KQ can still spread its wings despite poor results


Last week, Kenya Airways reported a Sh 10.5 billion lossfor the six months ended September 30 2014;the biggest loss in Kenya’s corporate history. In the current airline market realities and despite the best of intentions and the progress it registered to date, there is no doubt that the national carrier is facing enormous challenges. Whereas the current losses were mainly attributed to domestic insecurity and the outbreak of Ebola in one of the airline’s key markets, running a successful airline is nevertheless becoming a very difficult job these days. Rich, state-owned airlines from the Persian Gulf are quickly expanding in every corner of the world, driving everyone else out of business. So, unless you have deep pockets, a viable business plan, competent management and an enabling regulatory and economic environment, you will not be able to run a profitable airline anywhere in the world today.

The government must recognize the challenges that Kenya Airways is currently facing and the impact of its future on the tourism industry and the economy as a whole.The fundamental problem currently is that we have a fragmentary approach to aviation policy that does not connect the dots in the value chain. A coordinated approach that addresses the central challenges of infrastructure, costs, and taxes is urgently required to guaranteeKenya Airways’ long term survival. If we can establish a coherent aviation policy, the economic and social benefits that derive from improved competitiveness and air connectivity would be enormous. If we don’t, it would be just a matter of time before we lose our regional hub status and may be even Kenya Airways itself.

Kenya Airways competes with foreign carriers, many of which are owned or subsidized by their own governments. To compete with these foreign carriers and their expanding presence globally, we need the government to enact common-sense policies that would enable the national carrier to compete on a level playing field against its global competitors. There are a number of areas where the government can help improve the regulatory and economic environment in which the national carrier currently operates.

First, the government’s heavy taxation of the airline industry is a hindrance to growth of Kenya Airways and other small airlines in the country. It hurts the national carrier’s ability to effectively compete with key rivals such as Ethiopian Airlines and Middle East carriers, who to some extent are subsidized by their governmentsand do not carry the extra cost that is likely to be passed on to passengers in the form of pricier airline tickets.Reducing the overwhelming tax and levies burden will help keep airfare affordable for customers, while enabling Kenya Airways to reinvest in people, products and systems to make air travel more efficient and affordable. Also, whereas the cost of jet fuel represents on average around 35% of the average airlines’ operating expenses, this figure can go to as high as 55% in the case of Kenya Airways and other smaller airlines operating in the country. This is because aviation fuel in Kenya is also overloaded with various taxes and levies which further hurts the airline’s bottom line andaffects the cost of air travel for everyone.

Second, the government must review its visa regulations if Nairobi is to become a regional aviation hubandKenya Airwaysis to transport more regional passengers. Visa regulations have a big impact on an airline’s operation and most airline hubs like Dubai do not impose transit visa requirements on most passengers. More West and South Africantravelers are for example currently choosing Ethiopia over Kenya as visa fees and processesat JKIA also apply to most transit passengers. Nairobi’s competitive advantage as an aviation hub should not be compromised by reciprocal visa regulations that are more often than not, bad for business.

Finally, the government should leave the business of business to business and should get on with addressing more pressing issues like insecurityso as to helpcreate an enabling environment in which real businesses can function profitably and competitively. To this end,itmaybe should also consider the option of sellingpart of the strategic stake it holds in Kenya Airways. The attractiveness of a stake in Kenya Airways to the fast growing Middle Eastern airlines such as Qatar, Etihad and Emirates could particularly increase given Kenya Airways’ s regional network. KQ can build its global network virtually through such partnerships which will also help in its long term survivability.

Most national airline businesses are established for strategic national interests.We must useours to extend our power beyond ourown borders. We need to use aviation as one of the driving forces behind our economy. But, if commercial aviation is to become a critical engine of economic growth and employment in the country, the government must ensure we have favourable regulation, taxation and infrastructure policies in place. Otherwise we may have to deal with costly bailoutsin the future or even risk losing the national carrier; one of our national economic and social assets. It has happened to other countries in the last few decades and it is not something that cannot happen to us!

(The write is the Senior Vice President, Financial Risk Management, Riyad Bank, Saudi Arabia)

Hit enter to search or ESC to close