NATIONAL CARRIER WOES

Air ticket prices to drop after KQ is nationalised

Consolidation of aviation assets the only way to salvage the national carrier

In Summary

• Transport committee told that the consolidation of KQ assets will grant the airline flexibility in ticket costing

• Twenty-two of the 26 organisations that submitted memoranda to the committee supported the Bill and proposed further amendments to enrich it.

A KQ plane
TROUBLED: A KQ plane

The cost of Kenya Airways tickets will drop after the airline is nationalised, the government has said.

The consolidation of KQ assets will grant the airline flexibility in ticket costing, the Ministry of Transport said in response to several issues raised by the parliamentary Transport committee.

Kenya Airways tickets are costlier than those of other airlines from the Jomo Kenyatta International Airport.

For instance, KQ charges Sh90,000 for one way economy class to Paris compared to Sh45,000 charged by Ethiopian Airlines.

Fares to New York are almost the same for the two but for KQ it costs three times more to Johannesburg than the Sh32,000 one way charged by ET.

Travelling to Kigali on KQ costs Sh8,000 more than on ET while a flight to Addis Ababa leaves a traveller poorer by Sh16,000 than being ferried aboard ET.

But the government says the situation will change after Parliament approves the consolidation of the country’s aviation assets under a holding company.

According to Transport Chief Administrative Secretary Chris Obure, PS Solomon Kitungu and KQ managing director Allan Kilavuka, this will be the take-home for taxpayers in the nationalisation bid.

They spoke during the Transport committee's public participation on the National Aviation Management Bill, 2020. 

Obure told the Pokot South MP David Pkosing-led committee that country would be in a worse state if the national carrier crashes under the weight of its current financial crisis.

The risk is that taxpayers will lose the Sh75 billion sovereign guarantees the government offered KQ’s creditors. About Sh55 billion went to US’ Exim Bank and the rest to 11 local lenders.

The CAS said the nationalisation is envisioned to make KQ more competitive and capture a greater market.

“The cost of operation will come down once the assets are consolidated to create synergies in the air industry,” the CAS said, implying that the nationalisation was inevitable.

Obure warned that allowing KQ to die would be disastrous to the economy in terms of employment, tourism, international trade, exports and foreign exchange.

As of now, KQ cannot fulfil its national objectives and face stiff competition as most governments have consolidated airport and airline businesses.

“If left alone like it is, KQ will die. Nationalisation is what will help us for the time being,” Kitungu said.

“The high costs will disappear once KQ is restructured. We will deal with the burden of the past,” the PS added.

Kilavuka said air ticket prices are based on cost of operations. "When we gain synergies to make us more productive, it will help reduce the pricing for customers.” 

If the bill becomes law, Kenya Airways, Kenya Airports Authority and Aviation Investment Corporation will be run under the Kenya Aviation Corporation.

The bill also establishes a National Aviation Council to be chaired by the President, who will also appoint the chairperson of the corporation's board.

At least 26 organisations submitted memorandums to the committee out of which 22 supported the bill and proposed further amendments to enrich it.

The Law Society of Kenya and three others were against the proposed law. Pkosing said their opposition was grounded on hearsay and had no legal basis.

“For instance, they claimed that the bill was drafted outside the Attorney General’s office. On record, the AG and the ministry confirmed it is a government bill,” he said.

“Further, the bill is signed by the leader of Majority, which is the normal procedure of government bills.”

Pkosing said the bill is a reflection of the House report on the Privately Initiated Investment Proposal (PIIP) by KQ last June.

“This is a testimony that this is a government bill and their (LSK) hearsay cannot hold water. LSK failed the legal fraternity by their baseless hearsay.”

LSK alleged there were private interests in the nationalisation plan, a claim the government has dismissed.

Kitungu said the bill was drafted by a steering committee comprising Principal secretaries, State Corporations Advisory Committee, Transport ministry and a State House representative.

“The secretary of SCAC drafted the bill. KAA managing director and chairman as well as the KQ managing director were members.”

Kitungu said there were counsel for each of the organisations as well as the Registrar of Companies and Kenya Civil Aviation Authority.

“We held two meetings at committee level. The drafter from AG went on retreat for three days and returned the bill to the steering committee.

“The Transport ministry discussed the same before it was taken to the Principal secretaries committee, Cabinet sub-committee and was approved by the full Cabinet,” he said.

On the concerns by the private sector that the nationalisation will not provide a level playing field, the Competition Authority of Kenya said the same is arising from misconceptions that KQ is being merged with KAA.

CAK director-general Francis Wang’ombe said there would be no merger as there won't be change of control of the affected entities.

CAK said in response to questions by Ruaraka MP Tom Kajwang’ on how the three would work that the Transport ministry will provide regulations.

 

- mwaniki fm