Kenya Airways open to airport-deal alternatives

While struggling national carrier Kenya Airways (KQ) has put forth the partnership proposal to co-operate the Jomo Kenyatta International Airport (JKIA) alongside the Kenya Airports Authority (KAA) terming the soundest option to turning around the airline, the flight operator is maintaining an open mind to the transactions, keeping all available cards close to its chest.

Speaking during the company’s investor briefing on Tuesday, KQ Chairman Michael Joseph insisted that the firm remains in close scrutiny of alternatives to the privately initiated partnership with KAA even as the carrier awaits parliamentary recommendations to their tabled offer.

“We don’t know what the recommendation might be. They might chose to recommend that we continue with the PPP, stay on our own or even ask us to initiate a plan B,” he said.

Plan B, C, D…

“There are a number of options that we could look at besides the PPP. We could look at bringing in other private investors besides KLM. Even closing down the airline has been an option we have looked at.

We however do not want to close the airline down but we also don’t want to stay as we are,” Mr. Joseph added.

A re-nationalization of the national carrier is too up for consideration by the airline’s board given the KQ’s current shareholding structure.

Sources close to the PPP probe in parliament have already informed Citizen Digital that legislators are of the opinion that raising the government’s share in the carrier would serve to embolden the airliner in addition to the potential for new capital injection.

Kenya Airways is majority owned by government at 48 percent with 5-commercial banks making up an additional 38 percent share in what is a sovereign guaranteed investment by the State making the re-nationalization plan a possibility.

However, KQ terms the PPP as the fastest, easiest and most convenient way of driving growth for the domestic aviator in the longer term.

“Something has to change in the paradigm of Kenya’s aviation sector. There has to be a determination in the pattern and tempo of growth in recovering the lost market share KQ needs to safety acquire fleet invest in new distribution channels to compete with the major carriers globally while defending our bub position,” said KQ Chief Executive Officer Sebastian Mikosz.

Living in the moment

While the debate and negotiations to the PPP continue, the airline remains on its in-house expansion drive through both its mainstay and short-haul routes through its sister carrier- Jambo Jet.

KQ is for instance on the verge of starting operations to new destinations- Rome and Geneva beginning June 12, 2019 which goes alongside its frequency additions to its major hubs especially on the continent.

In addition to the route expansion, the carrier is sticking to a fleet consolidation blue-print recalling its second Boeing 787 carrier from Oman Air in May while extending its sub-lease for 3 Boeing 777 planes to Turkish Airlines up to 2023.

“This clears the air about our white-body long-haul fleet. We have no other wide body units coming into our fleet under order. It’s very easy to buy a plane but much more complicated to pay for it and make money from it,” Mr. Mikosz said.

Further to the route expansion and fleet consolidation are innovations towards digital innovation and productivity increase in addition to the hedging against rising global crude prices which now sit north of Ksh.7000 (USD 70) per barrel.

The Big Apple

KQ began its much awaited direct flights to New York on October 28, 2018 gaining access to one of the largest airport hubs on the globe.

Despite the bankable opportunity, KQ C.E.O Sebastian Mikosz admits the route bears no lucrativeness defining in as a loss making exercise in the short-term.

Instead, Mikosz says the importance of the route is defined in the feeding of networks on the continent particularly to the islands territories located on the Indian Ocean which he described as the ‘vanilla island strategy’.

New York is hence equated to the already established route to Dubai which KQ says has densified its network to West African hubs as passengers seek transit to the Arab Emirates through the Nairobi terminal.

The direct-flights to the ‘the capital of world’ have until the end of March uplifted up to 25,000 passengers in what has been an average load factor of 64.6 percent.

Collaboration

Meanwhile, competition has emerged to KQ’s own market share in the region market as both Uganda and Tanzania begin building capacity through the awakening of their long-lost airlines to add to the already established carriers in RwandAir and Ethiopia Airlines (ET).

However, Kenya Airways reckon an opportunity for collaboration amidst all the competition terming the growth as positive to Africa’s negligible air traffic statistics.

“We have to be agile. The market is growing and this is a positive element. There is much room for cooperation on the continent. Uganda for instance has only 2 aircrafts, what network could one build with that? I am interested in building a collaboration culture with Uganda especially on our domestic routes,” Mr. Mikosz added.

The airline remains in pursuit of an overhaul turnaround strategy to rid off years of continuous loss making.
Despite walking back losses by nearly three quarters in recent years, the carrier remains a loss making entity announcing a Ksh.7.6 billion loss for the period ending December 31st 2018 on Tuesday.