KQ CEO: Why I’m confident we’ll find way back to profit

Kenya Airways’ (KQ) steady decline has captured the country’s attention for months. Further, the story of how the national carrier found itself dipping to record losses will provide fodder for future business classes for years to come.

In the six months to September last year, KQ announced a Sh11.9 billion loss. This was an improvement, though, from a half-year dip of Sh12.5 billion a year earlier.

Project Mawingu — an ambitious 10-year expansion plan that included the purchase of Dreamliners to modernise the airline’s fleet — helped KQ fly solidly into loss-making territory. In its last full-year financials, the company said fleet ownership costs edged up 107 per cent to Sh26 billion from Sh2.5 billion the previous year.

Costs of borrowing

Cumulatively, the airline’s debt stands in excess of Sh130 billion, with an audit estimating the carrier will require about Sh60 billion to recover.

KQ’s astonishing loss of Sh26 billion in the year ended March 2015 is enough to build another Thika Highway — or purchase 30 new ferries to serve Mombasa.

And with the numbers still looking worrying, the airline’s CEO, Mbuvi Ngunze, has decided to draw up another ambitious plan to get the firm back to profitability.

Part of the trouble with KQ was its costs of borrowing. The airline got into a cycle of taking up debt to finance grandiose expansion plans. In its last financial year, finance costs stood at Sh4.5 billion, up from Sh1.6 billion the previous year.

In an interview with Business Beat, Mr Ngunze promised to put an halt to this.

“We announced last year that we are working on a turnaround strategy to bring Kenya Airways back to profitability. This strategy is now in place and the roll out, though in early stages, has begun. We are looking at several key areas. Refinancing the business — short and long term — is in focus. This will help reduce the leveraging, and in turn, financing costs,” he said.

The CEO added that the turnaround effort is focused on three factors.

“First, bridging the profitability gap, hence the focus on revenues and cost. Second, reviewing and re-affirming the business model, and third, the financial structure of our business — both short term and long term to ensure sustainability. We are in the early stages. The plan will be executed over the next 12 to 18 months.”

The company hired a consultancy firm, New York-based Seabury, last year to help it find new ways of generating revenue and find solutions for its systemic issues.

Ngunze said Seabury came on board in early 2015 to perform a diagnostics on KQ’s commercial business, and benchmark it with global standards.

The airline has already implemented Seabury’s recommendations, including revising its pricing mid last year.

This, saw the airline roll out ‘Hot Deals’ in a bid to change consumer behaviour. Under the plan, if customers book a ticket up to 28 days in advance, they can get the lowest price on the route. If they spend a weekend in their destination, they get an even better-priced ticket and other offers.

Seabury, Ngunze said, is also working on improving the effectiveness of the airline’s sales team.

And as regards matters workforce, as of March 31 last year, the airline’s headcount was 3,973 staff. The company announced a restructuring programme, where vacancies will be filled internally or through re-organisation to keep a lean workforce.

“A lean workforce will enhance productivity and drive efficiency across the airline as an initial focus,” he said, adding that a plan to re-size the airline is in the works and is just awaiting reassessment.

Expansion plan

To reverse the adverse effects of its expansion, the company has begun selling jets and has put two on the market.

“We have signed a sales agreement for two B77-200ER with American charter airline Omni International. We are looking to sell or sub-lease seven aircrafts [including the two] in the 777 fleet as part of our turnaround strategy,” Ngunze said.

“We are not at liberty to disclose the revenue figures that we will raise from the sales, as this is an ongoing negotiation. The revenue will be disclosed at the end of the sale in our annual results as is expected by law.”

Since the airline’s downward trajectory began, a lot of heads have rolled, with those accused of incompetence and being a part of KQ’s problems being shown the door. Former finance director Alex Mbugua was one of those sacked. Since then, the airline has faced questions about the competence of its management team.

“Immediately Mbugua was relieved off his duties, an acting group financial director, Dick Murianki, was appointed to ensure there is no gap in management,” said Ngunze.

“Mr Murianki brings on board years of experience within KQ where he has worked for 12 years, with his latest assignment being as general manager, cargo. Before joining KQ, he worked for Ernst and Young. The board will be filling the position through a competitive recruitment in due course.”

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