KQ must try austerity options to keep flying

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EDITORIAL

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By its own admission, Kenya Airways blames escalating costs on fuel, personnel and aircraft for the persistent losses it has posted in the past decade. In the latest results for the year to December 2018, the airline’s fuel costs alone rose by a third and attempts to pin increased personnel expenses on pilots flopped with the flyers association deflecting the blame on expatriates.

The money being spent on financing aircraft, at Sh142 billion, consumes 11 per cent of its operating costs, more than two times the global average of five per cent. From the foregoing, it’s clear that the carrier’s way back to profitability rests in austerity measures.

Sadly, these have been tried before with mixed results. From hedging on fuel and foreign exchange rates to laying off staff in highly controversial circumstances, the airline rarely seems to get its calls right. The purchase of aircraft through special purpose vehicles have also been called into question, with suggestions money could have been saved with more prudence and transparency.

Surprisingly, the management under Sebastian Mikosz, sees no urgency in addressing the cost binge. Instead, the management wants to overlay its heavy-cost operation on the taxpayer, be it through nationalisation or a merger with the Kenya Airports Authority. The airline has failed to convince the public, most of all MPs, how handling ground services at two or three of more than 40 airports in the country that are profitable, would improve its fortunes.

Just like with nationalisation where the carrier would ride on taxpayer funding while shielded from the transparency demanded of listed companies, its tie-up would be a parasitic one, with KAA being the host.

None would be sustainable with the government having been forced to waive some Sh24 billion of the carrier’s debt last year.

What Kenya Airways needs now is a critical review of its business model. The carrier used to be a premium service, but with increased competition, especially from gulf airlines, its in-flight offering can no longer be said to be top class.

The premium posturing helped the airline justify high ticket prices and, understandably, a not-so-keen watch on expenses.

That model is now chasing away potential passengers.

By virtue of not being the preferred carrier even in the price-sensitive Eastern African routes, the management has to look at improving returns. One way of doing that is to slash ticket prices and renegotiate aircraft financing terms.

Without addressing its affordability, Kenya Airways will die a natural death irrespective of whether it’s nationalised or given new revenue sources through the Kenya Airports Authority. It cannot rely on tourists, one of the attractions of the American route, and affirmative action by government on public travel to stay afloat.



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