Yes, Krescue uses images compressed with xz, so as Fenix generates .img,
Krescue images compressed with xz, and Fenix can generate .img.xz too
Build Mainline compressed images
COMPRESS_IMAGE=yes make
Build Legacy/Vendor/4.9 compressed images
COMPRESS_IMAGE=yes INSTALL_TYPE_RAW=yes make
NOTE: this compressed images with same xz comression but with some additional meta information which required by krescue - more detail there fenix/scripts/xze at master · khadas/fenix · GitHub
ADDITIONAL INFO: krescue/docs/README_how_to_make_simple_krescue_image_xz.md at master · khadas/krescue · GitHub