Tough task for Titus Naikuni’s successor at Kenya Airways

National carrier Kenya Airways has gone for the safest bet in its leadership succession plan, replacing long-serving chief executive Titus Naikuni with an insider Mbuvi Ngunze against the backdrop of the strong headwinds the airline has faced in the past couple of years.

The announcement yesterday by the airline’s chairman Evanson Mwaniki marked the end of nearly a year of searching for a befitting successor to Mr Naikuni — the CEO whose tenure more than doubled the airline’s size and saw it open operations in more than 20 African destinations.

“I am pleased to announce the appointment of Mr Mbuvi Ngunze … to the role of group managing director and CEO of Kenya Airways, with effect from December 1, 2014,” Mr Mwaniki said in a statement.

Mr Naikuni is expected to retire in November after 11 years at the helm of the airline, having extended his term by a year to give the board time to search for his replacement.

Yesterday’s announcement preceded this morning’s release of the company’s financial results for the year ended March. Investors will be keen to see how the airline performed in the period, besides hearing the incoming CEO’s strategy for the coming period. KQ’s share price gained 17 per cent in the past year to trade at Sh11.5.

Mr Ngunze faces the challenge of seeing through the airline’s ambitious expansion plan while growing its profit in a competitive market where rivals have also become more aggressive.

Kenya Airways recruited Mr Ngunze in September 2011 as chief operating officer (COO), having held a number of senior executive positions in subsidiaries of French multinational Lafarge. He holds a Bachelor of Commerce degree, accounting option, from the University of Nairobi and is a Chartered Accountant (England and Wales).

KQ shareholders expect Mr Ngunze to build on Mr Naikuni’s legacy that has seen KQ rise to become one of Africa’s most successful airlines.

The leadership transition takes place as Kenya Airways enters the third year of its ambitious 10-year expansion strategy dubbed ‘Project Mawingu’, making 2014 a pivotal year.

This is the year that Kenya Airways is expecting delivery of six new aircraft for deployment on new routes. It is also the year that the airline hopes to calm investors’ nerves with continued profits growth after two challenging years that saw it post a record Sh7.8 billion loss in 2013.

Last year was not an easy one for KQ. The airline had to contend with escalating fuel prices, increased competition, the Eurozone crisis that led to a drop in passenger numbers in key markets and the continuous security risk at home that has adversely affected the tourism sector.

Those challenges saw the airline’s revenues drop by Sh9 billion to Sh98.8 billion in the year ending March 2013. Net loss dropped to Sh7.86 billion – the biggest loss in the history of Nairobi Securities Exchange (NSE)-listed companies compared to Sh1.66 billion the previous year. That performance rendered the airline unable to pay a dividend for the first time in 14 years, putting Mr Ngunze under scrutiny.

Cost-cutting measures as well as major gains in fuel cost and other savings have since seen KQ bounce back to profitability in the six months ending September.

The airline reported a profit of Sh384 million for the period compared to a loss of Sh4.78 billion a year before. Sales in the six months grew to Sh54.34 billion from Sh49.86 billion.

In recent months, analysts have been optimistic that KQ has weathered the storm and is likely to announce more positive news at the investor briefing this morning.

KQ’s passenger numbers have remained almost stagnant. In the first half of the year, it grew by five per cent to 1.9 million, though revenues increased by a wider margin, helped by higher yields and a favourable exchange rate.

Slow growth could be a major challenge for the new CEO going forward as the airline has to fill the new Boeing 777-300 ER with passengers in order to make money from its newest baby.

The biggest plane in the airline’s fleet, with a capacity of 400 passengers, it is expected to help KQ strengthen its business between Africa and China, with the first direct flight to Guangzhou taking off this week. A second one is expected next year along with the much-awaited Boeing 787, Dreamliners.

With the new equipment, KQ will need to fill the seats especially on its long-haul routes where there have been significant slowdown even as growth remained steady on the domestic front.

KQ has pegged some of its cost-saving measures, especially on fuel, on the Dreamliner that will replace the ageing Boeing 767 planes. Mr Naikuni has said that the company is looking at a 20 per cent reduction on fuel burn with the modern aircraft once the B767s are phased out.

KQ last week received its second Dreamliner and plans to have six of the modern and fuel-efficient aircraft by year end — a significant development given that fuel accounts for close to 40 per cent of its costs. KQ also faces major competition, especially from Middle Eastern carriers, a development that has affected its numbers in West Africa.

Ethiopian Airlines also received its Boeing 777-300 ER this week and is looking to deploy it on the same routes as KQ, increasing competition for the Africa-Asia trade route that both airlines have pegged their growth on.

Cargo, another key revenue driver for airlines, poses another challenge, the numbers having plummeted globally. In the first half of the current financial year, KQ’s cargo volumes dropped five per cent to 36,439 tonnes, despite the additional capacity that came with the launch of a new freighter.

KQ is also betting on its recently launched low-cost subsidiary Jambojet, which is expected to help the airline boost sales in the regional and domestic routes.

Mr Ngunze is taking over at a time when infrastructure at the Jomo Kenyatta International Airport (JKIA) is getting an upgrade, including the building of Unit 4 and a temporary airport to ease the airline’s parking headaches.

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