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The East African : June 30th 2014
MONEY AND EQUITY MARKETS JUNE 28 - JULY 4, 2014 PASSENGER NUMBERS DOWN BY 20 PC Kenya Airways gets new CEO to pilot a much needed turnaround The ai≥line faces multiple assaults on the business f≥ont especially f≥om Middle East ca≥≥ie≥s By PETERSON THIONG’O The EastAfrican K enya Airways has appointed Mbuvi Ngunze as its new CEO, replacing long serving Titus Naikuni, who steps down after 11 years at the helm of the national carrier. In a widely expected move, the board last week announced it had settled on Mr Ngunze, 46, in a move analysts say paints a picture of a company keen on strategic continuity. He takes over on December 1. Mr Ngunze has been seen as the most obvious successor to Mr Naikuni since his appointment as KQ’s chief operating officer in 2011 from Lafarge, where he held different positions across its global operations, ending his stay as the head of its Tanzania business unit. “I am still absorbing the news of my appointment… but I will make my plans known in coming days,” said Mr Ngunze. Mr Naikuni is widely credited for growing the company and guiding it through a series of challenges including a staff unrest, tough business environment and the Duala air crash, which the CEO counts as his lowest moment. The incoming CEO takes office at a period that is seen as crucial to the company’s long-term prospects, with his main taskbeing to ensure that the airline gets back into the profit zone and is able to deploy its new planes profitably. Kenya Airways made an op- erating loss for the second time since it listed on the Nairobi Securities Exchange, posting a loss of Ksh2.7 billion ($31 million) in 2014 ,which though a substantial drop from the Ksh9 billion ($103 million) it posted in 2013, shows the mountain that the company has to climb. The company made a net loss of Ksh3.3 billion ($37 million) compared with Ksh7.8 billion($88 million) in 2013. The airline has received two Boeing 787s as well a B777 this year and expects to receive a couple more later this year. Highs and Lows of KQ: Highs The airline has received two Boeing 787s as well a B777 this year and expects to receive a couple later this year Mr Naikuni is widely credited for growing the company and guiding it through a series of challenges including staff unrest, tough business environment and the Duala air crash Plan to increase frequencies to Entebbe and Dar es Salaam while at the same time introducing flights to Beijing and Abuja Lows Made an operating loss of Ksh2.7 billion in 2014 The company made a net loss of Ksh3.3 billion negative effects of travel advisories facing the country and multiple security and general elections across Africaa The travel advisories have cut passengers numbers on some routes by as much as 20 per cent Emirates and Qatar airlines generate more revenues from Africa than South African, Ethiopian and KQ Outgoing CEO Titus Naikuni (l) and incoming CEO Mbuvi Ngunzi at a Kenya Airways function. Picture: File growing its passenger capacity by an additional 40 per cent in the next 12 months. “We plan to increase frequen- cies to Entebbe and Dar es Salaam while at the same time introducing flights to Beijing and Abuja,” said Mr Naikuni. But with the airline facing as- saults on multiple fronts, including from Middle Eastern carriers, the negative effects of travel advisories facing the country and multiple security problems across Africa, its main market, Mr Mbuvi has his work cut out. “The travel advisories have cut passengers numbers on some routes by as much as 20 per cent,” said Mr Naikuni. The airline is already strug- gling to attract passengers, with load factors dropping from 68.7 per cent in 2012/13 financial year to 65.6 per cent in the 12 months to March, well below the African average of 69.9 per cent. The airline said it was considering taking up its options HUBS KQ has established a code sharing agreement with Etihad, Tanzania’s Precision Air, South Africa’s Kukula.com, Air Mozambique, Air Namibia, Air Burkina, Air Mauritius and TAAG-Angola Airlines In West Africa, Ethiopian Airlines bought a 15 per cent stake in Togo-based A Sky Airlines with the former now using Lome as its hub in West Africa. Ethiopian also acquired a 49 per cent stake in Malawi airlines with the carrier using Lilongwe as its hub for Central and Southern Africa. on both the Embraers and the 787s. One of the options for the 787 comes up at the end of the year, while