Kenya Airways risks paying Sh13.9 billion in refunds to customers for unused tickets bought last year, mainly due to cancelled flights in the wake of the Covid-19 pandemic.
This could see the national carrier revise its revenue downwards, according to disclosures made by the company’s external auditor PricewaterhouseCoopers (PwC) for its financial year ended December.
The airline, like its peers across the world, is now asking customers to accept vouchers which allow them to travel in future, while conserving the much-needed cash to remain afloat, instead of making refunds.
Passenger ticket sales are accounted for as current liabilities and later recognised as revenue when customers fly or the ticket expire.
PwC says that the option of letting the tickets expire is largely shut out because of the unique challenges caused by the pandemic.
“In the current year, management have expressed significant judgments in relation to recognition of revenue on unused tickets in view of extensions in ticket expiries and refund options offered to passengers as a result of the Covid-19 disruption to the aviation sector,” PwC said in its report.
The Sh13.9 billion in unused tickets represents 26.3 percent of the Sh52.8 billion revenue that the airline reported in the review period.
Extension of the validity of tickets means that the airline’s revenue could drop if it opts to refund customers who have not flown.
It also means that it will take longer for the revenue to crystalise if KQ, as the carrier is known by its international code, opts to allow customers to fly in the future at a date of their choice.
Most customers were ready to fly on schedule but governments and airlines around the world have taken decisions that have led to an unprecedented cancellation of flights starting last year.
“The Covid-19 crisis has caused airlines to cancel more than one million flights globally,” the International Air Transport Association (IATA) said in a statement.“This changed the way airlines process refunds or offer credit for future flights. IATA has launched several activities to assist the industry efficiently address the customer vouchers and refunds topics.”Cash-strapped KQ is leaning towards settling most of the outstanding tickets using vouchers.Customers will have to weigh the pros and cons of accepting vouchers versus pressing for a cash refund. The vouchers may have expiration dates and conditions such as who can travel using them – the original customer or members of his or her immediate family.Some airlines are luring customers to accept […]