For the year ended 31st March 2010, Kenya Airways Ltd recorded Total revenue of Kshs 70,743,000,000.00, and the company’s
Operating Profit amounted to Kshs 1,839,000,000.00

Operating margin = (Operating Profit /Revenues) x 100.
= (1,839,000,000.00 / 70,743,000,000.00) x 100 = 2.6%

Out of every Kshs1.00 Kenya Airways collected as revenue in the year, it retained only Kshs 0.03, as operating profit after paying for the operational expenses incurred in getting that Kshs 1.00
It is out of that 3Cents that Kenya Airways is to pay out financial costs as well as taxes and the balance retained as profits for share holders.

Should we choose to focus only on the company’s core business operations, Kenya Airways operational performance for the just ended period is rather dismal compared to the previous periods
 For 2010, Kenya Airways had an operating margin of 2.6%
 For 2009, the operating margin was 5.6%
 For 2008, the operating margin was 11.6%
 For 2007, the operating margin was 13.1%
Declining operating margins over time should be a warning sign to any investor.

On average, out of every kshs1 in Brevenues that Kenya Airways collects annually, it has overtime paid more and more in operational costs. It could imply that the company is having difficulty in bringing in revenues considering that it registered slightly declined revenues compared to the previous year, or that the management is facing increasing challenges in improving the company’s Operational Efficiency.
The 54.5% decline in Operating Profits might explain why despite reporting 148% improvement in earnings, the share registered a 8% decline in trading price as soon as results were published.

A lot is learnt by observing Operating profits trend over time, but it should not be the only factor one considers when planning whether or not the Kenya Airways shares are a viable investment.

Ceteris paribus.

@ProverB hit it out of the park. I wish I had listened to him in 2010. I didn't look at it that way. What a mistake on my end.