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Kenya Airways is this morning expected to announce a loss for the first six months of this fiscal year,albeit lower than the one it recorded last year,analysts say.
The national carrier’s earnings fell 62 per cent from the previous half year to Sh736 million.
That half year loss was announced prior to the introduction of a new accounting requirements on fuel hedging that saw the airline report losses of Sh5.66 billion for the year,compared to pre-tax profits of Sh6.52 billion the previous year.
The newly introduced accounting rules forced the airline to book the total Sh7.5 billion loss it incurred from an unrealised hedging position in last year’s income statement,taking it deep into loss-making territory.
Kenya Airways hedged against jet fuel price movement till the end of 2010 at the height of turbulence in crude oil prices at the beginning of last year.
As such,it has not benefited from the low petroleum prices of recent months because it continues to pay for jet fuel at between $110 and $108 a barrel per the hedging agreement.
Analysts reckon that with fuel prices being higher than in the March when the new accounting requirement came into force means that some of provisioning for the hedging losses would translate into earnings in the present half-year.
The airline is expected to have made cost savings from un-hedged fuel since crude oil has been trading at lower rates in the six months to September this year compared to a similar period a year earlier.
“The results will be comparatively better than what was seen earlier as the increase in fuel prices works to their favour,” said Mr Justus Agoti,the head researcher at Sterling Investment Bank,adding the airline is not out of the woods yet since fuel losses are expected to sit on its books till next year.
African Alliance expressed similar views.
According to analysts,the airline’s performance in the current financial year is dependent on the direction the petroleum prices will take.
They caution that the airline is still not yet in the clear despite the slight increase in fuel prices as they have yet to reach the highs of over $100 that the airline hedged at.
Following increased fuel prices recorded last year,the airline hedged against jet fuel price movement till the end of 2010. But the financial crisis saw fuel prices reduce impacting the its hedges.
Kenya Airways is watching the upward movement of fuel prices keenly as an increase in prices reduces the airlines exposure and will translate into earnings on its books.