Kenya Airways: Can Share Prices Take Off?

June 19, 2019

The appointment of Sebastian Mikosz as head of national Kenyan carrier Kenya Airways was one that sought a return to more buoyant prospects. Two years later he is set to leave his post, with the national airline a lot worse off and a wider airline industry seeking to make gains on a poor 2018.

Source: Pixabay

Two theories for KQ’s demise under Mikosz

Under Mikosz’s reign at Kenya Airways (KQ), the share price reached a low of 3.00 on May 17th. This was down from a level of over 20.00 in 2017 when he took over. One industry opinion sees the decision to own aircraft – instead of leasing them – as what affected profitability and made it difficult for KQ to meet certain targets. Another reveals that, despite revenue increasing (alongside passenger numbers), the overheads that were already dangerously high in 2017 remained at sufficient levels to prohibit profits and dividends. The share price then followed this downward trend, continuing to step down month on month since early 2017.

Speculation, airline shares and companies to keep an eye on in 2019

Investors and traders often work in niche markets and airline stocks trading is watched closely. KQ’s shares are a prime example of a subplot within an industry that generally appears to be performing well, but where one wrong step can lead to a pretty swift end. Some airlines in Kenya’s position recover, some don’t. It is this market specifically that has seen an increase in speculation. For the traders analysing airline shares, many will set up a demo trading account to test strategies and market performance over time. Airline shares often react quickly to news events and their financial reports and are traded extensively through CFDs.

Source: Pixabay

KQ are competing in a world market, but not always on the same footing and, for those considering which airline shares to watch in 2019, many will instead be turning their eyes to airlines in the US. The US economy has remained strong despite the increase in market volatility, meaning that airlines like Southwest Airlines, United Continental Holdings, JetBlue and American Airlines are all well placed to capitalise on favourable operating conditions in 2019.

The airline industry took a hit in 2018 – can it recover in 2019?

One huge cause for concern for all airlines is the current stock price of major aeroplane provider Boeing. Carter Copeland, President of aerospace analytics company Melius Research, explains that the airline market has been affected by failures in Boeing’s planes, specifically the Ethiopian crash in March. “When planes have been grounded, it affects airline costs, legal settlements and customer refunds”. Indeed, Boeing’s price dropped 13.44% (over $30 billion) during the following week demonstrating the capacity for current affairs and opinion to have enormous impacts on the direction of markets and specific share prices.

Source: Pixabay

The airline industry had already experienced a tough year in 2018, with crude oil prices rising to record levels in October. However, in December 2018 the International Air Transport Association (IATA) offered a more encouraging forecast for the global airline industry in 2019. It stated that profits in 2018 had actually extended to $35.5 billion and predicted passenger numbers are ready to see a hike. And, with those crude oil prices also set to return to more manageable levels (down from an average 2018 price of $73 per barrel to $65 per barrel), airlines are set to experience conditions conducive to growth.

For KQ to return dividends to its investors, Mikosz’s successor needs to achieve what he couldn’t: cut overheads, restructure the operating costs and take advantage of the growing number of air passengers predicted for the rest of the year. The prospects for KQ are still up in the air, but for investors looking for direction, paying close attention to how the new CEO approaches the problem could reap rewards. Other airlines are profiting, oil costs are down and IAFTA forecasts are strong.

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