KQ costs rising despite naming of expat bosses

When Sebastian Mikosz was hired to manage the turnaround strategy for the national carrier and improve its balance sheet, the government based his appointment on his successful history in managing airlines in Poland.

With about a year to the end of his tenure, economists argue that much has not been done with regard to improving the numbers of Kenya Airways. In fact, the operational cost have continued to grow.

Economist Toni Watima says one of the reasons why Mr Mikosz was hired was to address the overhead costs and address the managerial problem that ails KQ.

“Mr Mikosz was brought in as a turnaround manager to restructure the airline and reduce costs. As much as there have been growth in revenue, the overhead costs have been going up as well,” said Mr Watima.

“Whatever he was brought seems not to be working if the numbers are anything to go by,” added the economist in an interview with Shipping and Logistics.

Mr Watima argues that the business for KQ in terms of passenger numbers and cargo is there but the cost of operations has been rising, a thing that points to managerial problems at the company.

In the financial report, the airline says that its growth in revenue was mainly boosted by growth in the number of passengers last year to 4.8 million from 3.43 million in 2017.

The airline, which released its results for 2018 last week, says the cost of operations went up to Sh121 billion last year from Sh116 billion in 2016.

For the nine months result for 2017, the cost of operations was Sh87 billion with estimates for the whole year putting the overheads at Sh116 billion estimated at an average of Sh9.6 billion per month.

Mr Watima argues that to tame the cost of operations, KQ should start by cutting the salaries of the top managers and peg it to performance.

As an expatriate, Mr Mikosz is one of the highly paid chief executives, raking in Sh4 million a month if what he told parliament recently is anything to go by.

KQ says that fuel, personnel and cost of aircraft remain three major drivers of the cost of operations.

With the numbers not promising Mr Mikosz is now turning at a merger with the Kenya Airports Authority (KAA) to turn the fortunes of the ailing carrier.

In March, Mr Mikosz told a news conference that to reverse the fortunes of the airline, the government will have to push through the plans to have the carrier take over management of the JKIA.

Mr Mikosz said if nothing changes, the carrier will, in a span of five years, diminish to the level of its low-cost subsidiary Jambojet and lose its prestigious tag of the Pride of Africa.

KQ had proposed the formation of a subsidiary to manage operations at the JKIA for a concession period of 30 years.

KQ’s plan, contained in its Privately Initiated Investment Proposal (PIIP), includes the creation a special purpose vehicle (SPV) — a unit of a company which is shielded from the parent firm’s financial risk — to operate, maintain and develop JKIA.

The proposal was for the entity to runs all airports and airstrips in Kenya, seeking a 30-year concession to manage and develop JKIA under agreed terms—including payment of an annual concession fee.

KQ has set the annual concession fee at $28 million or Sh2.8 billlion in 2019, and wants to gradually increase it to $35 million in 2028.

Critics have argued that there is no reason KAA should accept proposal that will deliver revenues way below the $66 million needed to run non-JKIA operations every year.

But the plans seems to have been dealt a blow after House Committee on transport, which has been sitting in Mombasa this week, shot down the proposal.