The reported loss of Kshs5 billion (US$64,935,000) by national flag carrier Kenya Airways shocked many out of the long-held belief that Kenya was immune from the global economic crisis. It also woke up from complacency those who thought that the effects of the 2008 political violence were short-lived.
In a sense, the fate of Kenya Airways reflects the state of the wider economy. 2007 was a very good year, with massive profits and healthy cash reserves. Kenya Airways, like other big business during that time, was expanding very fast. New routes were taking the national carrier to far-flung destinations in Africa that most Kenyans had not heard about. Fuel prices were manageable.
The Kenyan currency was trading at almost Kshs60 to the dollar, unlike current exchange rates of Kshs77 to the greenbuck. So optimistic was the mood that there were plans to turn the Jomo Kenyatta International Airport into an African hub of air travel. The government bought into the vision and billions were ploughed into a controversial airport expansion project.
Then came the aftermath of the 2007 elections. As the country sunk into violence, the tourism industry all but collapsed. The hundreds of thousands of tourists who had jetted into Kenya for the December 2007 holidays left en-masse. Airlines leaving the country were booked solid. Those flying into Kenya were empty. In some cases, a 250 seat airline would fly into Moi Airport, Mombasa with just the crew on board.
Aviation insiders say it costs approximately $50,000 (Kshs 3.8 million) per hour to fly a Boeing 747. We know that Kenya Airways does not operate 747s but its fleet of wide bodied aircraft must have been very costly to fly with only a few passengers. Even $20,000 per hour is not cheap for an African airline.
The post election violence ended in April 2008 but confidence among international tourists takes a long time to recover. To this day, hoteliers complain that tourism arrivals are not what they used to be before the elections. This means less passengers for Kenya Airways to fly and therefore less revenue.
Something else happened in 2008 that further worsened Kenya Airways’ woes. The global increase in oil prices meant a sharp rise in costs. Within a few months, the cost of oil rose from $60 a barrel to almost $140. Inefficiencies within Kenya’s oil industry frequently resulted in shortages that put a strain on all fuel consumers in the country. The cost of oil dropped following the global economic crisis that began in the United States in September 2008 but the effects of those very expensive months will be felt for a long time to come.
Increased competition by cheap airlines has certainly drawn large segments of the travelling public away from Kenya’s national airline. Qatar Airways, Emirates and Arabiya airlines have flooded African airspace with the latest aircraft and low fares. Kenya Airways does not have the financial reserves of the oil sheikhs funding this major source of competition. Besides, the Middle Eastern airlines are on a long-term strategy to gain market share and can therefore afford to charge low fares with hopes of monopolizing the industry in future. On the European front, the entry of Virgin Atlantic has certainly taken the market by storm at Kenya Airways’ expense.
However, Kenya Airways suffers from certain problems of its own. Customer service is said to be unimpressive with passengers complaining of missed flights. On the regional front, the unfriendly schedules of Kenya Airways flight has left a bitter taste among those countries that lack an airline. For instance, the flight from Entebbe Airport in Uganda departs for Nairobi at 5am!
Several Kenya Airways staff have been implicated in drug smuggling, further tarnishing the reputation of the company. The quality of training of some of the cabin crew has also been an issue for concern.
The state of the Jomo Kenyatta International Airport certainly does not do much to market Kenya as a travel hub for Africa. On this, Kenya Airways is not to blame because responsibility for airports lies with the Kenya Airports Authority (KAA).
Nevertheless, Kenya Airways has marketed the airport as its nerve centre and visitors to Kenya will probably associate the airport with Kenya Airways rather than KAA which has a low international profile. Even within Kenya, a lot of people believe that the airport is run by Kenya Airways. Water shortages and power blackouts at our airports do not reflect positively on the airline.
Kenya Airways CEO, Titus Naikuni, has a major task ahead in restoring the airline to profitability. The national flag carrier is suffering because of factors largely outside its control. But Kenya Airways, or KQ as it is fondly known, could learn something from its Middle Eastern competitors on how to survive in these globally challenging times.