KQ’s low-cost licence open to rivals’ scrutiny
Posted Sunday, September 9 2012 at 17:41
The national carrier is keen to cut costs in a bid to return to growth with eye on procurement, fuel expenses and staff costs—which has seen its shed 578 workers. KQ’s net profit had dropped to Sh1.7 billion in the year to March from Sh3.5 billion last year.
Kenya Airways will know the fate of its low-cost airline JamboJet licence by the end of the month after a public scrutiny this Friday.
The Kenya Civil Aviation Authority (KCAA) has called for the meeting on Friday to listen to any objection — either submitted in writing or presented on the floor — on whether the JamboJet Ltd should get a licence.
KCAA will issue its verdict on September 28 in what will define the structure of the battle for control of the regional air traffic.
The launch of the low-cost subsidiary is critical for Kenya Airways to ward off competition from budget operators such as Jet Link and Fly540 for control of African routes.
It will also mark a U-turn after the airline merged its former low-priced unit Flamingo Airlines with its group operations in 2004.
Chief executive Titus Naikuni said that the national carrier is looking to establish the subsidiary this year to ride on the rising passenger numbers and match competition from budget operators, especially from European carriers looking at Africa.
“We have made a lot of progress with JamboJet and we should be ready to launch this financial year once we get necessary approvals,” said Mr Naikuni.
He added the regional unit would have a leaner costs structure compared to those of international airlines and hinged on low fares and fewer comforts. However, passengers could be asked to pay for extras like food and baggage.
This signals a cost-saving plan that will strengthen its hand in the ongoing price war, which is expected to worsen as new owners of Fly540 race to remodel the carrier into a low-cost African airline to be branded Fastjet and modelled around Easyjet, the second largest low-cost carrier in UK after Ryanair.
On June 13, Lonrho announced it would transfer its 49 per cent stake to Rubicon in a deal worth Sh7.2 billion.
JamboJet is eyeing to operate flights from Nairobi to Wajir, Eldoret, Kisumu, Mombasa, Lamu and Malindi on the domestic front.
On the international front, KQ is looking at Hargeisa, Kisangani, Zanzibar, Kilimanjaro and Addis Ababa from its Nairobi hub. It’s also eyeing Bujumbura, Kigali, Mayotte, Goma, Mwanza, and Antananarivo.
These are the same markets that the remodelled Fly540 is targeting and has promised to keep fares across the East African routes at between Sh6,000 and Sh6,900.
“We will fly between Kenya, Tanzania, Ghana and Angola and the average fare will be $70-$80. We should be flying by the end of the year,” said Ed Winter, the former EasyJet chief operating officer who will become Fastjet CEO in an interview with Reuters.
KQ’s quest for a budget airline is part of the global trend where international carriers are forming subsidiaries to handle local routes.