Who will fit in Naikuni’s shoes at Kenya Airways?

When Kenya Airways chairman Evanson Mwaniki took to the podium to give the closing remarks at a recent investor briefing, the last thing anyone expected him to address was the airline’s succession plan. But that is exactly what he did.

He told the unsuspecting guests that the board had requested CEO Titus Naikuni to stay on for a year to oversee the major expansion plans the airline has. Mr Naikuni accepted to stay on for another year as the board searched for his replacement.

Rarely does the conversation of Mr Naikuni’s contract come up at investor briefings, leading many to speculate about the state of succession in the company and when his term would end.

“Many people ask me when this man is going to go. I don’t know why they have wanted him to go when he is achieving such good results. But there comes a time when all of us must retire,” said Mr Mwaniki.

“This ambitious 10-year plan calls for continuous leadership and focus. We had in our succession plan that he leaves the company at the end of this year but considering the challenges we face and the need to make sure that our strategic plan is airborne, we have persuaded him to stay for one more year.”

The next 12 months are not expected to be easy for the 60-year-old chief executive, who is sometimes seen as brash, but prides himself as being honest.

As the airline enters the third year of its ambitious 10-year strategy dubbed Project Mawingu, 2014 will be a pivotal year.

That is the year KQ is expecting delivery of more aircraft it plans to deploy on new routes as it looks to continue reporting profits after two challenging years that led to major losses in 2012.

Last year was not an easy one for KQ. It 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 Kenya posed.

That 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 companies listed at the Nairobi Securities Exchange (NSE) –compared to Sh1.66 billion the previous year forcing the airline not to pay a dividend for the first time in 14 years.

READ: KQ posts Sh7.8bn loss on reduced passenger numbers

Cost-cutting measures as well as major gains in fuel and other savings saw the airline bounce back into profitability for the six months ending September.

It reported profits of Sh384 million compared to a loss of Sh4.78 billion in the same period. Sales in the six months grew from Sh49.86 billion to Sh54.34 billion.

“We have turned the corner. Hopefully, next time we stand here we will report excellent results,” Mr Naikuni told investors last week.

Analysts believe the airline has survived the worst and will report relatively better numbers at the end of the year.

“The numbers are looking very optimistic, not from growth in passenger numbers but the drop in costs,” said Standard Investment analyst Eric Musau.

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

The minimal growth could be a major challenge going ahead 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 business that has been slowing down even as growth remained steady on the domestic front.

“They are adding capacity, but if it’s not being taken up by passengers, this is a major concern for the airline. They need to fill their new aircraft,” said Mr Musau.

KQ has pegged some of its cost saving measures, especially on fuel, on the Dreamliner that will replace the ageing Boeing 767.

“We are looking at a reduction of 20 per cent on fuel burn with the modern aircraft once we remove the B767’s,” said Mr Naikuni.

Fuel accounts for close to 40 per cent of the airline’s costs. KQ also faces major competition in the region, especially from Middle Eastern carriers, a move that has seen its numbers in West Africa affected.

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

Cargo poses another challenge, the numbers having plummeted globally. In the first half, it dropped five per cent to 36,439 tonnes, despite the additional capacity, following the launch of a freighter.

Headaches

KQ is also looking to launch its low-cost subsidiary Jambojet in the first quarter of 2014. The new unit is expected to ward off competition and help the airline boost sales in the region.

Mr Naikuni, whose favourite book remains ‘The state of Africa’ by Martin Meredith, is also counting on the completion of Unit 4 at Jomo Kenyatta International Airport (JKIA) and the building of a temporary airport to ease his parking headaches.

The carrier has been blaming lack of capacity at the airport for delays in expanding its operations.

Built in the 1970s to handle 2.5 million passengers a year, JKIA has been struggling to cope with more than six million passengers every year as its regional importance grows.

For Mr Naikuni, running an airline is no different from leading any other organisation, but comes with the challenge of making quick decisions because of the nature of the business.

Along with making the decisions, being perched at the top of an airline leaves one with the responsibility of handling high capital outlay, mainly from fuel and acquisition of new planes.

Since joining the airline in 2003 Mr Naikuni has seen KQ sales grow to more than Sh100 billion from Sh27.4 billion. Net profits stood at Sh345 million. 

Today, the carrier is flying to 62 destinations from 25 and its plane count had risen to 45 in March from 25 when he took the helm.

In the next one year, the airline is expected to add about nine new destinations and bring in about six new aircraft, in line with Project Mawingu.

At the NSE, KQ’s share has seen some volatility in the past one year reaching a low of Sh8.30, but the recent positive performance has seen it rise to Sh13.5.

Mr Naikuni is an old hand at KQ having initially stepped into the company’s boardroom in August 1999 as a member of the “dream team” – group of technocrats that former president Moi’s government hired with World Bank sponsorship to turn around the economy.

Mr Naikuni served as the permanent secretary in the Ministry of Information, Transport and Communication – a position that gave him a seat in KQ’s board where he served until he resigned on April, 2001 only to return two years later as managing director.

In an interview in 2007, Mr Naikuni said joining the airline was the best career decision he ever made. But on the other hand, leaving Magadi Soda was his hardest decision as it is a place he had worked for over two decades having started as an engineer trainee in 1979, before rising to the position of managing director.

A Bachelor of Science in Mechanical Engineering graduate from the University of Nairobi and a graduate of Harvard Business School of Management, Mr Naikuni has faced turbulent times at Kenya Airways.

For him May 5, 2007, and the days following, turned out to be the most challenging period. It was the day Flight 507 crashed in Douala, Cameroon, killing all 114 passengers on board.

“If there is one thing that is mandatory in this industry then it must be you have your phone on throughout. I was in bed on that fateful night when my phone rang once and my heart skipped a beat.

“I talked to the control centre and they broke the news to me. I jumped into my clothes, woke up my wife and told her there was an emergency and drove to the airport,” he said when asked of his lowest point at KQ, in a meeting with journalists earlier this year.

Strategy

“The incident changed a lot of us and we changed a lot of procedures,” he said. “From training to understanding when there is an accident or incident in a foreign country to the need to have a local assist and have a person who understands the reporting structure at KQ on the ground.

One of Mr Naikuni’s highlights so far at the airline has been in the investment of Pride Centre, a training facility.

For him it’s a place where young people are given an opportunity to develop and be groomed for the future.

The hiring of Mbuvi Ngunze in 2011 as the chief operating officer was seen as part of the airline’s succession strategy. Mr Ngunze was seen as a likely candidate to replace Mr Naikuni, along with other top officers.

But it now appears the market will have to wait and see who the team tasked with the search for a new replacement will come up with.

For now Mr Naikuni says he is content with waking up every morning and working at growing the airline as the board of directors continue to search for his replacement.

“My priority is to put heart into the airline. Keep doing what I’ve been doing, wake up in the morning and come to KQ,” he said, when asked what he wanted to achieve in the next one year.

“And I look forward to a happy retirement, think I can start golfing,” he added.