Airline Weekly - September 21, 2015
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Airline Weekly - September 21, 2015

Kenya Help Me Out? Kenya Airways, losing loads of money, hopes a government bailout will ensure its survival

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Kenya Help Me Out? Kenya Airways, losing loads of money, hopes a government bailout will ensure its survival

It calls itself the “pride of Africa,” and for good reason. On a continent notorious for extremely difficult operating conditions, Kenya Airways has since 1977 offered Africans safe and reliable air travel, often earning profits while doing so. For the past three years, however, those profits turned into losses. Deep losses.

In its latest fiscal year that ended in March, Kenya Airways fell into its harshest crisis since the government privatized it in the early 1990s. Net losses for the 12 months approached $300m, accompanied by a negative 15% operating margin—the worst among 75 reporting airlines in the world (see page six). One Kenyan newspaper said it was “the biggest single loss in Kenya’s corporate history.”

The carnage was even worse during just the last half of the period—from October through March—when operating margin sank to negative 21%. In other words, far from stabilizing, the situation continued to deteriorate. With figures this bad, it’s a wonder that an airline the size of Kenya Airways, with fewer than 50 airplanes and just $1.3b in annual revenue, could even survive.

Actually, it couldn’t survive—on its own, anyway. So the Kenyan government, unable to stomach the disappearance of an economically critical company, is now stepping in with emergency bridge loans to keep it aloft. More aid could be forthcoming as the carrier devises and implements a restructuring plan with the help of international consulting firms like McKinsey and Seabury, the latter a veteran of multiple North American bankruptcy restructurings.

So how exactly did Kenya Airways fall upon such hard times? The Kenyan economy grew a healthy 5% last year and (according to World Bank estimates) will grow even faster this year as cheaper oil strengthens consumers and manufacturers. The country is also proceeding with big infrastructure projects, including a Chinese-financed railway connecting Nairobi with the port city of Mombasa. The railway will, in fact, transport passengers as well as freight, potentially taking some domestic business away from Kenya Airways. But this is the least of the carrier’s worries.

At the top of its list of headaches is Kenya’s shattered tourism sector, with foreign visitor arrivals down by about a fifth this year versus last. Reasons for this decline include the sluggish global economy and still-lingering effects from... (396 of 1,582 words)

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Lufthansa’s corporate reorganization, importantly, comes at a favorable time. The just-finished summer season was an apparent success, propelled by cheaper fuel and strong revenues. And executives said the start of the fall, although marred by more pilot unrest, saw no discernable booking declines from controversial new surcharges on sales through third parties (i.e., GDSs).

Demand, indeed, seems to be in good shape throughout Europe—Vueling and Wizz Air both (in separate interviews with Bloomberg News) attested to strong summers. Then again, some carriers are all bad news all the time: Alitalia said it lost another $144m in the first half of 2015.

Between Europe and Canada, low-cost flights are interestingly—and rather suddenly—proliferating. WestJet is now in the market, joining Rouge, Transat, European tour operators and others adding lots of new transatlantic routes.

South Africa is seeing new airlines too, in its case at a time of heightened economic distress. The headwinds weren’t enough to stop Comair and its LCC Kulula from earning a profit in the first half of 2015, but profits were down y/y.

One thing most definitely not down are wages at Delta, which just announced big pay raises for most workers. Southwest is moving closer to a new pilot deal. And travelers are enjoying big declines in airfares. Everybody wins… except oil producers.

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