KQ plans new low-cost arm as battle for Africa gathers pace

Kenya Airways will launch its low-cost subsidiary to handle its regional operations, opening a new battlefront with budget operators such as Jet Link and Fly540 for control of African routes.

The launch of KQ’s budget line — Jambo Jet— marks a U-turn after the airline absorbed its then low-priced unit Flamingo Airlines to its group operations in 2004.

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Mr Titus Naikuni, the CEO of Kenya Airways, said on Thursday that the national carrier is looking to establish the subsidiary this year to ride on the rising passenger numbers within the region and match competition from budget operators, especially from European carriers looking at Africa.

“We have made a lot of progress with Jambo Jet and once we get necessary approval from the Kenya Airports Authority we should be ready to launch this financial year,” said Mr Naikuni at an investor briefing that showed KQ’s net profit had dropped to Sh1.7 billion in the year to March from Sh3.5 billion last year.

He added the regional unit will have a leaner costs structure compared to those of international airlines and it will be hinged on low fares and fewer comforts and 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 with the entry of new budget operators

This is the latest signal from KQ of its intention to wrest regional routes from rivals Jet Link, Fly540 and Air Kenya that have in recent years been aggressive in pursuit of the ever growing passenger base.

The market landscape is set to shift with the entry of Fastjet which will remodel Fly540 and said it will keep fares for across the East African routes at between $70-$80 (Sh6,000 and Sh6,900).

Expand network

The average cost of flights in the region is about Sh12, 000, suggesting that FastJet is eager to cut fares by half.

Fastjet, which plans to list on London’s junior AIM market under the Rubicon banner, will use the existing Fly540 platform and expand its network, eventually folding it into the new airline.

The establishment of Fastjet follows the transfer by Lonrho, which owns 49 per cent of Fly 540, of its aviation business to the investment firm Rubicon that will establish a pan-African airline that will be run by Easy Group, which owns Easyjet.

“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.

He added FastJet would expand across Africa to become the first low-cost pan-African airline, putting it in a head-to-head battle with KQ that generates half of its revenues from its African routes.

Africa’s aviation market is set to soar, powered by the resource-rich continent’s robust economic growth and the widening middle class, which are driving business and leisure travel.

KQ’s quest for a budget airline is part of the global trend where international carriers are forming subsidiaries to handle local routes and free executives to handle the more complicated international travel besides enjoying costs savings from leaner operations.

South African Airlines runs the local Mango Airline while British Airways has a majority stake in Comair, which serves southern African nations including Lesotho, Namibia and Botswana.

The national carrier is keen to cut costs in a bid to return to growth with eye on procurement, staff productivity and fuel expenses.