This Is Why Kenya Airways Is Dying

Kenya Airways

Kenya Airways has been the most talked about and admired African airline after the South African Airways.

For many reasons, particularly in Nigeria, a country where a national carrier became a national embarrassment, before it finally died.

However, Kenya Airways, the supposed ‘Pride of Africa’ has been bedevilled with series of problems that makes its future bleak. Fondly called KQ, Kenya Airways’ Q2 result has finally confirmed the fears of many people that the airline might be on a life support.

The airline has reduced its operating loss by 75%. All other metrics are showing that the management is trying hard to revert the fortunes of the airline, however, KQ is still carrying KES26,225 billion in debt. This is approximately USD258.3 million. Last year same quarter, KQ raked in USD253,5 million in loss. This is a 2% increase in net loss.

Kenya’s government, the majority shareholder in Kenya Airways is not taking it lightly. On the 3rd of August, 2015, Kenya’s national parliament carried out an enquiry into the company’s challenges. The fact finding committee chaired by Anyan’g Nyong’o, said the problem with KQ are systemic such as:

  • Poor investments decisions by management of buying and leasing aircrafts, and fuel hedging, under arrangements which are not profitable to the company, thereby leading to skyrocketing indebtedness.
  • Expensive ticketing which are non competitive in the market leading to loss of passengers as well as revenue.
  • Routing arrangements and partnerships which may account for massive losses of revenue, particularly due to lack of expansion of KQ flights in the African routes.
  • Problematic human resources policy and practices causing long drawn industrial unrest detrimental to establishing a healthy business environment in the company.
  • Frequent cancellation of flights causing inconvenience and poor relationship with passengers, who consequently abandon using the airline.

However, with all these findings, last year, the airline is still not showing any sign of recovery at least. The consensus narrative out there in the media is that KQ is suffering from mismanagement. Aden Duale, a member of Kenya’s parliament threatened to take action against Kenya Airways’ management at the parliament.

“If what is happening to KQ was happening in the US or Europe today, even the minister concerned would resign. Where are all our profits going? The men and women running KQ must be investigated” he concluded.

Orange Democratic Movement, ODM has also accused the airline’s top management of corruption and mismanagement. The party challenged it management that:

“We demand for minutes of board meetings that approved several of the business decisions that Kenya Airways has been undertaking over the years

Surprisingly, while the share price is on the decline, one or two people have been on a buying spree at a rate that betrays some kind of insider trading indicating there is prior knowledge of the imminent collapse of the airline” the party said in its statement.

Allegations of corruption should not be discarded if the airline would be revived. KPMG Professional services, external auditor to the airline had been accused of covering financial mismanagement at KQ. Parties with this narrative also alleged that the airline’s decision to buy dreamliners not minding the health status of its balance sheet is symptomatic of its corrupt management.

While many people are fixated on the current state of KQ, the airline has made history for the wrong reasons. Till date, Kenya Airways’ loss is the largest to be posted by a single company quoted on the Nairobi Stock Exchange, NSE.

To revive the airline, KQ said in its earnings report that it has a new strategy called ‘Operation Pride’

“Main planks are closing the profitability gap, refocusing the business model as well as optimising the capital of the company – KQ has rationalised its fleet through selling off and leasing some of its surplus aircraft, and monetised certain assets. A staff right-sizing exercise is ongoing. The plan aims at both revenue and cost-side improvements. These actions have already reduced fleet costs by about USD7 million from July 2016, thus improving the airline’s liquidity.”

The future of KQ is still in the hands of its management, the airlines needs not just an overhaul of its strategy, KQ is company that needs to come clean, raise new capital, perhaps through bond issuance and run a transparent system.

Time might soon run out. Something drastic is needed to turn around the fortunes of Kenya Airways and prevent it from becoming ‘The shame of Africa’.

 

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