Listen in as Kenya Airways CEO Allan Kilavuka talks to Window Seat about the South African Airways partnership, navigating Kenya Airways through “survival mode” and his plans to phase out the airline’s Embraer E-Jet fleet.
Don't miss a single episode. Subscribe to Aviation Week's Window Seat Podcast in Apple Podcasts, Spotify or wherever you get podcasts.
Discover all of our podcasts on our Apple Podcasts channel or at aviationweek.com/podcasts.
Rush Transcript
Victoria Moores:
Hello, everyone. Thank you for joining us for Window Seat, our Aviation Week Air Transport podcast. I'm Air Transport World Europe and Africa Bureau Chief Victoria Moores. I'm delighted to welcome you on board.
I'm joined this week by Allan Kilavuka, who is the chief executive of Kenya Airways Group. Welcome, Allan.
Allan Kilavuka:
Thank you very much, Victoria.
Victoria Moores:
Now, I remember the last time that we met, I think you were chief executive of Jambojet, which is, of course, the low-cost subsidiary of Kenya Airways. I think that that must have been around 2019.
Allan Kilavuka:
That's right.
Victoria Moores:
You've been through quite a lot of changes since then. In 2020, you became chief executive of Kenya Airways Group as a whole. That was at a very high-pressure time. We were in the middle of the COVID pandemic. Obviously, you've rolled out a lot of changes since then. There's been a restructuring at Kenya Airways.
I'm wondering whether you can start off with a bit of color about what the airline was like, in terms of fleet size and network when you became chief executive, compared with where you're at now through that restructuring?
Allan Kilavuka:
Yeah. Thank you very much. Most of my friends were telling me, "What did you do to deserve this?" In other words, "This is a punishment for you." Instead of congratulating me, a lot of them were condoling with me when I joined the airline.
I joined it at a very difficult time. At the time that I joined Kenya Airways, my chief role was chief encouragement officer, or chief executive officer, which is to encourage the staff on their employees, and everybody else that this will come to an end, and it will be better. We went into what we call survival mode for a period of time. In other words, to keep the airline alive up to when we would get back on our feet again, literally speaking.
We did a lot of changes, actually; we were calling it “shrink to grow.” The strategy then, cut out all the roots that we thought were completely unnecessary. Or they were bleeding, because of the pandemic. We also did actually reduce the size of the fleet, not grow. We took out at least four aircraft from the fleet then. And then we reduced our employees, not by terminating them but by asking them either to voluntary leave, or the ones who were on contract, we did not renew their contracts. But we did not do a mass layoff. In fact, what we did was reduce salaries through consent; we got consent from employees to reduce their salaries. We made all those majors so that we could survive. Luckily, we also got a bit of support from government so that we could pull through. Then of course, negotiations with suppliers.
Now that, we've come along way. Now we are in last year, 2023, actually at the end of 2022, we could see that the things that we had done were bearing fruit. In 2023, we were able to record for the first time in seven years, we were able to record an operating profit. Then this year, half-year results have shown the net profit at the bottom. Again, this is the first time in about 11 years that this has happened. We feel very vindicated. We feel excited about what could be done. A lot of it has to do with really just being true, keeping the rigor of cost-saving, customer-focus, schedule reliability, all those things that make an airline reliable.
Victoria Moores:
You mentioned there that you went into survival mode. How long would you say that survival mode lasted? When did you come out of survival mode, and more into this redeveloping the airline and moving forwards?
Allan Kilavuka:
I would say until the end of 2021, we were in pure survival mode. I would say in 2022 is when we started to see how do we now start the recovering. We started opening up new routes, actually. Increasing our frequencies, for example. Employing more people, because we had frozen employment, and so on and so forth. I would say in 2022 is when we started to rev.
Victoria Moores:
You also mentioned a fleet restructuring in there. Obviously, you needed to right-size the business to make sure that you were able to move into profitability.
Allan Kilavuka:
Yeah.
Victoria Moores:
What was the peak of the fleet, what was the least that you had, and where are you at now?
Allan Kilavuka:
Yeah. I need to just make not a correction, but a refocus. But what I keep telling people, including my people—in fact, my focus is actually not to make profit at the moment. Yes, we are a commercial enterprise, and shareholders will expect us to be profitable. But my main focus now is how do we make sure this group is sustainable going forward. It's very, very important. By sustainable, I mean how do you make sure that we don't just make a want of profit, and then we switch [it] off.
That, therefore, needs to be make sure that we're not doing things that are cosmetic in nature, including fleet. Although we don't have a big fleet. We have a small fleet, relatively speaking. Today we have 34 aircraft in the main airline, and then we have another eight in our subsidiary. That's a relatively small fleet. That fleet, there are three types of aircraft within the fleet. For 34 aircraft, those are too many types. Not too many, there are many types.
