External Environmental Factors Influencing Financial Performance of Kenya Airways

Abstract

Financial performance of an organization defines the organizations continuity. A firms‟ sustainability is highly dependent on its management of finances. Corporate success in todays‟ market environment is defined by some factors which are out of the direct control of an organization, yet organizations have to adapt to the external environments dynamic ways for their survival. The effect of external environmental factors on the financial performance of the airline industry especially in Kenya has received little attention in academic inquiry. The airline business depends on the wellbeing of international trade and the stability of the markets. It is interesting to study how Kenya Airways financial performance is affected by the external environmental factors in the airline industry. A number of studies have been done on financial performance in the airline industry but the researcher is unaware of any past research tackling individual external factors and their effects on financial performance. It is in this light that the study sought to fill the existing gap in this area. The objective of the study was to determine the external environmental factors influencing financial performance of Kenya Airways. In doing this, the study sought to answer the following research question: what is the effect of external environment on the financial performance of Kenya Airways. The study applied case study research design where only one organization was involved. The study used primary and secondary data collected through interview guide administered to senior managers at the organization and KQ financial statements. Content analysis was used to analyze data and the findings presented in a prose format. The financial performance trend indicate that the financial performance of KQ has deteriorated over the years despite increase in sales at an average of 13%. The respondents comprised of Top management at KQ.A total of seven out of the ten targeted respondents provided feedback. External environmental Political and legal factors were found to affect KQ financial performance to a very great extent. External Economic environment significantly affected the financial performance of Kenya Airways due to Kenyas‟ expansionary fiscal and monetary policy as well as Measures taken by the CBK to control inflation and exchange rates. Inflation negatively affected its fuel costs hedging strategies. The high interest rates have tripled the costs of their debt leading to massive losses in the financial year 2013 and 2014.Rapid technological advancements in the industry informed KQ decision to buy new planes in an effort to adopt international technological advancements and this led the carrier to sink in debt due to high interest rates accounting for the interest rates expenses reported in KQ financial statements hence the financial losses. The study finally recommends that KQ should improve its cost control through fuel efficiency as this accounts for almost half the operating cost and adapt the latest technology in streamlining their operations. KQ should also continue to form targeted strategic partnerships that work to meet their long term vision.