the rest come up early next year. “You really want to be patient and get the best deal… remember there are new variations of the 787 coming up every other month… we want to wait and get the best deal for ourselves. The continued push into the continent of Middle Eastern carriers as well as the expansion plans of KQ’s main rival in Africa, Ethiopia Airlines, also present a new challenge for the carrier. Emirates and Qatar Airways generate more revenues from Africa than South African Airways, Ethiopian Airlines and KQ combined. But it is the business strategy of Ethiopian Airlines that could pose the biggest challenge to Kenya airways. While KQ has opted to establish code-sharing agreements with African airlines, Ethiopian has gone all out establishing mini-hubs across Africa. But the arrival of new planes could offer some reprieve. The airline says it would retire part of its B767 fleet, replacing the relatively older model with the B777 and B787, a move it expects will help it lower fuel costs. Boeing says the B787 burns 20 per cent less fuel than the B767. Fuel is the single largest oper- ating cost for airline accounting for as much 40 per cent of total costs. The airline says it is exploring the option of procuring its own fuel to further manage costs. “We are considering whether we should do the handling ourselves or whether we should get a third party do that for us... but the main aim is eliminating the middleman,” said Mr Naikuni. The new CEO will also be look- ing at ways of pushing the growth of Precision Air, where it has 41.2 per cent shareholding and Jambo Jet, its low cost carrier. While Jambo Jet is doing rela- tively well, Precision Air continues to struggle with EY’s auditors warning in the airline’s 2013 annual report released last November that the company’s liabilities were greater than its asset. The audit report painted a gloomy picture of the loss-making firm, saying its liabilities had exceeded its assets by Tsh83.14 billion ($53 million). 49 Business watch Mo≥e ca≥s ≥ecalled ove≥ bad ai≥ bags By A SPECIAL CORREPONDENT New York Times ONE OF the most critical safety components in cars, the air bag, is rapidly becoming a central concern of automakers and regulators. Recalls related to air bag defects have affected at least 10 million of the more than 30 million cars recalled in the United States so far this year, according to a New York Times review of regulatory records. On Monday, seven additional automak- ers said that they were recalling more than 3 million vehicles worldwide because their air bags, made by the Takata Corp., could rupture and send shrapnel flying inside a car. The move is the latest in a series of re- calls related to air bags made by Takata, one of the world’s top automotive supply firms, which has fallen foul of regulators and prosecutors. In April and May last year, several Japanese automakers, along with BMW, recalled 3.6 million cars over the same defect. Then on June 11, Toyota expanded that recall by 2.3 million vehicles — many for the second time, although for a different air bag — because, Takata said, it kept inadequate records. The number of recalled cars could rise further as automakers discover more models fitted with defective air bags. Stepped-up security Those numbers reflect in part stepped- up scrutiny by regulators, particularly in the United States. The recalls, announced Monday, which included cars made by Toyota, Honda, Nissan, Mazda, Ford, Chrysler and BMW — were responding to an investigation opened this month by the National Highway Traffic Safety Administration after it received three complaints of injuries caused by the air bag inflators rupturing. A Honda spokesman said the company was aware of more than 30 injuries and two deaths in the United States related to Takata air bags. For those who have been injured, the consequences have been devastating. The recall Monday also reflected a long- term change in the auto industry, where more automakers use the same parts, said Brett Smith, the programme director of industry analysis at the Centre for Automotive Research in Michigan. Takata has about 20 per cent of the air bag market, in a field dominated by three major suppliers: Takata; the SwedishAmerican manufacturer Autoliv, which has about 35 per cent of the global market; and the US supplier TRW Automotive, which has about 20 per cent. Takata began making air bags in 1988, seeing an opportunity when US regulators began to require them.
June 23rd 2014
July 7th 2014