KQ to in­crease Boe­ing fleet ahead of US ven­ture

The East African - - NEWS - By GE­ORGE KAMAU Spe­cial Cor­re­spon­dent

KENYA AIR­WAYS in­tends to in­crease its Boe­ing 787 fleet in or­der to en­joy the economies of scale as it eyes the US route.

KQ man­age­ment an­nounced that it was opt­ing for fuel hedg­ing — a con­trac­tual tool used to re­duce ex­po­sure to volatile fuel costs — as part of its turn­around mea­sures.

The air­liner also plans to with­draw from two routes — Hong Kong and Hanoi in Vietnam — from Oc­to­ber 29, al­low­ing it to de­ploy the air­craft to the US and African routes.

Chief ex­ec­u­tive Se­bas­tian Mikosz said the air­line was go­ing back to fuel hedg­ing hav­ing formed a com­mit­tee. Fuel cost is the high­est ex­pense in­curred by air­lines.

The air­line has been ex­it­ing fuel hedg­ing which was a key source of its losses in the re­cent past fol­low­ing a sharp drop of global oil prices be­gin­ning mid 2014. As at the end of March this year KQ did not have fuel hedg­ing con­tracts in place.

“When you are run­ning an air­line you have to plan for­ward so hedg­ing is part of the fuel com­mit­tee that we have formed,” said Mr Mikosz.

Mr Mikosz was brought on board to turn around the ail­ing Kenya air­line which re­ported a loss of Ksh10.2 bil­lion ($101.2 mil­lion) as at the end of March ow­ing to his turn­around record at LOT Pol­ish Air­lines.

KQ had booked ac­cu­mu­la­tive losses ex­ceed­ing Ksh8 bil­lion ($80 mil­lion) due to fuel hedge con­tracts. The air­line had, how­ever, reaped ben­e­fits from the con­tracts be­fore the fuel prices went south. The hedges re­turned a cu­mu­la­tive gain on fuel de­riv­a­tives of Ksh4.07 bil­lion ($40 mil­lion), with Ksh2.5 bil­lion ($25 mil­lion) re­alised in 2012 alone.

“The set up of the fuel com­mit­tee and hedg­ing is good for KQ but they have to check the tenor of the con­tracts be­cause if it is too long the more ex­posed you are,” said the head of re­search at Ster­ling Cap­i­tal, Eric Mun­y­woki.

KQ pol­icy on hedg­ing is up to 80 per cent of its oil ra­tions for 12 months and 50 per cent of it for two years.

The air­line had also suf­fered heav­ily from de­fraud­ing by staff as was re­vealed by a leaked au­dit re­port last year.

Mr Mikosz is work­ing on a cul­ture change that will en­sure de­ci­sion-mak­ing power is dis­trib­uted across the air­line op­er­a­tions avoid­ing bot­tle­necks as­so­ci­ated with bu­reau­cracy.

“Cul­ture is the big­gest chal­lenge we face. We have to start trust­ing our own staff. An air­line is as strong as the low­est guy can make de­ci­sions,” he said.

Cul­ture is the big­gest chal­lenge we face. We have to start trust­ing our own staff.” Se­bas­tian Mikosz, KQ chief ex­ec­u­tive

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