Battling back from the financial nosedive
Almost a year on from revealing the worst loss in Kenyan corporate history, the national carrier is deep into a major turnaround programme, as Alan Dron found out when he spoke to CEO Mbuvi Ngunze.
A slimmed-down fleet, higher utilisation of assets, leveraging codeshare agreements, stepping up domestic connectivity – Kenya Airways is covering all the bases as it tries to pull itself out of a nosedive that saw it rack up a net loss of KSh25.74 billion ($274 million) for its 2014-15 financial year.
The company aims to close the profitability gap by $200 million through a combination of raising revenues and cutting costs.
One of the most obvious measures in the second category is the disposal of seven long-haul aircraft: two Boeing 777-200ERs have been sold to US charter operator Omni Air International and two more are available for sale. Additionally, three 777-300s have been sub-leased to fast-expanding Turkish Airlines and two 787-8s have been disposed of on the same basis to another rapidly growing carrier, Oman Air.
The Oman Air deal also included a complex slot trade arrangement at London Heathrow Airport between Kenya Airways, its codeshare partner Air France, and Oman Air that gave the Arabian carrier the ability to launch a long-awaited second daily rotation to the UK capital from its Muscat hub. Kenya Airways has, meanwhile, rented a slot at Heathrow.
“What we’re doing is monetising an asset while still being able to operate,” explained Ngunze.
As an additional benefit, the switching of slots meant that, whereas previously a Kenya Airways flight arrived in London in the morning, then sat on the ground for 13 hours before departing again for Nairobi in the evening, it now left on the inbound leg after a turnaround of just over two hours, considerably enhancing the aircraft’s productivity.
Improving productivity is a major plank in the turnaround programme.
The scale of the more intensive use of the fleet can be gauged by the fact that, despite losing seven aircraft from the previously 17-strong long-haul fleet, the summer 2016 schedule’s capacity, as measured in available seat kilometres (ASKs), declined by just 2%.
However, the reduction of the long-haul component did not mean a concentration on short-haul services, said Ngunze. “We’re balancing both long-haul and short-haul,” is how he described it. “When we look at regional and near-regional [services] we continue to add frequency. They key is that we fly more narrow-bodies, more frequently, to give our guests more choice.”
Part of that increased choice will be greater use of existing codeshare and other partnership arrangements between Kenya Airways and other carriers.
“We have more than 20 codeshares,” said Ngunze. “How can we make those work harder for us?”
For example, Kenya Airways has a partnership into Europe with Air France/KLM. This gives four flights daily through which passengers from Nairobi can connect on to destinations throughout Europe. Similarly, the four daily flights from Europe into the Kenyan capital allow connections on to a swathe of African destinations via Kenya Airways.
“We need to replicate what we’ve done in Europe in other areas, such as India or China”
One such route may be via the Kenyan carrier’s link with China Southern. The Guangzhou-based airline last year carried roughly 112 million passengers, of whom just 6 million were international. However, it has been working in the past few years to expand its international footprint.
With Africa increasingly on Chinese tourists’ radar, it makes sense for the two carriers to step up their cooperation and use each other’s domestic and regional networks for their mutual advantage. “They have metal into Nairobi now and we will continue to look to enhance our cooperation,” said Ngunze.
Such cooperation is likely to become increasingly essential; major international carriers such as the Arabian Gulf’s ‘big three’ of Emirates, Etihad and Qatar Airways, plus Turkish Airlines, are making increasing inroads into African traffic. Indeed, Turkish has said publicly that its aim is to become the largest carrier on the continent.
“Clearly, the competitive space is getting significantly crowded,” commented Ngunze. “The market is also growing. How do we stimulate the [traffic] flows that allow us to remain relevant?”
One potential way of doing so is to liberalise the region’s airspace. Kenya, South Sudan, Rwanda and Uganda have been in talks for some months over creating a single airspace area whose only two international carriers, Kenya Airways and RwandAir, would be able to assume national carrier status in the four nations, giving them access to larger markets.
There is no question that such an airspace arrangement, subject to certain safeguards, would be attractive if it delivered simplified regulations and taxes and would certainly stimulate more traffic, said Ngunze. However, it remained a work in progress, with no timescale for a decision to be arrived at.
Closer to home, Kenya Airways is working to expand services operated by its low-cost carrier subsidiary, Jambojet. Since it was launched with a single Boeing 737-300 two years ago, its fleet has grown slowly to a pair of 737s plus two Bombardier Q400s.
The 737s are used for higher density routes such as Nairobi-Mombasa, while the smaller Q400s are used on thinner routes.
An evaluation of acquiring further Q400s has been under way for some time, together with the rival ATR turboprop, and the Canadian contender looks likely to be the winner, said the CEO.
Meanwhile, work continues to finalise a separate air operator’s certificate (AOC) for Jambojet, which, at present, operates under its parent company’s certification.
The coming few months will provide several pointers as to whether Kenya Airways is in recovery mode. Its fuel hedging arrangements, which saw it paying substantially more for its Jet A-1 as the worldwide price of oil plummeted, will unwind by the autumn, hopefully allowing the airline to enjoy the benefit of low fuel prices that have contributed significantly to other airlines’ profit figures over the past couple of years.
And the modification or lifting of ‘travel advisories’, imposed by several nations in the wake of terrorist attacks on Kenya and which resulted in significant reductions in the nation’s important tourist trade, should see increasing numbers of foreign passengers again heading for the east African nation.
For the sake of its balance sheet, Kenya Airways certainly hopes so.