As a result of the current global economic crisis, the airline industry, in common with other major industries, faces major challenges. During the first half of the financial year, fuel prices peaked at an all time high of Usd 147 per barrel in July 2008.

IATA estimates indicate that the combined industry loss in the in the range of Usd 5.0 billion in the financial year 2008/2009. Their forecasts indicate a reduction in passenger traffic of 3% in the financial year 2009/2010 being the first such decline since 2001.

In addition to all these factors, the post election violence experienced in Kenya at the beginning of 2008 also adversely impacted the financial results during the industry’s peak session. The effect of the strong Kenyan Shilling against the US Dollar earlier in 2008 also further magnified the decline in profitability of the airline as the dollar denominated revenues, especially passenger and cargo were converted at depressed rates.

The impact of the above factors was reflected in the un-audited results of the first half of the financial year in which profits declined by Kshs 1.2 billion.

Despite the recent downward trend in jet fuel prices, Kenya Airways has hedged a part of our fuel prices higher than the market. Hence, the benefits that accrue from the decline in jet fuel prices are being offset by the hedge costs thereby impacting the airline’s profitability. The weakening of the Kenya Shilling has also increased the fuel costs which are US Dollar denominated. Further, the aviation industry continues to experience a decline in passenger numbers.

As required by the Capital Markets Authority and the Nairobi Stock Exchange regulations, the Directors announce that the projected profit for the year ended 31 March 2009 will be at least 25% lower than the earnings of the prior year. However, the Directors, at this time, expect Kenya Airways to remain profitable although at a lower level compared to the previous year.

EVANSON MWANIKI

CHAIRMAN