Captain George Kamal, the acting chief executive of Kenya Airways, gave editors a number in Nairobi on 19 August that explains the airline more efficiently than any strategy document. The carrier makes about one dollar fifty in net profit on each passenger seat it sells. In the same briefing he said fuel costs had risen 72 per cent in the current half year because of the war in the Middle East, and that fuel now accounts for between 50 and 55 per cent of operating costs, against an average of roughly 40 per cent last year. Those two figures sit badly together. A business with a dollar fifty of margin per seat cannot absorb a fifteen-point shift in the largest line of its cost base.
What has happened to Kenya Airways over six months is not a bad quarter. It is a cost structure being rewritten by an event on another continent, in a strait the airline does not fly over, in a conflict Kenya is not party to. Brent settled at 93.78 dollars a barrel on 20 August and 94.39 dollars the following day, after months in which traffic through the Strait of Hormuz ran far below the roughly twenty million barrels of oil and products that moved through it daily before the fighting. Airlines buy the consequence of that at the wing tip. An airline in a country that refines almost nothing buys it without a domestic hedge of any kind.
The dollar fifty is the part worth holding onto, because it defines what every other decision at the airline can and cannot do. Kamal said the company is reviewing every single contract to find savings, which is the honest description of a business that has no other lever within its own control. It cannot set the price of jet fuel. It cannot end the war. It can renegotiate ground handling, catering, leases and maintenance agreements, and it can raise fares into a market that will punish it for doing so. Everything available to management operates on the smaller half of the cost base while the larger half moves independently.
A business with a dollar fifty of margin per seat cannot absorb a fifteen-point shift in the largest line of its cost base.
The second constraint closes the obvious escape route. Kamal described a global shortage of aircraft engines and spare parts that has stretched maintenance timelines badly, with engine repairs that once took about sixty days now taking a hundred and twenty or longer. The standard response to a cost shock in aviation is to spread it across more seats, flying the fleet harder and filling it fuller. Kenya Airways cannot do that, because a share of its fleet is waiting on parts. It is paying more per seat while having fewer seats to sell, and the two pressures are unrelated in origin but identical in effect on the balance sheet.
This is where the airline’s ownership stops being a technicality. Kenya Airways reported a pre-tax loss of 17.93 billion shillings last year on lower revenues, after a rare profit in the preceding period, and the state remains its largest shareholder. A loss at the national carrier is therefore a fiscal event as much as a corporate one, arriving in a year when the Treasury has published a five and a half billion dollar external financing programme and is shopping Eurobond, Samurai and sukuk markets to fund it. The war does not send Kenya an invoice. It sends one to an airline the state cannot let fail, in the same months the state is asking international lenders what it costs to borrow.
Read narrowly, this is a story about an airline having a difficult year, and airlines have difficult years. Read properly, it is a measurement. Kenya Airways is one of the few African institutions that publishes, in public, in near real time, exactly how much a distant chokepoint costs. Most of the transmission runs through channels nobody quantifies, in the price of transported maize, in a matatu fare, in a generator that runs fewer hours. The airline is the visible instrument on a dial that is moving everywhere else without a readout.
Kamal is due to release half-year results, and they will carry the usual apparatus of turnaround language. The number that will matter is not the loss. It is whether the dollar fifty survives, because that figure is the airline’s entire capacity to withstand anything at all. A carrier operating on a dollar fifty a seat is not a business with a fuel problem. It is a business whose viability is set by a commodity price it has no say in, in a conflict it has no stake in, and management’s honesty about that is more useful than any recovery plan it could publish alongside it.
