KQ Operation Pride

What is Operation Pride? Kenya Airways (KQ) has just released its financial results for 2016. It’s been another loss-making year, and it’s clear that major changes will have to be made. Internally at KQ, they have Operation Pride, launched in October last year but, which started in March this year, and which KQ CEO, Mbuvi Ngunze, said aims to:

Close the profit gap (and get the airline to a 5% after-tax return).
Revising their business model to focus on Africa
Achieving Financial stability.

Item 3 is really about the shareholders (which includes the Government of Kenya – as a shareholder and regulator, and KLM) making balance sheet, debt and equity decisions. KQ has already secured $200 million through an on-lending agreement with the Kenya Government, and got the first $100 million in September 2015, and the rest of it this month – in July 2016.

And while the move to layoff some pilots and other staff (once other discussions with the Court and the unions are resolved), Operation Pride is not about jobs. It also more than cutting on costs without compromising quality and waste without reducing service.

Operation Pride started out as 460 initiatives that mainly came from suggestions from staff, consultants and stakeholders to improve the business. KQ staff will champion these as they are implemented over the next 18 months, and expected to generate about $200 million. About 40% of the impact will be from cutting costs and about 60% will be from growing revenue at the airline.

KQ CEO deck

After the 2016 results announcement this week, the Kenya Airways team showed their guests some examples of the 134 ongoing processes that they have started on. Most are intended to generate recurring savings, but some of them are one-time initiatives have already borne fruit, according to management, including:

Removal of 7 large aircraft will this will reduce KQ fleet costs by about $8 million per month. They were largely idle, and some have been sold, and others leased (3 777-300’s to Turkish) and (2 787’s to Oman). KQ is still able to serve all their existing routes (with about 60 weekly flights outside Africa) with the smaller fleet of 36 active aircraft.
The Heathrow deal in which they combined and sold two different time slots in conjunction with Air France raised a record amount. They had previously served London with night flights, but which meant a plane sat idle the whole day in London. Now they only need one aircraft and lease a slot from KLM, which means an (almost) immediate turnaround.

On the Revenue side:

Improved incentives to agents, who still generate 70-80% of the ticket sales.
Targeting corporate customers.
Adjusting flight times: E.g between Lusaka and Dubai, they can fly passengers at an attractive price and the total journey is just now over one hour longer, even with a stop-over in Nairobi, than the direct Emirates flight.
New routes in Africa, the Middle East, and China through new code-sharing partnerships (category one status for JKIA will also mean that they will be able book tickets to the US for flights on partner airlines). This is essentially a redesign of Project Mawingu a decade ago in which KQ set out to fly many new routes by themselves.
(A system that can?) React to try to match different over 1,000 ticket prices combinations every day.

On the Expense side:

The 787’s bring lower operating costs, than the released 777’s and lower maintenance costs than the retired 767’s.
Demo of food leftover after a typical KQ flight.
Use new hotels in Nairobi that offer good services and buying packaged deals from overseas hotels.
Re-negotiating handling contracts as a result of smaller aircraft.
Revising inflight meal service – serving lighter meals to reduce waste, and removing beverages that were not popular.
Controlling and reducing staff travel.

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Bankelele

Nairobi writer on Banking, Finance, Technology, and Investments

KQ Operation Pride