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September 25, 2018

Reviving KQ, the Pride of Africa

Tough times: Kenya Airways finance director Alex Mbugua with managing director Mbuvi Ngunze during the investor briefing In Nairobi on July 30.
Tough times: Kenya Airways finance director Alex Mbugua with managing director Mbuvi Ngunze during the investor briefing In Nairobi on July 30.

Kenya is among five African countries that have national flag carries with significant international coverage. The others are Egypt, Ethiopia, Morocco and South Africa. The Kenya Airways massive loss of Sh25 billion in its end year results is a threat to its viability and hence of national concern. 

With Africa as the next global economic frontier the prospects for the aviation industry in Africa should be positive. The positive economic prospects for Africa should translate into opportunities for the African airline industry, including Kenya Airways.

This is however hardly the case.  Instead, foreign carriers generate an estimated $10 billion (Sh1 trillion) from the continent, even as African carriers scramble for a paltry 20 per cent. Besides, the number of aircrafts owned by African carriers put together is less than the fleet of some international airlines. Although the continent is home to 12 per cent of the worlds people, it accounts for less than one per cent of the global air service market. Granted, air travel is a luxury that most cannot afford, but with the rising middle class and being home to some of the fastest growing economies the prospects going forward are promising.

It is therefore time for African countries to position themselves for the opportunities ahead in the aviation industry. According to the World Bank report by Schlumberger,“ Open Skies for Africa”, Africa air traffic is expected to grow at 5.7 per cent per year, faster than the world average of 4.9 per cent.

 Truth is, many African countries have policies that stifle the growth of intra-trade aviation prospects, even as they extend privileges to foreign airlines by virtue of historical ties and diplomacy. This, and other like polices have hindered meaningful intra-trade prospects and economic growth across Africa. A few years back, to go to West Africa one needed to connect through Europe, and the price and time was prohibitive. Thankfully, this has changed for the better and more African countries have seen the need to liberalise their skies for free entry and exit for African airlines. More can be done.

 Infrastructure development is also gaining more focus, as well as training of staff for the aviation industry. There are great prospects for the Kenya Airways Pride Centre as a global training centre, and of a kind in Africa.

Locally, the expansion of the Jomo Kenyatta International Airport positioning Nairobi as a major aviation hub in the continent means Kenya Airways stands to be a key beneficiary of the expansion. 

The window of opportunity for Kenya Airways is therefore now. However, this depends on how well it will position itself to move forward, particularly now that its performance is less than staring. It is perhaps a major turning point for Kenya Airways. It is also a major turning point for the country to evaluate the benefit of maintaining a national flag carrier going forward. 

After independence, many African states created their own government owned national flag carriers, most of which subsequently failed. The traditional operation model was for international routes to and from the countries of former colonial masters as sole profitable routes, while domestic routes were highly subsidised, although these remained thin too. 

Kenya Airways for instance retained Mombasa and Kisumu as key domestic destination for a long time, even as Heathrow, London remained its main international route. Many of the airlines ran into mismanagement and lacked the necessary economic and commercial focus to ensure market-based profitability, surviving based on market restrictions on entry of other carriers. Kenya Airways survived after privatisation, although it continued to struggle in the midst of tight competition. 

To its credit, Kenya Airways has been known for high standards, although it has not succeeded too well in maintaining a continuous improvement record. Its challenges are no less common than those of other major carriers, but with increased competition, customer retention may require getting it right first time. The ease of switching to other carriers is fast and almost seamless. 

The times when a flight meant being on KQ are long gone, and options of cheaper and high quality alternatives are only a click away. This is the reality that the new KQ will need to take into account, even as it strategises to survive the current financial losses. 

Many factors will need to be taken into account in view of the staggering Sh60 billion bailout, being quoted as required to revive the airline. After all with the current market value in the range of Sh8 billion, a government bailout of such magnitude could as well return the airline to full government ownership. Furthermore, a bailout alone is unlikely to solve the many operational problems that face the airline including non-optimal capital structure, labour issues, pricing, overcapacity and continued engagement with KLM, the other major shareholder. 

However, what is not in doubt is that there is the opportunity for Kenya Airways to play a strategic role in the development of the country, and to be a major player in the aviation industry globally. Particularly in Africa, it retains the “Pride of Africa” position, whose continuity is dependent on the how it strategises its survival and operations going forward. 

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