LETTERS: The KQ dilemma: To profit or not for profit?

At the heart of the Kenya Airports Authority—Kenya Airways merger is a fundamental question: Why does Kenya Airways exist and what role does it play towards the competitiveness of our country?

Two divergent perspectives have developed over the years. The first is that Kenya Airways as a professionally-run organisation should be self-sustaining and make an attractive return for its investors.

The fact that the airline is a listed company and had this as its basis for transformation provides good credence to this argument. Its history of profitability in earlier years also demonstrates that this view holds substance. The second perspective takes a more critical analysis at the role of an airline in positioning a county competitively regionally and globally.

Under this perspective, the airline exists to drive the government’s trade and development agenda amid competition from other countries. Since the mandate of the airline would be to provide opportunities for development, the airline would not directly be expected to be profitable but instead provide support to key economic sectors e.g. tourism and trade that would in turn provide employment and give investors in those sectors an attractive return.

Arguments being currently advanced for the KAA and KQ are many and varied. That notwithstanding, the KAA-KQ merger would be undertaken completely differently depending on the perspective adopted. Under a for profit perspective, Kenya Airways will have access to a cheaper source of funds directly, enjoy more headroom to borrow in light of its larger asset base and provide KQ with the opportunity to be in control of the entire customer experience.

At the same time, it will have additional revenue lines and a large opportunity to grow its cargo business by providing a more integrated service. On the flip side, it will need to manage two transformations, the first of the airline itself and the second that of the Airport Management entity to make it a more commercially oriented service provider.

The perspective that Kenya Airways plays a more fundamental development focused role requires a unique approach. Under this perspective, Kenya Airways needs to understand Kenya’s competitiveness on the global stage and the advantage the country has over its direct competitors. JKIA provides the unique advantage of location implying that the major trading cities of Africa can be easily accessed. Kenya therefore serves as the entry point for investment in Africa.

In this regard, KQ can for instance direct Chinese investors targeting infrastructure development in Africa through JKIA providing them unique packages to their select destinations. More directly, KQ has the unique opportunity of positioning Kenya as Africa’s conference destination.

Kenya in the last five years has managed to attract top large conferences and this would create a good platform for growth for the airline. For instance, KQ may aim at driving the development of conference tourism to achieve an additional one million tourists in five years. That said, to be globally competitive in conference tourism, the sector may require more affordable packages (travel plus accommodation) which may require KQ to review its prices even as it gets preferential pricing from its partner hotels. In essence, KQ will contribute to significant rapid growth a subsector of the economy but at a cost to its profitability.

On another note, KQ may opt to grow new markets for Kenya’s products like flowers by offering an integrated solution from farm to market. The Chinese and Russian market offer such opportunities that would ensure that Kenyan flowers are competitive in those markets. Inevitably, it would mean large capital investments at JKIA and in those specific markets which may not have an immediate return to the airline.

At the end of the day, whatever the option, Kenya Airways will need to provide an integrated service to its passenger and cargo customers. In the past, a real let down for tourists to Kenya has been the famous Mombasa Road traffic.

As the airport operator, Kenya Airways can provide an end-to-end experience providing a more efficient connection into the CBD either by express train or priority shuttles. KQ will also now offer an integrated service providing accommodation for passengers in transit through their own hotels at the airport and within the city similar to the Emirates operating model.

Sam Watene, strategy, leadership & change advisor, Altima Africa Ltd.