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Sky High— Where The Money Is

Kenya Airways wants to be a cut above the rest of the continent’s airlines. CEO Titus Naikuni wants to soar to new heights, despite turbulence in the aviation market.

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As far corporate dreams go, Titus Naikuni’s is a grand one. The group managing director and chief executive officer of Kenya Airways (KQ) wants to become the British Airways of Africa by doubling its fleet and destinations in the next five years.

“We want to expand our fleet from 33 to 68 in the next five years, then to 170 in the next 10 years,” he says. “And our destinations from the current 55 to slightly over 100.”

The airline flies to 45 countries in Africa, and if you throw in South Sudan, Kenya Airways has nine countries to go before its deadline of 2013. From those 45 destinations the airline rakes in 60% of business from the continent, carrying more than 1.8 million passengers a year. “We still have a lot to do in terms of frequencies. We have more than one frequency only in East Africa and South Africa. I want to be in a position where every city has more frequencies. Right now you can fly from here to Jo’burg in the morning and come back in the evening. See what that has done to business.”

In Naikuni’s top drawer lies an A4 printout of an economic analysis of Africa by The Economist and the International Monetary Fund, titled African Opportunity.

According to its figures, the continent is among the fastest growing economies in the world. In the 2001-2010 decade, six African countries—led overall by Angola at 11.1%, then Nigeria, Ethiopia, Chad, Mozambique and Rwanda in that order—were among the world’s 10 fastest growing economies alongside China, Myanmar, Kazakhstan and Cambodia.

But what has caught the eye of managers at KQ headquarters lately is the 2011-2015 projections of global economic growth. While it puts China number one overall, with 9.5% average annual growth during the period, it lists seven countries from Africa among the top 10, led by Ethiopia at 8.1%, followed by Mozambique, Tanzania, Congo, Ghana, Zambia and Nigeria.

“That tells you where the money is,” says the Harvard Business School graduate and qualified mechanical engineer from the University of Nairobi.

“Africa has the biggest potential for business in the world. African routes are profitable, if you don’t look at a route on its own but the network created. You could lose money on one route but feed into others to make up for it.”

It has not been all rosy for Kenya Airways, though.

There have been bad moves, like flying to Malabo, Equatorial Guinea, where government restrictions led to the airline closing.

For close to four years, airlines have been on tenterhooks after demand fell during the financial crisis. The latest forecasts are not a pretty sight.

While the International Air Transport Association (IATA) upgraded its net profit forecast for the global airline industry in September from $4 billion to $6.9 billion in full-year 2011, it still projects a lower net profit of $4.9 billion for 2012 due to sluggish growth and weak profits.

Yet with the rise of Africa’s economic power, airlines are often times dealing with the opposite: moments when there are too many travelers for a few planes to soak up.

So, those who can afford it are increasing frequencies and routes to draw in excess travel demand when it happens.

“Amazingly, Africa is starting from a low base in economic growth. Many of the things that affect other major airlines globally like SARS, the 9/11 recession, don’t affect Africa. What tends to be common is fuel,” says Naikuni.

Kenya Airways, listed on the Nairobi Securities Exchange in 1996, has managed to survive fuel cost volatility which it hedges by taking long-term fuel contracts at a fixed price. “Three years ago, we didn’t get it right. We hedged top end, at a higher price, and when it came down it was so much, we really suffered. Now we hedge top and bottom but you can’t hedge everything,” he told FORBES AFRICA.

Naikuni joined KQ in February 2003 from a mining company, and talks of competition with the spirit of a Moran, the name given to the ferocious warriors of his Maasai community.

“Competition will never kill you, it is healthy,” he says.

Naikuni has arguably turned around Kenya Airways to be one of the most profitable airlines in Africa. It remains a top performer on the Nairobi Securities Exchange, where it listed in 1996 through an IPO.

Brought in from February 2003, after revenues started slowing down in 2000, Naikuni introduced what he called “shock therapy”. It included streamlining management and reducing waste—some managers were fired and new faces brought in.

“You must focus on people and lead them in the right direction. Give them hope and pay them well, though no one has been satisfied with money. I also give people space, but it doesn’t mean I won’t come down on you,” he says.

The same year that Naikuni took the helm, Kenya Airways bought a 49% stake in regional Tanzanian carrier Precision Air, to counter South African Airways’ 49% buy-in in Air Tanzania.

Later, he closed down Flamingo Airlines, which had been set up in 2000 to provide feeder services for domestic fleets. Now, he is reviving a similar model next year through Jambo Jet.

“Abandoning the domestic circuit was a mistake. We let our rivals dominate but we are regaining the market,” he says.

The other strategic move was to pull out of Kencargo, the cargo firm jointly owned by KLM, to form KQ Cargo, which has proved profitable.

His tactic of offering lower prices on domestic routes, which has turned Kenya Airways into a virtual monopoly, is deeply unpopular at Jomo Kenyatta International Airport, the region’s airline hub where rivals like JetLink, Fly540 and Air Kenya also operate.

Many view the move as tantamount to grounding its competitors, to which Naikuni replies: “If you go in the kitchen, be prepared to face the heat and if you are not, open the window and jump out.”

Then, there’s the issue of the Douala accident, in which a Kenya Airways Boeing 737-800 crashed in a swamp in Cameroon and killed all 114 people on board. As the African opportunity expansion unfolds, that incident remains etched  in Naikuni’s mind.

“We have recovered from it,” he says, but the impact is still evident in his tone.

It’s a sobering thought as Naikuni reaches for the skies.

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