Kenya Airways will spend USD$3.6 billion over the next five years on new planes and routes, mainly for connections between Africa and Asia, its chief executive said.
Titus Naikuni said trade between Africa and China and India had soared in recent years, growing at an annual rate of about 200 percent, creating huge opportunities in the travel market.
“We are looking at African markets. We are looking at Asia, India and we need to connect these three land masses,” Naikuni said on Thursday.
Ranked as one of Africa’s largest airlines, the carrier that is 26 percent held by Air France-KLM, is undertaking a USD$250 million cash call that will go towards funding the plan.
“I’m expecting that subscriptions will be 100 percent if not more. It is going to be a success,” Naikuni said, saying that Air France-KLM and the government, which holds a 23 percent stake, had agreed to take up their rights.
“What we are looking for is about USD$125 million. We have been out in the market place and a number of foreign investors are very keen. That is what makes me very optimistic.”
If the cash call is successful, Kenya Airways will get a boost to its debt equity ratio, which stands at around 1, allowing it to borrow a further USD$2.2 billion.
The balance of the required funds would be generated from internal resources, he said, giving the airline a chance to double its passenger fleet to 68 planes and add eight freighters. It currently operates a sole, leased freighter.
Extra aircraft would enable the carrier to start six new routes to China, six new routes to India, a service to Madrid as well as increase frequencies on its numerous African routes.
“We are starting Delhi in the next two months. In fact if I had aircraft I would put a double daily to Mumbai,” he said.
AIRPORT EXPANSION A RISK
Kenya Airways’ strategy hinges on connecting Africa with the outside world through its Nairobi hub. It has opened a string of routes across Africa to tap a vast continent that lacks good road and rail networks.
Naikuni said the airline would start operating daily frequencies across the continent.
The airline is expecting 10 E-190 Embraer jets due for delivery between July next year and 2013. It also signed a deal for the purchase of 787-8 Dreamliners with Boeing in April last year.
The main risk facing the firm’s plan is the expansion of Nairobi’s main airport, which although built in 1978 to handle 2.5 million passengers a year, manages 5 million.
“This airport must be expanded quickly… Let’s break the ground quickly because if we continue talking, another year could go by,” Naikuni said, adding that the new facility should have a capacity of 20 million passengers.
Kenya Airways expects to carry 4 million passengers in its 2012/13 (April-March) financial year, up from 3.7 million in the year ending this month, Naikuni said, thanks to the increased services it has been offering.
“We are still not a mature market in Africa therefore there is growth,” he said, adding the cargo business would also grow due to the new freighter the airline leased this financial year.
He said total revenue from cargo was 8 percent, but that may rise to 10-11 percent by the end of the next financial year.
The carrier has a fuel hedging policy to cushion performance from jumps in crude oil prices, a key element of its costs.
“We have already hedged 80 percent of our supplies until March 2013 and we have another 45 percent hedge for 2013/2014 but we are looking at the market and we will increase that hedge to 80 percent,” Naikuni said.