advertisement

Shipping & Logistics

Kenya Airways not yet out of the woods as rivalry hots up

Kenya Airways
A Kenya Airways at the JKIA in Nairobi. FILE PHOTO | NMG 

In its 2017 annual report Kenya Airways #ticker:KQ blamed the decline in revenue on competition from other regional players, which resulted in lower fares.

The woes facing KQ, as it is popularly known, may not be over yet following the recent move by Tanzania to revive its national carrier while Uganda is set to re-launch its airline in November with Ethiopia continuing to expand its fleet.

Air Tanzania will start flying to Entebbe from Dar es Salaam later next month, eating directly into KQ’s share of this lucrative market where it has dominated for the last 15 years after Uganda’s national carrier halted operations.

“More than half of the revenue decline that was registered between 2016 and 2017 is attributable to a drop in the average fare recorded on African and Asian routes. This downward trend in fare is the result of increased competition and overcapacity on intra-Africa and AfricaAsia” traffic flows,” said KQ in its financial statement.

While other airlines are expanding their capacity, KQ’s has declined marginally in the last two years.

For instance, Ethiopian’s capacity is up by about 20 per cent while RwandAir has grown by 22 per cent with Emirates and Qatar registering a growth of six and 12 per cent respectively in the last two years.

“This (competition) resulted in significant downward pressure on fares as airlines fight for traffic to fill the flood of seats in the market,” said KQ.

Air Tanzania has bought five aircraft so far: a Bombardier Q300, three Q400s and a long range Boeing 787 Dreamliner. The Tanzanian government plans to fly its Boeing 787 to India even as it targets its southern neighbour Zambia, where KQ still enjoys a substantive market share.

Uganda is also in the process of reviving its national airline before the end of the year after the cabinet approved the plan.

This move comes at a time when Ethiopian Airlines, arguably Africa’s most profitable career, has turned focus on reviving some of the stalled airlines in the region.

The carrier has acquired a 45 per cent stake in Zambia Airways which is set to be re-launched after more than two decades.

Under the pact, the Zambian government will be the majority shareholder with a 55 per cent stake.

KQ has at least four daily flights to Dar es Salaam, fiver to Entebbe, four to Lusaka and one more daily flight to Livingstone (Zambia).

Ethiopian Airlines is also seeking to set up hubs in southern Africa, Central Africa and the Horn.

The airline said it is working with Malawi and Zambia as southern Africa hubs. Another hub will be in central Africa, covering the Democratic Republic of Congo, Congo Brazzaville and Chad.

Kenya Airways’ shareholder value moved into positive territory riding on last year’s balance sheet after restructuring which reduced its annual debt payment obligations, leaving room for revamping its operations.

KQ’s equity position stood at Sh417 million in the nine months between April and December 2017 compared to a negative Sh45 billion in the year to March 2017, according to a financial report released last month.

The change in fortunes follows a complex restructuring of the business that saw the airline’s main creditors —10 commercial banks and the government — convert Sh44.2 billion loans into equity to save it from collapse.

The airline has started expansion on some new routes including Mauritius where it has been code sharing with Air Mauritius. Later in the year, KQ will launch its inaugural flight to the US.

Ethiopian Airlines launched a new route to the US on June 2, its fourth destination in the country, in what appears to be direct competition with Kenya Airways.

advertisement