THE IMPACT OF MACROECONOMIC FACTORS ON FINANCIAL PERFORMANCE OF SELECTED AIRLINES OPERATING INTO KENYA

Abstract

Purpose: The growth of economy is argued to have a positive impact on financial performance of various key sectors. Economic growth is measured using indicators such as the GDP growth rate, inflation rate, interest rates, exchange rates, money supply among others. This study focused on investigating the impact of global and origin countries GDP growth, Inflation rates and interest rates on net income of selected airlines that operate into Kenya.Methodology: Data on macroeconomic factors was collected from World Bank website for the period of between 2005 and 2014. Data on airlines net income was collected from the published financial statements for the period 2005 to 2014. The published financial statements were audited and as such their use increased the reliability and validity of the findings and conclusions. Audited statements of comprehensive income, statements of financial position, of the selected airlines were collected from their respective websites. Statistical methods correlation and regression analysis were used to test the relationship between the macroeconomic indicators and net income of airlines.Results: The results revealed a negative significant relationship between origin inflation and net income of airlines. The results further revealed a negative and significant relationship between origin interest rates and net income of the airlines. The relationship between origin GDP growth and net income of the airlines was insignificant at 5% significant level.Unique contribution to theory, practice and policy: This study recommends that investors in aviation industry should heavily invest when the macroeconomic fundamentals such as interest rates and inflation rates of origin countries are strong to be able to reap high profitability from airlines. Again, investors should invest more when the global economy is performing well so as to reap maximum profits from airlines destined to Kenya. That the key indicators and determinants for investment decision making in the aviation industry are the Global GDP, Global inflation, Country of Origin interest rates and inflation rates.