No Time for Sideshows on Kenya Airways Growth Strategy, says Chair
By David Indeje / July 28, 2016
Kenya Airways investment strategy has been rated neutral by Citi Research as it implements measures that will return it in to profitability in the next 12-18 months according to Mbuzi Nguze, the Chief executive Officer.
“Kenya Airways offers an almost unique investment opportunity into the expected strong economic expansion of Africa and its significant implications for air travel growth, both passenger and air cargo,” according to Citi Research.
“Kenya’s location in the central eastern region of Africa is well placed to benefit from fast-growing intra-Africa and Africa-Asia traffic flows,” it adds
On the other hand, the opportunities available to the company are not being taken lightly.
KQ CEO Mbuvi Ngunze pegs on ‘Operation Pride’ in its turnaround strategy. Operation pride was launched in October 2015, but begun to be implemented in March 2016 with the aim of closing its our profitability gap, revisiting its business model and reaffirming its competitive edge, and finding a sustainable financial structure for the business.
Citi noted that, KQ had to address its poor operating cash flow increases the need for a capital restructuring which if not ‘could be dilutive to existing shareholders’.
For Mbuvi, “Operation pride is committed to be 100 percent sustainable. The Pride performance is managed through weekly progress updates governed by a central transformation office.”
“Kenya Airways being a public listed company has a significant level of both local and international shareholders and therefore any decision made by the board and management are made within this context,” He says.
While releasing the company’s results for the year ended 31March 2016, the CEO said they are on track and in the first 4 months they had:
- Booked 32 percent of annualized recurring value
- Booked 10 percent of one time value – through the sale and sub-leasing the B777, reduced the fleet cost by about $7 million in a month and the sale of the fleets slot at Heathrow Airport which had been said to be inefficient and costly.
- Implemented 134 of total 460 initiatives
However, as the turnaround strategy is being implemented, the Kenya Airline Pilots Association (KALPA) on Wednesday said that it wants the company to stop the ongoing staff rationalization program which targets 600 employees as biased.
Already, Sh1.5 billion for the staff rationalization program and the repayment of the 80 laid off staff has been set aside for the first phase of the programme.
Read: Kenya Airways Sacks 80 Employees in Rightsizing Process
In response to KALPA’s demands, Amb Dennis Awori, Chairman Kenya Airways says, “We acknowledge that Kenya Airways is going through a difficult phase. The leadership has given a clear direction on how to return Kenya Airways to profitability in a highly challenging business environment.”
“The result of this has been a significant reduction in operational losses by 75% in FY 2015/16,” he adds.
Awori said the support from the association was critical as they embark on the next optimization stage. “We urge our pilots and their representative union KALPA, to constructively and responsibly engage in supporting Kenya Airways in achieving its turnaround. We are now embarking on an important next phase on capital optimization that requires our undivided attention and focus not sideshows.”
In response to the association’s call to terminate their relationship with KLM, Awori says,” KLM is both a shareholder and an important business partner to Kenya Airways.”
“We believe that this partnership is a key enabler in achieving our turnaround in the short term. The business is looking at all opportunities for improvements, including ways to further strengthen our partnership with KLM,” He adds.
The turnaround strategy will place Kenya Airways on a stronger footing and provide a stable base for its long-term growth.
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