What we want to do now is to, as much as possible, try [to] mono-fleet, or have as few number of aircraft as possible. We have determined we Embraer, we have 13 Embraer. We want to remove the Embraer from our fleet. The main reason we want to do that is because Embraer, at the moment, is a good route opener. But once a route has matured, you need a bigger sized aircraft, especially for our continent, which carry a lot of luggage. They're out of service for now. They were very good in the beginning, but now not so much. Now we have to replace this with medium-sized single-aisle aircraft. The [Boeing] 737s, or the [Airbus] A320s, or something like this. Then for the bigger aircraft, either we have the A350s or the 787.
This is what we're working on. The problem we're having now is although we're very clear-minded about it, there are no aircraft in the market so we have to juggle a little bit. Juggle our plan going forward. Like I said, it's about sustainability, what is going to be sustainable in the long haul.
Victoria Moores:
Yeah. That's one of the points that you've mentioned today earlier, was about the fact that sustainability in the financial sense is the existential threat for African airlines.
You mentioned there about the shift in the Embraer fleet. You're operating E-Jets, Embraer E190s. How long before you're able to phase those out of the fleet?
Allan Kilavuka:
Again, it depends on the availability of the aircraft. If it was already in our plan, we would be available to remove all of them by end of next year. In fact, the word “remove” is in fact the wrong word to use, because we want to reassign them. There are many ways we are thinking about reassigning those aircraft. Because, like I say, they are good aircraft. Actually, fantastic. The problem is that they're not fit for purpose. We are thinking of different ways of reassigning them. That would have been end of next year, but it all depends on the availability of a replacement aircraft, which at the moment are not there.
Victoria Moores:
I'm wondering what a reassignment would look like? Could that see them going more into Jambojet? Or could we potentially be looking at a new operation for Kenya Airways?
Allan Kilavuka:
Either or. Yeah. It's one of those.
Victoria Moores:
Would you be looking to potentially create new AOCs in other African countries?
Allan Kilavuka:
Probably, yes. Probably. Yeah. That's a discussion for when it's more mature.
Victoria Moores:
Okay.
Allan Kilavuka:
Yeah.
Victoria Moores:
In that case, I won't press that. But I will look at a different market.
Allan Kilavuka:
Yeah.
Victoria Moores:
Again, pre-COVID …
Allan Kilavuka:
It could be in the market, but a different operation. I will give you a “for example.” Our West African routes are very, very healthy. They need to have more connection. A thought is can we have something in one of the West African routes, and then help to feed, [within] the feed, one of our aircraft. That's a thought.
Victoria Moores:
Would that be as part of your core operation as a sub-fleet, or would that be as a separate operation?
Allan Kilavuka:
Either or.
Victoria Moores:
Okay. Just before the pandemic, you were in talks with South African Airways to potentially create a pan-African airline group. I know that that's slipped back from what you were originally planning. This platform that was going to be shared, where you were going to have lots of subsidiary airlines within the group. What is that up to now?
Allan Kilavuka:
Yeah. To your point, exactly. It has slipped. The two airlines, as we're all aware, have been going through a restructuring process. It's just taking longer for both than we anticipated. There must have been quite a number of changes in South African Airways. The chairman has changed, for instance. When we started this operation, I had a different CEO. Now we've had two different CEOs since then. Obviously, with new CEOs, and new management, and new government, it always is a recalibration of the intent.
It has set us back, this is for sure. I was hoping that, by now, we would have a more solid plan going forward. What we did is we let it lie for a while. Right now, we have a co-chair arrangement with them. We share lounges, we share information, in terms of support. We wanted to go one step further and look at their technical, because they have a very good technical unit there. All those things have slowed down. Open[ing] up cargo, for instance. There's a lot of cargo opportunities. All those things are slowed down. That's fine.
The intent is there. What we need to do, once I'm finished with what we're currently working on in Kenya Airways, which by the end of this year, is to go back, sit back, and re-strategize, and re-communicate what are the new timelines, in terms of working closer together. The other thing I kept saying it is not a closed club of South Africa-Kenya Airways. It's a match. We're in a discussion around pan-African airline. In fact, at one point we thought maybe we should start with another one, which is probably more ready, and then come back to South Africa and others. That's another thought as well, is maybe you should start with one which is a little bit more ready to have this engagement. The issue is to pilot it, and then prove the case, and then have people hop in.
Victoria Moores:
So potentially, you might be able to start that kind of platform of cooperation that may be with a different airline other than SAA?
Allan Kilavuka:
Yeah, potentially. Yeah.
Victoria Moores:
You mentioned that the timelines are a bit unclear at the moment.
Allan Kilavuka:
Yes.
Victoria Moores:
Do you have any notion or time in mind, of one year, or two years?
Allan Kilavuka:
Yeah. Negative one year maybe. We were supposed to have been ... By 2027, we really should have rolled out something. By 2027. But that's what I intend to do. This is a party, so we have to mutually agree. We should have done it in 2025 by now. I know we will not do it in 2025 because of all the discussions I've mentioned. But maybe, to be more realistic, by 2027 we should have some solidarity around this.
