- How to make Kenya Airways (KQ) a profitable national flag carrier is not a new debate.
- Most countries with national airlines try to make them competitive through incentives, preferential treatment and protecting the markets.
- Therefore, subjecting KQ to the skewed competitive advantage posed by State-owned airlines in Africa and the Middle East is undermining a public investment.
- Free market economy in the airline industry in developing countries has failed to work in the past.
How to make Kenya Airways #ticker:KQ (KQ) a profitable national flag carrier is not a new debate. Many, including this columnist, have chipped in on numerous occasions.
There are many successful national carriers as well as struggling ones. Although Kenya Airways is currently fighting to survive, it can be made to be competitive again.
Most countries with national airlines try to make them competitive through incentives, preferential treatment and protecting the markets. Therefore, subjecting KQ to the skewed competitive advantage posed by State-owned airlines in Africa and the Middle East is undermining a public investment.
Free market economy in the airline industry in developing countries has failed to work in the past.
Competitors such as those from the Gulf region use different tactics and by and large do not embrace a similar economic thinking. It is a joke to think that KQ can effectively compete with highly subsidised Gulf region airlines that dominate long-haul flights.
The airline market structure in Africa is not similar to other areas like the US where deregulation of the airline industry played a key role in the growth of the sector.
The one-size-fits-all rule doesn’t apply in some markets and copying it is harmful to the long-term investment agenda for developing countries.
The turbulent economic times that airlines face today are not just caused by the pandemic but by the exponential growth of speculative money from capital deregulation. It is what led to the financial meltdown in 2008.
At the time, the KQ stock soared to Sh 147 before tumbling down toSh3.80, a pale shadow of its former value. More precisely, neo-liberalism which underpins free market economy, caused wider economic inequality than if we had trudged on with other models of economic management.
There are people who bought the stock at Sh100 thinking that they had made investments for their retirement but other people far away from home played poker games on the stocks and practically impoverished local investors.
As the government gears to rescue Kenya Airways there are fundamental considerations that must be in place in order to build a sustainable enterprise.
The first one is the principle of reciprocity. In areas where foreign airlines are allowed to operate in Kenya, KQ must have a similar opportunity in their home countries.
Some airlines enjoy day time flights into the country but in their home turf, KQ is only allowed to use their airports in hours that disadvantage the airline. The open skies policy indeed presumes a reciprocal relationship but in most cases some airlines have taken advantage of that to fly into Nairobi and Mombasa to the detriment of KQ.
Cargo business is increasingly becoming a key revenue source for the airlines. This segment of business should favour KQ just as other countries in the region do. In my view, the airline should be linked to Vision 2030 so that instead of the country importing cocoa from Europe for the nascent chocolate industry in Nairobi, the country should foster a relationship with West African producers in the spirit of African Continental Free Trade Agreement (AfCFTA) to import the raw material directly.
The airline should be a catalyst for intra-Africa trade linking by synchronising different key sectors and creating greater economic value.
Whilst Ghana imports over $ 300 million (about 180,000 tonnes) worth of chicken annually from Brazil and the European Union, Kenya should up its game in poultry for export to Ghana while importing some of the raw materials from West Africa.
It is an opportunity to grow the airline as well as intra-Africa trade.
Jambojet, KQ’s low-cost carrier, should aggressively grow domestically and regionally and support the airline’s long-haul business to truly make Nairobi the core hub of Africa’s aviation industry.