By Dan Odido
Table of Contents
It is a classic case of putting a bandage on your foot because you have a toothache. The cheeky gambit by beleaguered Kenya Airways to run East Africa’s largest airport is an act of desperation, a case of a drowning man grasping at straws. Kenya Airways has undoubtedly had a horrible decade. It has persistently made losses, and its relation with its workers has not been the best.
Jomo Kenyatta International Airport, JKIA on the other hand has performed well, even though it has not fully exploited its advantages. The airport has consistently handled more passengers and its performance has seen it rated as one of the best airports on the continent. It has however gone mum on the second runway that would have seen it substantially upscale its operations. This came close on the heels of the cancellation of a Green Field terminal. It may soon rue not anticipating the expected expansion of air transportation on the continent. JKIA is the crown jewel of Kenya Airports Authority, KAA.
Airline business not easy
Airline business is not for the faint hearted. It is mainly about managing costs. The major operational costs are fuel and labour; whereas labour costs are usually fixed in the short term, fuel costs can vary wildly, based on the international price of fuel. Many airlines have strategies to hedge on the fuel costs by buying fuel in the futures market to lock in costs.
Fuel is the first fault line in Kenya Airways’ gloomy fortunes in recent years. The airline lost tonnes of money in an ill thought-out fuel hedging plan. The fuel hedging debacle, together with other operational issues, saw the airline make unprecedented losses in the country’s corporate history.
Secondly, the airline has not managed to achieve a harmonious working relationship between management and employees. It has had several acrimonious run-ins with its pilots and engineers.
To compound issues, the airline embarked on an ill-advised irregular and irrational fleet expansion, buying aircraft and opening up several unsustainable destinations. This was followed by a precipitous contraction, forcing the airline to dispose of these new, barely used aircraft at a great loss.
Challenges do not warrant airport take-over
Despite the difficult operating environment in aviation, the root causes of the problems facing Kenya Airways are mundane and well within its control. These are mismanagement of fuel hedging, reckless aircraft purchase, uncoordinated expansion and poor labour relations. Kenya Airways cannot cure these problems by going out and getting an airport under its wings!
There are definite advantages in having preferential treatment in an airline’s hub. Many airlines go about this by getting allocated a terminal for its operations. There is also merit in looking for synergies in the operations of an airline and an airport. These can be cured by making operational agreements.
Airports are big businesses and valuable strategic assets. They are some of the most important security installations in a country. International airports provide the main gateways to a country. Some people derisively refer to an airport as a short road (runway) with a hotel (terminal) at the end. Of course, airports are much more complex than this! The 4km ‘road’ at JKIA provides the region with a direct link to destinations in over 50 countries, and can connect a traveller with every corner of the globe. Airports are also profitable economic engines; USA’s commercial airports account for 7% of its 20 trillion dollar national GDP.
Kenya Airways’ fixation with JKIA is informed is by the operations of its competitor across the northern border. One of the justifications that Kenya Airways has made in bidding for JKIA is that Ethiopian Airlines runs Bole International Airport in Addis Ababa, accruing several advantages.
Different business models
Ethiopian Airlines is state owned, Kenya Airways is not. The airline is having a heady run. It currently tops almost every list of Africa’s leading airline: by passengers carried, in terms of aircraft owned, by the number of destinations reached. It is also the continent’s most (only) profitable airline. It is implementing its Vision 2025 programme in a bid to become the most competitive and leading aviation group in Africa. What is not in doubt is the formidable management experience that it has accumulated. It holds stakes in numerous airlines. It has been in talks with governments of Chad, Guinea, Equatorial Guinea, Djibouti, Nigeria, and Mozambique to set up carriers through joint ventures. The airline also holds shares of Zambian Airways and Malawian Airlines. It runs Togo-based Asky Airline and has formed a new airline in Mozambique with full ownership. It is also buying a stake in Eritrean Airlines.
The path being walked by Ethiopian now may look similar to what Kenya Airways was up to a few years ago: aggressive fleet expansion and several new destinations. However its strategic plans are in no way similar to those of Kenya Airways. Ethiopian Airlines is experimenting with a multi-hub operation, with hubs in southern Africa, central Africa and western Africa. Will Kenya Airways start buying airlines to match this?
Some of EA’s current apparent strengths may well become liabilities and weaknesses in a future fully liberalised market. Already the company is exploring the possibility of liberalising itself and selling minority shares to other African states. This may cushion it from rocky waters ahead.
Kenya Airways is a private company not state owned, like its competitor. This is not necessarily a bad thing. Modern Kenya Airways was born out of a painful, but widely acclaimed privatisation process. The airline should not be fixated with the Ethiopians; Ethiopian Airlines is operating a different model. This is a case of what is good for the goose is not necessarily being good for the gander. Kenya Airways should leverage its private sector ownership that provides it with freedom and agility. It should not bring in the bogeyman of state ownership; we’ve been there before. Kenya Airways used to be state owned, and even then it did not turn in profits!
Kenya Airways should focus on core business
Kenya Airways should focus on the business of transporting air travellers safely, on time and at a reasonable cost. It should engage with government on how to achieve this. Many passengers are price sensitive, and Kenya Airways loses many passengers to its competitors due to this. The airline is generally more expensive than Ethiopian and Rwandair on many routes. There may be good reasons for this, but the average passenger is not interested in technical details of Air Service Agreements and Freedoms of the Air. As an example, a passenger pays almost twice as much to travel from Nairobi to Johannesburg using a Kenya Airways flight compared to connecting via Addis Ababa using Ethiopian, or via Kigali using Rwandair. He even pays less if he boards in, say Entebbe. These are the issues that Kenya Airways should be working on, not looking for airports to run.
Kenya Airways requires government assistance, but it does not need to run JKIA. It already gets preferential treatment at its JKIA hub. The airline will quickly find that it out of its depth in running an airport.
The proposed deal has the potential of bringing both organisations to grief. KAA should not be like the foolish builder who built his house on sand. The government should let JKIA be, and allow Kenya Airways sort out its issues instead of setting itself up to receive a poisoned chalice. Government is better advised to come up with a comprehensive aviation policy to guide the industry.
Kenya Airways should heed the saying, ‘be careful of what you ask for’.
The writer heads the Department of Flying Studies in Moi University. Views expressed here are his own. email@example.com