Naikuni flies into turbulence at Kenya Airways

Titus Naikuni is headed for tougher times as he tries to navigate Kenya Airways through the turbulence that has seen the company make the unpopular move to lay off staff.

The chief executive of the national carrier is in the limelight after he sent home over 500 workers, with some calling for a change in management. (READ: KQ set to hire foreigners after firing locals)

Having joined the airline almost 10 years ago, the man who was credited with helping the airline fly high is now facing major problems ranging from internal issues to external factors faced by nearly every airline around the world.

Kenya Airways has been grappling with increased costs due to a high wage bill and a rising cost of fuel that has seen the number of passenger stagnate in the first quarter of the financial year.

Analysts expect the airline to report a loss in the first six months of this fiscal year ending September 30. “I would be surprised if it posts a profit,” said Mr Eric Musau, an analyst at Standard Investment. “It’s been a challenging period for the airline and the general industry.”

In the first quarter of the year to June, passenger numbers remained at 841,238, as poor performance on the European, Asian, and domestic routes took its toll.

In the last financial year, ending March 2012, the airline’s net profit dropped to Sh1.7 billion from Sh3.5 billion the previous year.

Its direct costs went up by 44 per cent to Sh77 billion, mainly due to expensive labour and oil prices. Revenues increased 25.6 per cent to Sh107.8 billion.

The wage bill has more than doubled over the past six years to Sh13.2 billion while the total number of staff has risen by more than 16 per cent to 4,834.

Mr Musau said he expected some recovery in the second half of the year with the full cost cutting measures taken recently being felt in 2013/2014.

Labour relations

Investors are looking to see if the airline will turn the corner in the next couple of years. The airline is vulnerable to poor labour relations as was recently witnessed when pilots withdrew their goodwill in solidarity with their retrenched colleagues. (READ: Flights cancelled as KQ pilots stage go-slow)

This forced the airline to rework its schedule, cancel some flights and see others delayed. Transport and labour ministries have openly different on whether the airline followed the right channels in the recent lay-offs.

When summoned by the parliamentary Labour and Social Welfare Committee, which is investigating whether or not the airline followed the right procedure in the lay-offs, Mr Naikuni said the airline’s lawyers had advised management and directors not to discuss the matter, arguing it would prejudice the court case filed by the workers union on the same. (READ: House team throws out Naikuni lawyer)

The recent woes have left the airline vulnerable, especially as its competitors eye some of the lucrative routes the airline has been cashing in.

Middle East carriers, especially Dubai based Emirates, have been expanding their foothold in Africa, connecting passengers through their hubs, while government run Ethiopian Airlines has invested heavily in new aircrafts and is looking for new routes.

Citi’s review of the airline, dated June 28, said Emirates is the most aggressive competitor, especially in travel between Africa and Asia, followed by Qatar Airways and Etihad. Emirates have a 41 per cent share of Africa-Asia passenger traffic, while Kenya Airways, in sixth place, has only a 16 per cent share, the report said.

Despite these challenges analysts remain optimistic about the airline’s future performance. Mr Musau said the airline will continue on a rough patch but is expected to overcome in the long term.

“Long-term the business prospects for the airline are solid. The prospects of more routes in Africa and the investment in capacity will drive the airline,” Mr Musau said in a telephone interview.

Kenya Airways has been hunting for new markets in a bid to increase its profitability. It unveiled a 10-year strategy that will see it more than triple in size by 2021, with 115 routes being introduced and increasing its fleet to 107 from 33 during this period.

To finance this expansion the airline had a rights issue in June that raised 14.5 billion shillings. Following the issue the government’s shareholding grew from 23 per cent to 29.8 per cent, while KLM’s shareholding remained at 26.3 per cent.

Following the change in shareholding, speculation was rife that the government had written to Royal Dutch airline KLM seeking to change the management of Kenya Airways and acquire veto powers on the airline’s executive appointments.

Investment Secretary Esther Koimett denied such a move.