Kenya Airways chief executive officer Allan Kilavuka fields questions from the public via Sunday Nation.
When the government describes KQ as a “strategic national asset”, what does this mean given that the airline is not wholly-owned by the public? Githuku Mungai, Nairobi
Strategic national assets are those that the countries consider critical to social-economic development. For example, in the US, digital infrastructure was categorised as a “strategic national asset” by the Obama administration even though it is owned by the private sector.
Airlines make a significant contribution to a country’s economic development. Dubai for instance owes a lot of its vibrant growth to the connectivity offered by their airline. KQ did not start being strategic for Kenya when it went into financial problems.
Kenya’s main foreign exchange earners are diaspora remittances, horticultural export, and tourism. Horticultural produce is exported by air, mainly to Europe, and meat to the Middle East. In addition, Nairobi houses Africa headquarters of many regional organisations and is the home of key UN agencies. Kenya Airways accounts for about 60 percent of the JKIA operations. This network enables the flow of tourism and trade in Kenya and Africa, bringing in much-needed foreign exchange.
Overall, the International Air Transport Association estimates that the direct and indirect impact of KQ on Kenya’s GDP is about three percent or approximately $2.6 billion per year. Its direct contribution to Kenya’s tax revenues in 2019 alone was over Sh9 billion.
Why should KQ which makes huge losses continue to get State bailouts? Also, why are KQ ticket prices costlier than other airlines? Carey Yiembe, Mombasa
Prior to the pandemic last year, we did not have a bloated staff. Indeed, the company has not returned a profit for several years but last year was completely beyond us due to the effects of the pandemic.
With Covid-19 and travel restrictions across the globe, the airline has had to restructure its fleet size, destinations, and staff to remain a viable and sustainable business in the future. The financial relief sought by Kenya Airways in addition to the various cost-saving measures and new initiatives by the company will lay the foundation for a balanced recovery and gradual return to profitability.
The South African government committed $1.26 billion towards a business rescue plan for its national carrier, South African Airways; Egypt has committed a loan of $191 million for the long-term financing of its airline, and Ivory Coast gave a grant of $24 million to its national carrier, Air Côte d’Ivoire.
On ticket pricing, various considerations come into play when determining pricing, including demand and supply. Airlines typically take price leadership out of their home markets where their product is strongest. Conversely, a competitor will price lower when coming into our market to attract passengers. Non-stop direct flights to a destination will typically attract a premium than competing options where customers will fly through other airports.
What keeps you going and optimistic at this company despite the numerous challenges? Komen Moris, Eldoret
I live by four principles which I call my 4 Fs: Faith, family, friends, and fun. Faith in God and in people, and supportive family, genuine friends and simply having a good laugh. The best things in life are for free.
On the company front, Kenya Airways has some of the smartest and best-trained people. Kenya in particular, and Africans in general, have heavily invested in Kenya Airways and it is our responsibility to try and not betray this investment.
What impact has Kenya Airways expensive aircraft acquisition models have on the airline? Isaiah O. Olweny, aviation stakeholder
Unfortunately, this is a narrative that has been repeated so many times by different people possibly because of lack of understanding or in an effort to try and explain the poor financial performance of the airline. Aircraft acquisition is typically achieved in two ways; Direct purchases from the manufactures like Boeing, Airbus, and Embraer if the airline is adequately funded, or arranged through a financier (usually a consortium of banks because of the amounts involved).
When you finance aircraft purchases, the financer would typically create a Special Purpose Vehicle (SPV) to own the aircraft. In both cases, the aircraft price is determined by the manufacturer and negotiated downward based on the airline’s customer rating with the entity, order size, and market price at that specific moment. Like any other commodity, aircraft prices are affected by supply and demand fluctuations. Airlines will define the acquisition method based on factors like availability in the market, the airlines timeline for introduction and the company’s financial position.
By having the aircraft within an SPV, it ensures that the aircraft will remain the asset or security of the issuing banks and they will be able to take it back and place it elsewhere (another airline). These are norms within the aviation and maritime industry.
Don’t you think it is better if KQ is disbanded? Loreh Peter
Disbanding Kenya Airways will have to be weighed against the benefits that it brings. I understand the frustration and impatience that many Kenyans have because of our past performance. However, not having a national carrier of whatever nature for Kenya would be detrimental to the economy. All our neighbours are currently setting up airlines. Although I do not agree with that approach, I think they are sending a message on the importance of air transport if you want to build your hub and support the economy.
Recently, KQ reconfigured some of its passenger Boeing 777 planes to cargo aircraft as a measure to recoup losses. How sustainable is this? David Murugu, Nakuru
Let me first clarify that the re-purposed aircraft is the B787 Dreamliner. The re-purposing of our two Dreamliners to preighters allows us to utilise our aircraft to carry cargo at a time when passenger travel is significantly depressed. The alternative would have been that these aircraft would be completely underutilised.
Overall, cargo contribution to the business has greatly improved. It is important to note that even with the two re-purposed freighters, demand for air cargo freighters across the continent remains high.
The introduction of direct flights to New York by Kenya Airways appears to have been a blunder. Please comment. David Murugu, Nakuru
A new long-haul operation is an investment that takes typically two to three years to break even. Based on a robust market study and compelling need for a non-stop flight, KQ decided to invest in this route. Performance in the first year was in line with expectations. We carried more than 100,000 passengers with a 75 percent cabin factor. We also boosted our hub (JKIA) by attracting traffic to Nigeria, Uganda, South Africa, Tanzania, and Congo, which further helped strengthen the performance of our regional flights. We also expanded our partnership with Delta Airlines, creating a bigger catchment market in the domestic US and signed several significant deals with key corporate customers such as UN for both passengers and cargo.
Overall, customer feedback has been very positive, and we have also benefited from increased visibility and brand value. We had expected our investments to pay off in the second year of operations before Covid-19 pandemic hit. Indications are that post-pandemic, the US market will recover fast, with customers preferring non-stop flights.
When will KQ shares be reinstated at the Nairobi Stock Exchange? Ann Njoki Njung’e, Limuru
The National Aviation Management Bill 2020 is now before Parliament. We foresee that the trading of shares of KQ will continue to be suspended at the Nairobi and Dar Securities Exchanges until Parliament completes its process.
Why should Kenya Airways and Kenya Airports Authority be merged? Will the small shareholders at KQ lose or be forced to sell their shares? Njoroge Waweru, Kikuyu
The National Aviation Management Bill does not propose to merge Kenya Airways and the Kenya Airports Authority. The two entities will exist and operate separately and autonomously with the necessary powers to perform their functions but under the oversight of the Kenya Aviation Corporation. Kenya Airways is a listed company regulated by Capital Markets Authority and the Nairobi Securities Exchange. All investments in the company, through the purchase of shares and the rights of the shareholders, are by law equally protected irrespective of the stake they hold. This protection is extended up to and including the time of the take-over by the government under proposed nationalisation.