obiero wrote:sparkly wrote:littledove wrote:https://af.reuters.com/article/commoditiesNews/idAFL8N1TO1B9Kenya Airways will resume aviation fuel hedging in the second half of this year after price volatility drove up its costs, the airline’s CEO said on Friday.
The proposal would enable Kenya Airways to increase its fleet from 32 to 55 and start flying to 20 new international destinations by 2022, an official government document seen by Reuters showed.
The two statements above should worry kq shareholders alot. Hedging can again backfire, buying new planes almost double the current number needs billions
KQ cannot make an economic profit as long as it is exposed to competition in the international market place where national airlines are heavily subsidized. KQ can't compete with gulf airlines getting free fuel or European carriers getting loans at negative interest.
To make a profit, GOK should give KQ a monopoly on uplifting passangers and cargo from Kenya. E.g. if KQ flies to London, GOK should not allow any other airline to pick from Kenya.
But how come KQ used to be profitable
Paper profits from creative accounting including but not limited to;
1. Fuel hedging profits
2. Sale and leaseback of assets
3. Advance recognition of revenue (recognising ticket sales for tuture travel as earned)
4. Under recognition of liabilities from delays and cancellations.
Economic profits on the other hand are self evident. An economically profitable firm:
1. Grows its NBV at a rate equal to or higher than general economic growth;
2. Generates free cash flows to replace or upgrade assets;
3. Pays an increasing dividend or maintains healthy cash reserves for acquisitions
4. Debt if any is maintained at low levels
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