Kenya Airways introduces new cost cutting measures in wake of FY 2012/13 losses

KENYA AIRWAYS INTRODUCES NEW COST CUTTING MEASURES TO BOOST PROFITABILITY

(Posted 28th June 2013)

Good news for shareholders have come out of the Kenya Airways headoffice in Embakasi, when information was released yesterday about projected 5 billion Kenya Shillings in savings over the next few years, following the re-negotiation of crucial maintenance and supply contracts with service providers

Following the announcement of full year results earlier this month, which resulted in the airline’s share price suffering some downward correction, has the top management of Kenya Airways been taking the offensive to the market and the measures just made public are in fact, or so it is understood, the result of months of work behind the scenes, aimed to reduce the cost burden associated with maintaining a growing fleet.

The statement received from KQ in part reads:

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The savings arise from improvement in commercial terms, service levels, contractual terms and conditions, as well as significant direct and actual cost savings; coupled with the benefits of the planned fleet expansion.

For the next five year contract period, the airline will save over KSh754.6 million (US$8.8 million) annually under its aircraft maintenance Component Support Programme (CSP).

In addition to this, Kenya Airways’ strategic expansion programme, Project Mawingu, which aims at growing its network of destinations, besides expanding the fleet from the current 42 to 107 new modern aircrafts, will lead to a significant cut in costs, contributing to the savings.

Kenya Airways’ Chief Executive Officer and Group Managing Director, Titus Naikuni, said that the CSP was part of the airline’s efforts to review its high cost drivers in a bid to reduce operation costs without compromising on quality. The aviation industry traditionally has high operating costs. This is the reason why we are continually reviewing our operations to ensure that we are able to deliver a world-class experience to our customers while keeping an eye on our costs.

The CSP was led by a team comprising airline staff from different areas – Technical Procurement, Engineering Development, Component Workshops, Technical Planning, and Quality Assurance & Engineering Finance – to develop guidelines and review all existing contracts.

The cost-cutting measures come as the aviation industry smarts from tough times in the last financial year due to knock on effects of the economic slowdown in the Eurozone leading to reduced passenger numbers and a spike in oil prices that increased airlines’ operating costs. This led to losses, financial difficulties and collapse of airlines.

Kenya Airways indicated, in the recently released 2012/13 full year financial results, that its direct operating costs were KSh77.2 billion, which remained unchanged from the previous year. The airline’s turnover, on the other hand, dropped to KSh98.8 billion in the 2012/13 financial year, compared to the KSh107.9 billion that was netted the previous year.’

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The commitment of Kenya Airways, to connect Africa like no other airline, by flying to all political and commercial capitals across the continent by the end of next year, remains firmly in place and as more of the modern Embraer E190 jets are delivered, and a new order reportedly is being finalized for more of the larger B737NG’s, this vision, according to a source close to the airline, will be turned into reality. By March 2014 does Kenya Airways expect the first of 9 B787 Dreamliners on order, to facilitate both fleet expansion and the retirement of the aged B767 fleet, which will lead to further significant savings in operating cost compared to present day. For more information about the airline, for schedules, bookings and on line check in, visit www.kenya-airways.com

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