Kenya’s national carrier wants to take a risky gamble it took 2 years ago and has never recovered from
The airline's executives say they are already in talks with banks and other firms in the energy sector to finalise on the technical aspects of the process.
Kenya Airways has announced plans to restart fuel price hedging by the end of the year, two years after a similar fuel hedging agreement played a big part in wrecking its bottom lines and which it has never fully recovered from.
“The volatility of the oil price has been really tremendous. Addressing this is of utmost concern.” Said Kenya Airways Chief Executive Officer, Sebastian Mikosz Friday after the firms annual general meeting.
KQ, as the airline is known by its international code, spent Sh25 billion ($ 250 million), or about 30 per cent of its operating costs on fuel last year.
The executives say the rising fuel budget presents a significant stumbling block in the airline’s recovery path.
The decision to go back to hedging imply that the airline’s executives have every reason to believe that fuel prices will continue to rise in the foreseeable future hence the need to protect the airline’s fortunes when they still can.
Fuel prices have risen by about 12 per cent since April to a current Sh7,000 per barrel ($70) yesterday, from Sh5,000 ($5) last year.
Under the hedging contract, KQ generally undertakes to pay the current market prices throughout the period of agreement, making profits with every upward swing.
Two years ago, the airline tried such a bet – which is regarded as an international best practice in the airline industry – but prices took a downward trend, contributing immensely to a monumental Sh26 billion loss that the national carrier booked.
It has never recovered from that dent, which saw it lease aircraft and sell its prime landing space at Heathrow Airport, London for Sh7.6 billion in 2016, in efforts to raise revenue.
JOIN OUR PULSE COMMUNITY!
Eyewitness? Submit your stories now via social or: