The effect of expansion projects on the financial performance of airline companies A case study of Kenya Airways

Abstract

The study sought to establish the effect of expansion projects such thirty one numbers of fleets, cargo volumes, passenger growth, overhead costs, direct expenditures and operating leases on financial performance. The case study was adopted for Kenya Airways Company for the period of 10 years (2002 to 2011). Secondary data was collected for the purpose of this study and descriptive statistics were used to analyze the data by way of means, standard deviations, correlation analysis, multiple regression analysis, F and T tests.The study shows a negative relationship between direct expenditure, overhead costs, operating lease rentaland the profit of Kenya Airways. This is to mean that, an increase in direct expenditure and overhead costs will lead to a decrease in profits and vice versa. The study also found a positive and significant relationship between number of aircraft fleets, cargo volumes, passenger numbersand financial performance of Kenya airways. This is to mean an increase in aircraft fleets, cargovolumes and passenger numbers would increase the company’s profitability and vice versa.These findings are in line with Homsombat, Fu, and Sumalee (2010) who examined changes in productivity and cost competitiveness of France carriers and through a regression analysis they identified key factors that led to such changes; they revealed that expansion enabled many carriers to improve productivity levels above the industry's average. The study concluded that there is need to create strong positive and negative correlation between the expansion project and financial performance in order to create profitability of the organization. The outcome of the study was beneficial to the Kenya airways and provides managers with some perspective to see value of the expansion project. The study recommends policy decisions to shield external shocks that affect financial performance and further research on the impact of expansion project on other mode of transport in order to appreciate andrelate to economic growth and development of the country.