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CEO Interview: Strength in unity

Titus Naikuni, Group Managing Director and CEO of Kenya Airways, says it is not too early to start thinking about consolidation in Africa.

Titus Naikuni, CEO Kenya Airways

What is the status of your proposed low-cost subsidiary, Jambo Jet?

We’ve been looking at Jambo Jet as a low-cost carrier (LCC) for some time. One step we needed to accomplish was to get a license from the aviation authority, which we received in late November 2012.

So we are now analyzing exactly how we are going to start it, because one has to ask why so many LCCs are failing, especially when linked to a parent airline. I don’t have the answer yet, but we now have someone looking into it. We should have some more information in early 2013.

With the launch of FastJet, which is supported by easyJet founder Stelios Haji-Ioannou, has the low-fare model finally arrived in Africa?

The jury is still out on this particular model. If you look at the LCC concept in Europe it’s driven largely by technology. But in Africa that cannot be the case because we are still way behind in technology.

For example, a lot of the ticket sales of LCCs in Europe are via the Internet. But Internet penetration in Africa is still very, very low. So it is a case of wait and see for the true, European-style LCC model.

What kind of impact are you seeing from the Middle East and Gulf airlines, in terms of the commercial challenge, as well as recruiting staff?

They are not having a significant impact on us in terms of staff. They have taken a few pilots, but not many. They have also taken quite a few cabin staff, but we have counteracted this very successfully because we looked on it as an opportunity.

We have set up a training school for cabin crew, so now the Gulf carriers pay us for training, which is a good revenue stream.

But in terms of the marketplace, there is an onslaught from them. They are diverting traffic from other hubs, such as Amsterdam, London, and so forth. But we are starting to work with them, seeing how we can complement each other. Again, we are looking for the opportunity in this development. Still, I must admit it is a challenge.

Does membership of SkyTeam help to mitigate the threat? Is membership a big part of your commercial plan?

The beauty of SkyTeam is that it is a very good selling avenue for us because it means we don’t have to fly to every destination in Europe. We fly to Paris, London, and Amsterdam. We’ve always flown to London because of the historical connections between the United Kingdom and Kenya, but as for Paris and Amsterdam, we go there because we are fed by SkyTeam members Air France and KLM.

Also, we can now offer the likes of Guangzhou in China because of Chinese SkyTeam members. So we try to get into the hubs of the SkyTeam members so that we can access their networks and they can access our network.

SkyTeam is a major part of our commercial plan. It does offer a counterweight to the impact of the Middle East carriers, but we are still new to the alliance and some of the Chinese carriers are still new, so I think there is room for us to do far more with SkyTeam than we are currently doing.

Kenya Airways reported a loss for the six months ending 30 September 2012. How is the second half of the year looking?

The second half is looking better than last year. The exchange rate is looking better. Also, we decided to remove quite a bit of capacity from the market and that is helping. The strength of the Kenyan shilling against the US dollar worked against us in the first half of the year and we also suffered some labor disruptions, as well as the impact of high fuel prices.

Africa’s safety performance continues to be well below world standards if we exclude airlines on the IOSA registry. Is the Abuja Declaration enough to move Africa towards the global safety level?

I think the Abuja Declaration is only the start of a long journey. A big challenge we are going to have is around the whole issue of implementation and I think that, rather than trying to eat the whole elephant, we should cut it into small chunks.

My suggestion is to get a few pilot countries. What we need to do here, rather than going in just as IATA, is to have IATA and ICAO, the airlines, the air navigation service providers, and the airports together and have them develop a master plan for their own country. This master plan must have targets and the plan should be followed. I am sure this model would be successful.

We recently started one in Nairobi and we are already seeing good results. The aim must be to start duplicating this process throughout Africa.

The Abuja Declaration is a political step. Unfortunately the political arena changes rapidly and significantly in Africa. You are looking at more than 40 countries involved in this process. There are lots of elections and after an election the political heads of transport change and it is very hard to sustain momentum.

We also have to look at the role the African Union can play. It is not as big a bureaucratic entity as you have in Europe, so it could be used to fast-track development.

There is one other point I would like to make about safety. Many of the initiatives are very English-oriented, but in large parts of Africa the population is French-speaking. I think we need to consider exactly how to get across a message so that it is not seen as just an afterthought from programs that are aimed at the English-speaking part of Africa.

Are you satisfied with the state of infrastructure in Africa? Is Nairobi Airport keeping up with demand?

Infrastructure is a challenge in Africa—first the airport itself, second the navigational aids. Nairobi Jomo Kenyatta is typical in that it has outlived its capacity. I am happy to say that at least they are expanding the airport. The air navigation side is also being worked on.

But, actually, this is where the issue of staff is most problematic. It is a big area that we need to look at because it is difficult to attract highly qualified people to manage the infrastructure. The government salary structure isn’t great and so very few skilled people are interested. I think it is high time the government removed its control of salaries. It should commercialize these areas.

How important is airline consolidation in Africa?

Small airlines cannot survive alone. If you look at consolidation in Europe and the United States we are seeing some positive results.

It is not too early to start thinking about it for Africa. I’ve said it before—if you look at the likes of Ethiopian Airlines, South African Airways, and Kenya Airways, we should consolidate. And mostly I’m looking at Ethiopian Airlines and Kenya Airways because of where they are. We have two hubs that are next to each other and at the moment we are just eating each other.

But consolidating across borders is very difficult.

It’s difficult because there is little political will for this to happen. It is unfortunate that airlines were started mostly with the idea of being a flag carrier. It is amazing when you think about it. When the aircraft takes off and is in the air, who sees the flag? The guy who is inside the aircraft doesn’t see the flag. The guy who is outside down on the ground far away doesn’t see the flag.

As far as I’m concerned governments should abandon this fixed concept. You can carry the flag in a variety of ways that wouldn’t affect the business at all.

Is the Yamoussoukro Decision on the liberalization of air transport in Africa still relevant?

Actually, I think Africa needs to revisit the Yamoussoukro Decision because it is still relevant. It was quite difficult to get the whole thing adopted. Again, you are looking at more than 40 countries. Some of these countries have airlines, but the majority do not.

The problem with it is that it was really driven by governments and political considerations. I think we can do more to understand the industry viewpoint because airlines weren’t consulted. That is why many airlines have expressed their discomfort.

What are your thoughts on stopping the clock on the European Union Emissions Trading Scheme?

It’s fair to say I am not disappointed. I am a supporter of protecting the environment, but I am not a supporter of discrimination.

It’s not just about sovereignty either. There is a pervasive idea that aviation is a big polluter that is somehow escaping its environmental responsibility. That is not true.

If you are looking at the environment from a holistic point of view, let’s not discriminate among industries. There are bigger polluters than the airline industry. When you start targeting the airline industry with special taxes, what are you achieving when many other industries are bigger polluters?

I agree we must work hard to reduce emissions, so I hope stopping the EU emissions clock provides the opportunity to find a fair and equitable solution.

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