KENYA AIRWAYS SHARES HIT BY ESCALATING FUEL COST
The predicted fallout from the sharply risen fuel cost for airlines operating in Kenya has driven the share price of Kenya Airways to a two year low, as the value of KQ’s shares has slipped by nearly a third since the beginning of the year. Investors, both individual as well as institutional, are getting jittery over the fallout of continuously rising fuel cost, while at the same time, at least on domestic routes, Kenya Airways continues its low fare offensive in order to regain market share at the expense of domestic competition on the routes between Nairobi, Mombasa and Kisumu.
A source within the airline, on condition of anonymity, has played down the development saying: ‘Our fundamentals are still intact. We have fuel hedging contracts in place to cushion the effect of fluctuating aviation fuel prices. Our domestic market drive has brought back occupancies and market share. On the continental and international routes we are doing ok and further expansion is only hampered by the delay in having more aircraft. Of course, such big fuel cost variations are a concern for every airline, us included. We are looking at a range of options to cushion this effect by devising measures to save fuel in flight but while the share price has admittedly dropped since the start of the year mainly because of profit forecasts now being less than anticipated due to higher fuel cost, we expect investors to come back once these spikes are levelling out. You yourself wrote about the impact of the politics on oil prices a few weeks ago if I remember and yes, it will be a challenging year for global aviation. I agree with you that the world economy is still in recovery mode from the 2007/8 recession and that Japan and North Africa / Mid East will have a greater impact on the world economy than initially expected. Yes, it may have an impact on holiday plans for people from our main markets but some oil producers have increased output to make up for the temporary loss of sales from Libya. Overall, while we must be cautious and prudent in our decisions, I don’t think that the positive fundamentals have changed to reverse economic recovery.’
That all said, maybe the lower share price for Kenya Airways presents an opportunity to snap up a bundle of them at a bargain price and benefit from a rise in coming months.
Watch this space.