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Kenya Airways Posts First-Half Loss on Dismissals, Shilling

Nov. 6 (Bloomberg) -- Kenya Airways Ltd., sub-Saharan Africa’s third-biggest carrier, posted a first-half loss on lower passenger numbers, a stronger shilling and layoff costs and warned full-year earnings will fall at least 25 percent.

The loss in the six months through September was 4.79 billion shillings ($56 million), compared with a profit of 2.03 billion shillings a year earlier, Chief Financial Officer Alex Mbugua said at a briefing today in Nairobi, the capital. Revenue dropped 9.3 percent to 49.8 billion shillings, he said.

“We were expecting a loss, but the results came in a lot weaker than our estimates,” Eric Musau, an analyst at Sterling Investment Bank in Nairobi, said in a research note to clients. The lender has a buy rating on the stock, which fell 1.2 percent to 12.3 shillings by 12:39 p.m., the most in almost two months.

Travel advisories issued by countries including the U.S. and the U.K. following bombing attacks in the coastal town of Mombasa and Nairobi have hurt tourism in Kenya. Arrivals grew 3 percent in the first half of 2012, the slowest increase in four years, according to the Kenya Tourist Board. Demand for flights to Mombasa from London fell 50 percent in the first half, Kenya Airways Chief Executive Officer Titus Naikuni said at the briefing.

Staff Rationalization

The financial crisis in the euro zone, which accounts for 30 percent of revenue, a 17 percent increase in employee-related costs, including “staff rationalization costs” totalling 826 million shillings, and the shilling’s gain against the dollar during the first half also had an impact on earnings, the company said. The currency advanced as much as 23 percent against the dollar this year, according to data compiled by Bloomberg.

KQ, as the airline is known, will continue to expand by adding more aircraft and opening new routes to help the carrier return to profit, Naikuni said. The company announced in March it will raise $3.6 billion over the next 10 years to fund the expansion plan that includes increasing its fleet to 107 aircraft and more than doubling its routes to 115 from 55.

“The airline’s strategy to grow its network in Asia and Africa as well as the renewal of its fleet is still on course,” the company said.

Still, the outlook for the second half of the financial year, which includes presidential elections scheduled for March, combined with the impact of the euro zone crisis on domestic tourism, mean the airline is “unlikely to reverse the full impact of the first-half losses and still attain last year’s results,” it said.

The March vote will be the first since December 2007, when more than 1,100 people died and 350,000 others were forced to flee their homes amid a dispute over the results.

Profit in the global airline industry is expected to more than halve to $4.1 billion this year from $8.4 billion in 2011, according to the International Air Transport Association.

To contact the reporter on this story: Paul Richardson in Nairobi at pmrichardson@bloomberg.net.

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net.

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