MACRO-ECONOMIC FACTORS AND PROFITABILITY OF DOMESTIC COMMERCIAL AIRLINES IN KENYA
Keywords:
Inflation Rate, Interest Rate, Exchange Rate, Profitability, Domestic Commercial AirlinesAbstract
The airline industry plays a crucial role in Kenya's economic development by facilitating
trade, tourism, employment creation, and connectivity. However, domestic commercial airlines in
Kenya have experienced declining profitability, with many recordings negative return on assets
(ROA) over consecutive years, leading to airline closures and financial distress. Kenya Airways,
the largest carrier, reported losses for ten consecutive years, with ROA ranging from -6.503 to -
20.46 between 2019 and 2023. Despite the recognized importance of macroeconomic factors in
influencing firm performance across various sectors, limited empirical evidence exists regarding
their specific impact on Kenyan domestic airlines' profitability. This study investigated the effect
of macroeconomic factors inflation rates, interest rates, and exchange rates on the profitability of
domestic commercial airlines in Nairobi City County, Kenya. The study was anchored on Agency
Theory, Deflation Theory, Fisher Theory, and Purchasing Power Parity Theory. A descriptive
research design was adopted, utilizing a census approach covering all 13 domestic commercial
airlines operating from 2019 to 2023. Secondary data was collected from financial statements and
Central Bank of Kenya reports. Profitability was measured using ROA, while macroeconomic
factors were operationalized through annual averages. Data analysis included descriptive statistics,
diagnostic tests (multicollinearity, stationarity, normality, heteroscedasticity, and autocorrelation),
correlation analysis, and panel regression analysis using SPSS. The findings revealed that inflation
rate had a significant positive effect on airline profitability (β=0.336, p=0.004), exchange rate had
a significant negative effect (β=-0.348, p=0.003), while interest rate showed an insignificant
positive relationship (β=0.016, p=0.274). The model explained 50.6% of variance in ROA. The
study concluded that macroeconomic factors significantly influence airline profitability. It
therefore recommended implementation of foreign exchange hedging strategies, dynamic pricing
models, and comprehensive macroeconomic risk management frameworks to enhance financial
sustainability of domestic commercial airlines in Kenya.
DOI: https://doi.org/10.5281/zenodo.17511690
Citation: Kaki, N. N., & Jagongo, A. (2025). MACRO-ECONOMIC FACTORS AND PROFITABILITY OF DOMESTIC COMMERCIAL AIRLINES IN KENYA. Journal of Accounting and Finance Research, 2(1). https://doi.org/10.5281/zenodo.17511690
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Copyright (c) 2025 Nelius Nduku Kaki, Dr. Ambrose Jagongo
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