IMPACT OF SELECTED MACROECONOMIC VARIABLES ON THEFINANCIAL PERFORMANCE OF KENYA AIRWAYS PLC
DOI:
https://doi.org/10.5281/zenodo.22900691Keywords:
Macroeconomic Variables, Financial Performance, Vector Error Correction Model, Aviation SectorAbstract
Purpose of Study: This study examined the effect of selected macroeconomic variables on the financial performance of Kenya Airways PLC. Specifically, it assessed the effects of economic growth, exchange rates, interest rates, and inflation, while also examining how internal firm factors, including liquidity, firm size, and fleet age, influence the airline’s profitability.
Methodology: The study adopted a descriptive, non-experimental time-series research design using annual data covering 2000–2024. Data were obtained from Kenya Airways PLC audited financial statements, the Central Bank of Kenya, and Kenya National Bureau of Statistics. Return on assets measured financial performance. Diagnostic tests included Augmented Dickey-Fuller, Johansen cointegration, Jarque-Bera, variance inflation factor, Breusch-Pagan, and Breusch-Godfrey tests. A vector error correction model with two lags was estimated.
Findings: The findings established a long-run equilibrium relationship among the study variables. The vector error correction model produced a negative and significant error correction term, indicating that approximately 8.8 percent of disequilibrium was corrected annually. Economic growth and exchange rates positively influenced financial performance, whereas interest rates and inflation negatively affected profitability. Among internal firm factors, liquidity and firm size improved returns, while an ageing fleet weakened financial performance. The results demonstrate that Kenya Airways PLC’s profitability is influenced by both external macroeconomic conditions and internal organizational characteristics, with currency movements playing an important role in explaining changes in financial outcomes over time.
Conclusion: The study concludes that Kenya Airways PLC’s financial performance is significantly shaped by macroeconomic conditions and internal firm characteristics. The study recommends strengthening foreign-exchange hedging, reducing dependence on debt financing, maintaining disciplined liquidity management, and implementing phased fleet renewal to improve financial sustainability and profitability.
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