Bloomberg News

Kenya Airways CEO to Go as Cost Cuts Yield Return to Profit (1)

November 13, 2013

Kenya Airways Ltd. Chief Executive Officer Titus Naikuni is to leave after restoring sub-Saharan Africa’s No. 3 carrier to profit with cost cuts that outweighed the impact of the Westgate mall siege and a fire at its hub.

The Nairobi-based airline posted net income of 384 million shillings ($4.5 million) in the six months to Sept. 30, versus a year-earlier loss of 4.79 billion shillings, it said today in a statement. Sales rose 9 percent to 54.3 billion shillings.

Gains stemmed from “stabilization of euro-zone economies, favorable prices for jet fuel, a robust business environment and management focus on pruning loss-making operations,” Kenya Airways said. The Aug. 7 Nairobi airport blaze hurt transit traffic and the Westgate attack 6 1/2 weeks later led to a further dip as governments advised against travel to Kenya.

Naikuni, who has led the carrier for more than a decade, had his contract extended by a year but will leave at the end of 2014, with the search underway for a successor, Chairman Evanson Mwaniki said today in Nairobi. The CEO added routes to Abu Dhabi, Malawi and Zambia in the first half while terminating services to Cairo, Burkina Faso, Gabon and the Central Africa Republic in response to weak demand or political unrest.

Kenya Airways closed 4.5 percent higher at 14.05 shillings as of 3 p.m. in Nairobi, the highest level in 15 months.

KLM Deal Expanded

The stock has gained 23 percent this year, valuing the company at 21 billion shillings, though the advance lags a 38 percent gain the FTSE-NSE 25 Share Index. Kenya Airways is worth 2 1/2 times what it was on the assumption of control by Naikuni -- who turns 60 in 10 days -- in 2003, when he expanded the company with the purchase of a 49 percent stake in Tanzania’s Precision Air.

A code-sharing pact with shareholder Air France-KLM Group (AF) is to be expanded, the CEO said today, with the European carrier’s KLM unit adding its code to Kenya Airways flights from Nairobi to London, Entebbe in Uganda, Kigali in Rwanda and the Zambian and Zimbabwean capitals Lusaka and Harare from Jan. 1.

The African airline, which is 29.8 percent state-owned, will in turn add its code on the Dutch unit’s services between Amsterdam and Kilimanjaro and Dar-es-salaam in Tanzania. Air France-KLM owns 26.73 percent of Kenya Airways and has had a joint route agreement since 1997 that currently covers Nairobi-Amsterdam and Nairobi-Paris flights.

JamboJet Entry

Combined revenue on the two existing code-share routes is about $200 million per week, and this will exceed $500 million with the addition of around 44 weekly flights, Naikuni said.

Kenya Airways reduced its own European capacity by 5 percent in the first half after scrapping all daylight operations to London, while adding 7 percent more seats to the Middle East and East Asia, where it added daily flights to Guangzhou in southern China via Bangkok and upgraded its Mumbai route from Boeing Co. (BA:US) 767 jets to the larger 777.

The carrier will introduce new low-cost unit JamboJet in the first quarter of 2014, with initial flights limited to the Kenyan cities of Mombasa, Kisumu and Eldoret, Naikuni said.

“What we are eyeing are the people who are not flying now because they cannot afford it,” the CEO said. “We have to get into that market before someone else does.”

Revenue prospects will be enhanced by the contribution of JamboJet and code-share agreements with Asian airlines, Linet Muriungi, an analyst at Nairobi-based Kestrel Capital (East Africa) Ltd., said in a note to clients.

“The airline’s focus on profit-making operations and routes, as well as further cost-management ventures aimed at making the company’s human resource lean and efficient, will contribute to bottom-line protection,” Muriungi said.

To contact the reporter on this story: Eric Ombok in Nairobi at eombok@bloomberg.net

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net


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