Kenya Considering Taking Full Ownership Of Kenya Airways

Filed Under: Other Airlines

“Boy, do you remember that time the government took over that airline and suddenly it became more profitable and competitive?”

Said just about no one ever…

Africa is a tough aviation market, especially for the “global” players. When you’re looking at the landscape there for the biggest airlines, you have Ethiopian Airlines, which is doing a bang-up job, and then you have everyone else basically hanging on by a thread (I’m excluding North African airlines, since they’re in a very different situation).

Kenya Airways’ challenging history

Kenya Airways was government owned until 1995, and became the first African flag carrier to successfully be privatized. That’s sort of cool. Unfortunately it hasn’t been all smooth sailing from there.

Currently the airline is 48.9% owned by the government of Kenya, 38.1% owned by KQ Lenders Company (which includes a variety of banks), and 7.8% owned by Air France-KLM, with the remaining shares privately owned.

Kenya Airways has been struggling badly, in particular the past few years. In 2016 the airline recorded a loss of 258 million USD. Following that, the airline was on the verge of liquidation due to mounting debt, as creditors were threatening to repossess their planes.

Their losses have decreased slightly, but their debt continues to grow, so things aren’t really much better.

What is Kenya Airways’ purpose?

I think one of the big challenges is that Kenya as such is growing as a destination (for tourism, trade, etc.), and there’s importance in having a national airline to transport people there. So in some cases countries decide “it makes sense to have this airline, even if they lose a lot of money.”

The problem is that Kenya doesn’t seem to have a consistent stance on this. For example, the airline recently launched flights from New York to Nairobi. Could the airline/country justify this in terms of the net benefit of added trade and tourism? Perhaps. Could they justify it in terms of the profitability of the flight as such? No way.

It’s especially hard to justify the current strategy when the airline is less than half owned by the government.

So it’s that lack of consistency that’s the crux of Kenya Airways’ problems. Is the company’s goal to make the airline as profitable as possible, or to promote Kenya as a destination as much as possible? The middle ground approach they’re taking doesn’t seem to be working.

Well, there are now reports that Kenya Airways may soon be headed in yet another direction.

Kenya could take full control of Kenya Airways

Kenya’s Transport Principal Secretary has announced that Kenya may consider taking full ownership of the national carrier in order to ward off competition from other state-owned airlines on the continent and from the Gulf. The plan would be for a joint venture between the airline and the airports operator, which is owned by the government as well.

This discussion came up after there was a proposal for Kenya Airways to operate JKIA in Nairobi, which is their hub airport. This was supposed to be done as part of a Privately Initiated Investment Proposal. By the airline being able to run the airport, the hope was that they’d be able to better compete against other airlines.

Somehow that proposal has now turned into the possibility of the airline being fully government owned once again.

My thoughts on this…

I could see how Kenya Airways being able to run JKIA could be good for the airline (they could restrict competition from other airlines by limiting routes, increasing landing and airport fees for non-Kenyan airlines, etc.), but is that really in the best interest of the country? Doesn’t Kenya want lots of airlines offering service to Kenya, given that it benefits tourism?

The government claims that one of the main challenges in fully taking over Kenya Airways is the outstanding loans the airline has, as they’ve renegotiated payment schedules. If the government doesn’t think they’re going to be on the hook for Kenya Airways’ debt one way or another then I’d say they probably have another thing coming for them.

We’ll see this plan evolves, though I’m skeptical. Sure, Kenya Airways running the airport might help the airline, but it won’t help the country.

Comments

  1. If the alternative is the airline essentially collapsing (leaving them with no airline) or it shrinking into a shell of its self in order to achieve profitability (leaving the country with greatly diminished connectivity), then this isn’t the worst idea. It goes back to the question which you ask – what is the point of the airline? Is the point of it to make money for shareholders or is it to bring connectivity to the country of Kenya? If the latter, than government ownership may be the most rational option.

  2. A big point that isnt in your lineup is the situation of the (spoiler: pretty fragile) private banking sector in Kenya which has a couple of KQ lenders on the edge of bankruptcy and government bailout atm.
    In the current situation it looks likely that the Kenyan government will soon be in control of the lenders group, putting it in control of KQ kind of accidentally. So this is just one of the clusterfucks KQ is so renowned in Kenya for.

  3. Where are the people yelling communism or socialism?
    Kenya is literally considering seizing the means of production

  4. It would be interesting to see discussion of Ethiopian and how it succeeds where so many others fail. Is there anything about its model that others could learn from, or is it simply the one that got there first with a well structured and profitable operation and there’s only room for one player with their kind of strategy? Looking forward to flying with them again next week – not that it’s the most aspirational service one could hope for, but it sure does get you around Africa like nobody else can.

  5. Perhaps still have an affiliate program in the future would travel bloggers and dedicated affiliate marketers can promote the Kenyan Airways affiliate program and make money online through PPC paid search advertising and effective social media marketing. What do you think? Sounds like a good idea?

  6. Qatar, Air New Zealand, Aeroflot, Ethiopian, Emirates and Etihad are just a few pretty good examples of government-run airlines that are profitable. Of course, many of them have significantly bigger resources behind them. I think @Sam made a good point with defining the purpose of the airline and going from there.

  7. What @Sam (great name btw) said about it being a better alternative than letting the airline collapse. In 2002 Air NZ lost about $US1 Billion dollars and the govt acquired over 80% of the company to avoid it going bankrupt. It made a small profit the following year and has been profitable ever since, despite the govt being the controlling shareholder.

  8. One of the interesting things I have been watching is the Turkish Airlines’ crazy expansion in Africa. No idea why they are doing it but it seems like they fly to everywhere in Africa from their İstanbul hub.

  9. I think Kenya Airways should improve their hard product much better on their 777 business class, or maybe make all their business class like what RwandAir has done, the seat on their business class could be improved further to be more competitive

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