Notes to the Financial Statements (cont'd) - Kenya Airways

graph (english).ai 7/23/10 3:45:17 PMKenya Airways Annual Report & Accounts27Word from the Chief Executive (cont’d)The global economy has started to recover albeitat a slow pace. The highest growth has beenconcentrated in Latin America, Middle East andAsia. Although the aviation industry is expectedto recover in 2010, the industry is still expected tomake losses of USD2.8bn during the year.Kenya Airways remains focused on its strategicplan of efficiently expanding city pair connectionsin order to create a profitable network, with aparticular emphasis on Africa. In 2009/10 alone, wesuccessfully launched 7 new destinations in Africanamely: Brazzaville – Republic of Congo; Kisangani– DRC; Libreville – Gabon; Bangui – Central AfricaRepublic; Ndola – Zambia; Gaborone – Botswanaand Malabo in Equatorial Guinea.To ensure our expansion strategy continuesuninterrupted, the Bilateral Air Services negotiatingteam headed by the Ministry of Transportsuccessfully reviewed and concluded BilateralAir Services Agreements (BASAs) with severalcountries. These agreements will offer moreopportunities for expansion by opening new routes,increasing frequencies of flights as well as expandingpartnerships with other carriers especially in Africa.The theme for our report this year is “Opening Africato the world”. By opening new routes, we believethat we will have played our part in opening upAfrica for the expansion of trade and creation ofinvestment opportunities. Amongst the challengeswe have faced in the previous year are volatilefuel prices, the delay of the Dreamliner B787-800aircraft, e-ticketing compliance and the effect ofthe 2-day strike. The most daunting challenge wehave faced however has been the infrastructurallimitations at JKIA.Although we have noted the continued initiatives bythe Government and the Kenya Airports Authorityto expand the capacity at JKIA, it is worthwhile to note that as at1978, the airport was designed to handle 2.5 million passengersyearly. With our continued expansion and the entry of many moreforeign carriers into the Kenyan market, the capacity of JKIA tohandle passenger throughput has been stretched to the limit. In2009, JKIA handled about 5 million passengers. Subsequently, thepassengers’ experiences while transiting at JKIA have not beenpleasant and they have opted for friendlier and competing airports.In the absence of the upgrade of these critical infrastructuralfacilities that are a prerequisite for our continued success, wewill be forced to continue seeking the government’s supportand facilitation in allowing the transit passengers especiallyfrom Francophone West Africa to access hotel facilities outsidethe airport if we are to reclaim our rightful place as the leadingaviation hub in Africa.With 70% of our network being in Africa, Kenya Airways todayfaces a lot of taxes and fees on its operations and services,including taxes on income, property, fuel, equipment and forsocial and economic purposes such as development aid, theenvironment and tourism expansion. Admittedly, the impositionof new taxes on the airline industry especially in Africa has led toan unprecedented rise in the cost of doing business. For instance,the Government of Kenya has only negotiated and concluded 8Double Taxation Agreements (DTAs), against over 44 internationaldestinations that KQ currently operates to. We will continue tourge the Government of Kenya through the Ministry of Finance tomove expeditiously and conclude the avoidance of DTAs. With theremoval of barriers to trade, investment and entrepreneurship inan open market should remain the preferred means of achievinglong-term development.Kenya Airways will continue engaging the Government inconstructive dialogue to ensure that we regain and maintain thenumber 1 position as the aviation hub of choice.Passenger revenue dropped marginally to Kshs.62.8 billion in2009/10 compared to prior year at Kshs 62.9 million. Cargorevenues dropped by 11% to Kshs.5.4 billion compared to prioryear at Kshs.6.1 billion mainly as a result of the world economicdownturn. Handling revenue increased by 3% to Kshs.1.3 billioncompared to prior year at Kshs.1.28 billion. As a result of theabove, the total turnover dropped by 1.5% from Kshs. 71.8 billionin the prior year to 70.7 billion in 2009/10.COMMERCIAL HIGHLIGHTSBUSINESS PERFORMANCEDuring the 2009/10 financial year, Kenya Airways carried a totalof 2.92 million passengers compared to 2.82 million passengersin the previous year. In addition, the airline transported 55.2million kilograms of cargo across the network compared to 55.6million kilograms in the previous year. The growth in passengernumbers over prior year was witnessed only in the second half ofthe financial year due to new routes started up and the resumptionof traffic following the aviation industry’s recovery from the globalrecession. In addition, the continued positive forecasts of globalairline traffic improvements are slowly being realised.300,000250,000200,000150,000APRMAYJUNPassenger NumbersJULAUGSEPOCTMonthsNOVMARKETING1. KQ-Msafiri Gold Credit card loyalty program.In December 2009, Kenya Airways launched the KQ-Msafiri GoldCredit card, an International MasterCard Credit Card issued bythe CfCStanbic Bank of Kenya. The card is aimed at promotingloyalty to Kenya Airways by making it possible for cardholdersto accrue reward points exchangeable for “FREE” tickets withKenya Airways as they go about their regular lifestyle shoppingthrough the millions of MasterCard outlets worldwide. The cardcan also be used to purchase KQ tickets both online and at retailoutlets as well as at travel agencies. Other benefits to cardholdersDEC09/1008/09JANFEBMAR