TURBULENCE

KQ faces bleak future due to increased competition—Mikosz

Uganda is the latest East African state to launch its national carrier

In Summary

• Apart from Ethiopian Airlines, Kenya Airways is also looking at a further threat, RwandAir, the flag carrier airline of Rwanda

• MPs in July voted to nationalise the national carrier which has remained in losses for the last five years

Increased competition from regional airlines is threatening the survival of Kenya Airways, chief executive Sebastian Mikosz has cautioned, as the airline continues to battle high operating costs that are eating into its revenues.

Increased competition from regional airlines is threatening the survival of Kenya Airways, chief executive Sebastian Mikosz has cautioned, as the airline continues to battle high operating costs that are eating into its revenues.

Uganda is the latest East African nation to join the regional skies with the re-launch of its national carrier, Uganda Airlines, which commenced commercial flights on August 28.

The carrier made a comeback after 18 years. It now operates two flights to Nairobi per day, daily flights to Juba and Dar es Salaam(except Wednesday) and four times weekly to Mogadishu.  

 
 
 

This adds pressure on KQ, as it is known by its international code, that is already battling stiff competition from Ethiopian Airlines, which has hived off a big chunk of its continental and overseas markets.

Kenya Airways is also looking at a further threat, RwandAir, the flag carrier airline of Rwanda.

“If we are not careful, RwandAir will eat us alive. They started just the other day and they are growing so fast,” Mikosz told the Star in an exclusive interview in Nairobi yesterday.

RwandAir has had one of the fastest growth in the region, where within the last two years, it has expanded bits regional, continental and global network, eating into some of KQ's markets such as Chinese destinations.

"In the current state, KQ will continue existing but will lose its market share because the competition is expanding extremely fast. Securing back the lost market share will be extremely difficult,” Mikosz said, supporting the planned nationalisation of the airline.

Air Tanzania, which was revived in December 2016, is yet another threat to Kenya Airways, and an airline that had cemented its position in the region and Africa.

The Tanzanian national carrier has been on an aggressive expansion as it targets key African and international destinations previously dominated by KQ.

 
 
 

Ethiopian Airlines, on the other hand, has been on an expansion spree, which has seen its fleet grow more than three times the current Kenya Airways fleet.

“Having countries within East Africa creating airlines is changing the dynamics. We have quite a number of question marks for the future and the challenges that are coming,” Mikosz warned.

He cautioned against high operating costs, including numerous taxes that are likely to drag the airline's turnaround.

The Nairobi Securities Exchange-listed airline recorded a 15.6 per cent jump in total operating costs in the year to June 30, closing at Sh61.5 billion, up from Sh53.2 billion last year.

“The increase was mainly attributed to the return of two Boeing 787s that had been sub-leased to Oman Air and fuel costs that marginally increased by five per cent due to increased flying,” chairman Michael Joseph told investors on August 27.

Mikosz said the airline will seek, among other reliefs, taxes on spare parts and railway development levy normally charged on imports, which apart from adding to its costs, reflects on the ticket prices of the airline.

“These are some of the taxes dragging down our external competitiveness,” Mikosz said. “We have a situation where half of the cost of tickets is taxes. Even if we lower the tickets, we have to pay massive taxes. The infrastructure in Africa is very expensive, heavily taxed, all of these creates the impression you have expensive tickets.”

The CEO, who is expected to leave on December 31, said nationalising KQ could save it from losses and make it return to profitability.

"The number of countries that have gone that way is overwhelming. Most African countries have gone that way. Rwanda, which is a very respectable growing competition, Uganda was just created, Tanzania was just created,[using] the same module,” Mikosz noted.

MPs in July voted to nationalise the national carrier, which has been making losses for the last five years.

On August 17, it announced a Sh8.6 billion loss for the six months to June 30, sinking deeper in the red compared to the Sh4 billion loss reported in a similar period last year.

KQ posted a Sh7.55 billion net loss for the year ended December 2018. Its worse loss was, however, in 2016 when it reported a Sh26.2 billion loss after falling deeper from the Sh25.7 billion loss reported in 2015.

Mikosz, who was hired in May 2017, taking over from former CEO Mbuvi Ngunze, has been instrumental in reducing the losses to a single digit as the carrier continues implementing a turnaround strategy aimed at turning its fortunes.