attributed to the increased fuel prices worldwide.
According to Allan Kilavuka, the group’s Managing Director, Kenya Airways would have reported a profit at the operating level notwithstanding the impact of the challenges mentioned, including the devaluation of the Kenya Shilling (KES) against major currencies. Kilavuka said at the briefing;
“The airline recorded forex losses occasioned by the restructuring of the guaranteed Government of Kenya loans as part of the ongoing financial restructuring program, negatively impacting the income statement by KES 26.4 billion. If you remove the impact of the forex losses and the abnormal fuel cost increase at 160%, we would have made an operating profit. We are on course to turn around the business by 2024. We are confident that this will be achievable with the support we are getting from our customers, our employees, our principal shareholder the Government of Kenya and other stakeholders.”
Projected recovery in 2024
The International Air Transport Association (IATA) says that a return to profitability is expected for global airlines in 2023 as they continue to cut losses stemming from the effects of the pandemic up to 2022. This year, airlines are expected to record small net profits of up to $4.7 billion, which is a 0.6% net profit margin.
Kenya Airways projects sustainable recovery in 2024 as operations and revenue swings closer to pre-pandemic levels. According to the CEO, KQ is addressing legacy issues to turn the airline around. Specifically, the issues include:
Debt restructures: This process is ongoing and includes restructuring the government-guaranteed debt.
Reduction of operating costs: KQ plans to reduce operating costs by 10% by 2024. Lease cost reduction: So far, 22% of lease cost reductions have been negotiated, which is approximately $30 million.
Operational excellence: The airline plans to improve reliability and on-time departures and arrivals.
Customer excellence: KQ plans to implement customer service initiatives to guarantee an excellent passenger experience.
Employee experience: Enhancing the productivity of employees.
Diversification: Over the next 5 years, KQ will continue to diversify its revenue streams. The group plans to double KQ Cargo’s contribution.
The Partnership with SAA
On its recovery path, Kenya Airways continues to pursue its strategic partnership with South African Airways (SAA). Although COMESA will treat the deal as a merger due to its effects on competition, the two airlines still plan to partner by 2024.
KQ and SAA announced plans to launch a pan-African airline group in 2024. The deal aims to boost intra-Africa connectivity and support economic growth through trade and tourism. Two of Africa’s major airlines coming together will significantly boost the development of aviation on the continent.
The proposed pan-African carrier will have a combined fleet of more than 100 aircraft and will operate under a single Air Operator Certificate (AOC), making it one of the largest airlines in Africa. However, both KQ and SAA have to overcome financial issues before they can collaborate.
