Kenya Airways is on the right track

The airline continues to play a pivotal role in the country’s economic development and growth.

Monday March 7 2016

A special report and an editorial carried in the March 5, 2016, edition of the Saturday Nation on Kenya Airways refers.

Read together, they appear to advance the view that key strategic decisions at Kenya Airways, especially under the airline’s ongoing turnaround strategy, are made haphazardly, without commercial interrogation and in a manner that does not advance the interests of the carrier or Kenya. Nothing could be further from the truth.

While we welcome criticism and interrogation of our strategic decisions, this must never be based on rumours, as the author himself admits.

Kenya Airways, being a listed company, has a significant level of both local and international shareholders and, therefore, any decisions by the board and management are made within this context.

Over the past months, I have made it clear we have three focus areas in our turnaround: closing of our profitability gap, revisiting our business model and reaffirming our competitive edge, and finding a sustainable financial structure for the business. This requires that we put everything under the microscope.

The insinuation in the articles that we are selling the crown jewel in our fleet is not true. While we may be emotional about retaining certain aircraft, in the prevailing circumstances we must ensure that they operate in a way sustainable to the long-term interest of the business.

Both the B777 and B787 have the range and capacity to serve long-haul markets. We have made the choice after careful assessment that the sale and sub-lease of the B777s will significantly reduce our monthly fleet and other costs while continuing to serve the markets of interest with the remaining fleet.

The B777s are expensive to run and only made money during the peak period, posting heavy overheads in the other months. By selling or sub-leasing the B777, we are reducing our fleet cost by about $7 million a month.

The Embraer is a versatile aircraft that allows us to fly short- to medium-haul missions more regularly with a smaller capacity, driving efficiency and thus serving the most profitable part of our network.

STRATEGIC DESTINATION

In the period of fleet growth, we had a gap in captains and advertised in the international market. We recruited from Europe, Africa, and South America. None were from KLM. We also train using a variety of facilities based on cost and convenience including the UK, Egypt, the Netherlands, Singapore, UAE, South Africa, and Ethiopia.

While London is a strategic destination for KQ, it is not the most profitable. Our current operations commit two full aircraft to this route, which is both inefficient and costly. In assessing the reorganisation of our operations for London, we took the opportunity to capitalise on releasing cash by selling our morning slot in combination with Air France. While the new operation will impact the London route economics, the overall impact for the business is net positive as we utilise our assets more efficiently and generate value from the sale.

Our analysis shows that there is going to be a shift in demand. However, we will continue to offer night connections to London through our existing operations into Paris and Amsterdam.

On the sale of the slots, all the relevant stakeholders, including the board and all key shareholders, were kept in the loop within the confines of our regulatory requirements. We will rent an afternoon slot in London, as is normal in aviation practice, with an option to buying it when our financial position improves.

KLM had no role in the slot sale. We combined our slot options with Air France to achieve an optimal proposition and we will share the proceeds 50:50.

Our commitment to KQ’s turnaround is unstinting and we are making the bold decisions necessary to realise this. They may be unpopular but in the wider interest of the company and its sustainability, have to be made.

Our strategy is well thought through and on course. Most importantly, it is made in Kenya with the best interest of both the nation and its prized flag carrier at heart.

The airline continues to play a pivotal role in the country’s economic development and growth. Despite recent challenges, we will turn around Kenya Airways.

It is a marathon, not a sprint, and will take time and patience from our stakeholders. We believe we will bridge the profit gap, reaffirm our business model, and secure long-term funding to allow us to thrive as an efficient airline.

The author is the CEO, Kenya Airways.

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