We are in the market to stay - KQ boss
Posted Tuesday, February 2 2016 at 02:00
Kenya Airways (KQ) is facing a number of problems including cash flow after it made a loss of over Shs700b in 2014 on the back of some decisions. KQ chief executive Mbuvi Ngunze had only been on the job for less than a year when the airline hit the record loss. Although Uganda is one of KQ’s most lucrative markets with five flights a day to Entebbe International Airport, it is an expensive route. Ngunze was in Uganda recently and he talked to Daily Monitor’s Mark Keith Muhumuza on the prospects for the airline in the region.
Are the problems KQ has been experiencing gone?
I think we were caught in a ‘perfect storm.’ Kenya Airways was growing and buying new aircraft from 2011 with the main aim of the aircraft arriving in 2014. But when so many events happened, it changed the dynamics. We went through an election in Kenya. Then, we had the fire that gutted Jomo Kenyatta International Airport (JKIA). A month later, we had Westgate. We had several travel advisories that are only now being withdrawn. If you look at the travel statistics of Kenya, JKIA traffic is flat over the last three years, meaning there is no growth.
We were also hit by Ebola in West Africa. When you look at tourism numbers getting into Kenya, the last major peak was in 2011. From the Kenya Tourism Board statistics, tourism numbers are down by 500,000 from a peak of 1.3 million. So, we were investing and yet operations were flat. That means we were caught in new competition, flat revenue and increased costs – both overheads and fleet costs. That means we made losses and run out of money. That is why we went out looking for a bridging facility to buy time to work on long-term reorganising of the structure.
How are you reorganising considering the blame game can only stop at a particular point?
There are three things we are working on today to get out of this crisis. We have devised a turnaround plan to address the profit gap. We have a true profitability gap because we made losses and we need to come back to profit. We need to address our revenue and costs. In November, I announced that we are looking to generate a $500m (Shs1.7 trillion) loan. That is my target on an annualised basis.
Secondly, we need to revisit our business plan and business model. If I look at the way we are doing the business, there is business in Africa and international markets. We must find the most sustainable profit business model for the future considering the competitive environment and the changes.
The third thing is about financial security of restructuring the balance sheet and looking for new money to recapitalise the business. We have sold some assets and reduced debt. As we sell the aircraft, it will reduce debt and generate some cash for operations.
When will all this come together?
The next 12 to 18 months will be very critical to us in terms of coming back to profitability but also restructuring the balance sheet. We are also looking for new money to run the business.
The short-term need is very significant but there is a long-term interest because I believe we have a strong and viable business model.
Why do you think these proposals will turn around Kenya Airways?
We have a long-term viable business. The trouble is, today we have short-term real challenge financially through the profit and loss. We focus on making sure we keep the business stable. By the way, we have received a lot of support from our shareholders and creditors. This is positive because they have allowed us time to build the business.
The worry is perhaps until Kenya Airways gets out of this wobbly situation, that the airline may just collapse.
We are positive about what the future holds for the airline. We also have a responsibility to the economies of this region and that weighs heavily on our minds especially on what decision we take. Twenty five per cent of the traffic through Entebbe to Uganda from the world is done by Kenya Airways.
Have the fundamental economic conditions in Kenya changed for you to have a positive outlook?
There is some stability. Travel advisories in Kenyahave been removed but it takes some time for the market to react. We have few blips around the region like in the run up to Tanzania’s elections, the volumes dropped. Now they are picking up.
In Uganda, we are entering an election period and people are holding up travel. That is the trouble with my business considering that each year, at least in one of my African destinations, there is an election.
Your Ugandan flights are the highest number per day for any airline flying to Entebbe International Airport. With five flights a day, why does Kenya Airways charge a higher rate than the competition?
You can wake up in Kampala and by 6:30a.m, you will be in Nairobi. You will do your business all day and be back in Kampala by 6 p.m. We are giving you those choices because we understand our customers have different needs.
So, we aim to be competitive. I do not go into the market to price myself to death. When you look at the pricing, we are actually competitive but sometimes there are limits on bookings. If you want me to give you that competitive rate, book early. However, the problem comes in during the peak season and you are the last person to book that one last seat, you will pay a much higher rate. So yes, the perception is there and I agree. But our prices are competitive.
What are your thoughts on the rumblings to revive Uganda Airlines, the national carrier?
The government of Uganda has its own national interests on why it would start (revive) a national airline. My encouragement to the policy shapers should be how they could leverage across other capabilities in the region that could serve the same needs, even better.
The currencies around the world have been weakening against the dollar and the Uganda Shilling has not been spared. How has this affected your performance?
There is a direct impact of a weak Shilling to our costs beside the slowdown during the elections. There is less money to spend. We have seen a shrinking of the money in Kenya, Uganda, and Tanzania. Even if I am paying my expenses like salaries in Uganda Shillings, my airport fees and services are all in dollars. My fuel, my aircraft leasing, and other obligations are all in dollars.
Isn’t the cost of depreciation supposed to be offset by the fall in crude oil prices thus resulting in a fall in ticket prices?
On average, ticket prices are going down locally and internationally. Remember fuel is one part of the cost structure and contributes about 30 per cent of my cost structure. Therefore, you are constantly evaluating the competitive fuel price.