Victoria Moores:
I'm wondering, do you see that having any impact on your alliance membership? Because at the moment, Kenya Airways, you're SkyTeam. SAA, they're Star Alliance.
Allan Kilavuka:
Yeah.
Victoria Moores:
Do you see it impacting your alliance membership?
Allan Kilavuka:
It will almost certainly impact our membership in any of the alliances, or a leg of them. But that's a good thing, because then we can ask the alliances to demonstrate to us who are we better off with. What's the value proposition of either being in one or the other? If none of them can demonstrate to us, maybe it's time for us to look for either another one or none at all. But if one of them can demonstrate value, then that's the people we'll go with. It's a good thing.
Victoria Moores:
Absolutely. That's one of the conversations that's often had in African aviation, is this need to really build up the scale of the players to come together, and to participate together.
One of the things that we have seen, though, is Middle East airlines, I'm specifically thinking of Qatar, coming into Africa and forming partnerships. There's potentially their partnership with Rwanda. Just recently as well, we saw the new South African partnership as well. Is that something you see as potential for you as Kenya Airways, to form some kind of an equity partnership with a group that's maybe outside of Africa?
Allan Kilavuka:
Yeah. Kenya Airways, and actually the pan-African airline group, the original thought was the investment should come at the pan-African airline group with multiple hubs, and therefore it can roll out an African strategy. That obviously is delayed, so we have to look at it from the roundabout way, which is Kenya Airways does need an equity partner for sure. I'm sure South African Airways, as well. We can look at it in that way, have an equity partner coming in, and then eventually investing in the pan-African airline group.
This equity partner, or indeed any other partner, we've got to make sure that we are getting the fair share of our asks. Because in the past, we've had the short end of the stick when we get into alliances. We'll be very careful to enter into an arrangement which is beneficial to us as Kenya Airways, as Kenya, and to the African continent where we built our hub. We're developing the hubs in Africa because there's need to do that. And not have the hubs move to any other major hub, and we simply become a connecting or feeding airline. That's not what we're looking for.
Victoria Moores:
You mentioned there about the need for an equity partner.
Allan Kilavuka:
Yeah.
Victoria Moores:
Again, I'm wondering about the timelines for that. The plan is to move away from your government ownership, to move away from government funding. Is there a timeline on that plan?
Allan Kilavuka:
Yeah. Just to correct, the government owns a substantial share in Kenya Airways. At this stage, they don't want to get out, but they want less than the majority shareholder. The reason for government being present is for just guarantees.
I spoke earlier about issues around risk and risk premiums that we suffer in Africa. The presence of government is to de-risk for any potential equity partner. When they see government, they have government backing. Government is not going to exit. But yes, it's going to be diluted because of entry of new equity partner.
The equity partner, they're role is really to fund the organization because so far, we are under-capitalized, and we need to grow. We need to grow, and we need to diversify our offering. We need to renew our fleet, refurbish the existing ones, and so on. There's a lot of capex [capital expenditure] that is involved that needs funding. Funding is not going to come from government, it's going to come from private funding.
Victoria Moores:
That brings me onto my final question, just to wrap up, and that's looking at where you are now compared with where you want to be, say in two years’ time, are you anticipating any aircraft orders? What are the next major milestones in your strategy?
Allan Kilavuka:
Yeah. We have a five-year, we'll call a fleet acquisition plan. Remember, I spoke about mono-fleeting as much as possible. That is swapping aircraft, Embraer with other, with larger capacity aircraft. If you remember, we were saying removing with E190s, replacing them with medium-sized or larger sized single-aisle, so that's more capacity. Actually, more than 1.5 times the capacity of the existing Embraer. That alone is increasing capacity.
But over and above that, over the next five years, we're bringing in 10 aircraft. Not necessarily new, because of availability. So 10, three being the large 787, or whatever we find. The rest of it being the smaller single-aisles.
Victoria Moores:
Excellent. Are you already committed into those aircraft, or are you looking for those in the market?
Allan Kilavuka:
We are looking for them in the market. We have some. Three of them are coming next year. Those are secondhand [De Havilland] Dash 800s, the 737-800s. Those are the ones we could find. Then we have stretched it out for the next five years. The equity investment that we get from the new strategic partner is to support the acquisition of new aircraft. Today, because of availability of capital and availability of aircraft as well, we will go for secondhand aircraft. But once we have new capital injection, then we will now go for newer type of aircraft, which are more fuel-efficient, and more reliable of course, and so on.
Victoria Moores:
Excellent. Well, it sounds as though, hopefully this should be the calmer part of your leadership. You never know in aviation.
Allan Kilavuka:
Aviation, there's always a new thing.
Victoria Moores:
Thank you so much for your time today, Allan. I really appreciate it. Thank you, also, to our producers Guy Ferneyhough and Cory Hitt. And of course, a huge thank you to our listeners for following Window Seat. Make sure you don't miss us each week by subscribing to the Window Seat Podcast on Apple Podcasts or wherever you listen. Until next time, this is Victoria Moores signing off from Window Seat.
Related Content
