INNOVATIVE LEADERSHIP PRACTICES, DIGITAL TRANSFORMATION, REGULATORY FRAMEWORK AND PERFORMANCE OF COMMERCIAL DOMESTIC AIRLINES IN KENYA

Abstract

The aviation industry plays a critical role in connecting markets, enabling trade, and supporting economic growth, yet domestic commercial airlines in Kenya continue to face persistent challenges such as inefficient regulations, high operational costs, and slow adoption of digital technologies. This study examined the influence of innovative leadership on the performance of domestic commercial airlines in Kenya, focusing on the mediating effect of digital transformation and the moderating influence of the regulatory framework. The research was grounded in the Resource-Based View, Technological Determinism, Institutional Theory, and Open Systems Theory. A positivist philosophy and cross-sectional survey design were adopted, targeting 170 senior managers from all 17 licensed domestic airlines. Data were collected through structured questionnaires and analyzed using descriptive statistics, correlation analysis, and multiple regression techniques, including Baron and Kenny’s mediation approach and Hayes’ moderated mediation model. The findings revealed a strong and statistically significant direct effect of innovative leadership practices on organizational performance (R² = 0.640, F = 250.1, p < 0.001), implying that strategic visioning, adaptability, and employee empowerment are essential in driving satisfactory performance among domestic airlines. Regression analysis showed that innovative leadership was a strong predictor of performance (t = 15.818, p < 0.001). Digital transformation was significantly associated with innovative leadership (t = 12.589, p < 0.001) and showed a direct effect on performance (t = 9.555, p < 0.001). However, its mediating effect weakened and became statistically insignificant (t = 1.304, p = 0.194) when innovative leadership was controlled, indicating partial mediation. The regulatory framework significantly moderated the relationship between innovative leadership and organizational performance, with the interaction term being statistically significant (t = 2.239, p = 0.027). The explanatory power of the model improved from R² = 0.640 to R² = 0.726, with a significant R² change (p < 0.05), implying that supportive regulation strengthens the effect of innovative leadership on performance. The moderated mediation model, however, was not supported, as the interaction between regulatory framework and digital transformation was statistically insignificant (t = 1.495, p = 0.135) The study concludes that innovative leadership practices remain the most critical driver of performance among Kenya’s domestic airlines, while digital transformation provides complementary benefits and regulatory frameworks strengthen leadership’s effect when well-aligned with organizational strategies. The study recommends that airline leaders prioritize adaptive and inclusive leadership, invest in advanced aviation technologies, and advocate for regulatory reforms that create an enabling environment for innovation-driven leadership to enhance overall organizational performance.