Kenya Airways is hoping to boost its chances of profitability and survival as it seeks approval to run Kenya’s largest international airport and one of Africa’s busiest airports.
Michael Joseph, Chairman of Kenya Airways, said the airline had proposed forming a special purpose vehicle with state-run Kenya Airports Authority (KAA) that would allow the airline to run Jomo Kenyatta International Airport for a minimum of 30 years. The company is close to winning the approval and could be finalised this year. The Jomo Kenyatta airport is owned and run by the KAA.
“All our competitors are state-owned, state-controlled, state subsidised and managed for the benefit of the airline. We are the odd one out,” the chairman, who’s the former CEO of Safaricom, told Reuters.
Granting the proposal to run Jomo Kenyatta airport is vital for the national flag carrier’s survival. The company had been struggling to get out of losses since 2013 after costly purchases of aircraft coincided with a slump in tourism and business travel to Kenya as a result of attacks by Somalia-based Islamist militants. Operational results for fiscal years 2015 and 2016 showed substantial loses. In March, the company still reported a 6.1 billion-shilling ($60.3 million) loss for the nine months through December.
The ailing state carrier underwent a major debt restructuring at the end of 2017. The company’s stakeholders agreed to convert close to half a billion US dollars in debt into equity. The new structure increased the share of the Government of Kenya from 29.8 percent to 48.9 percent making it the largest shareholder and KQ Lenders Company’s (a special purpose vehicle owned by a consortium of Kenyan banks) share became 38.1%, while Air France/KLM stake reduced to 7.8 percent.
In a bid to improve the fortunes of the company, the proposal, which still needs the ascent of the parliament, will allow the airline run profitable services at the airport including catering, fuel distribution, cargo and ground services facilities and maintenance. Kenya Airways would also have the ability to determine takeoff and landing slots, which would give it an edge over other airlines using the airport. KAA said it gets revenue of 13.5 billion shillings ($133.93 million) from the Jomo Kenyatta airport per year, including 3 billion from non-aviation services like leasing of space to restaurants.
In other turnaround plans announced in March, it said it would expand its route and pursue the high-end segment of the market. The carrier plans to add up to 20 new destinations in Africa, Europe and Asia in the next five years. The route-network expansion and proposal to run the airport will help sub-Saharan Africa’s third-biggest carrier return to profit.
“We are looking at at least one European route and one Asian route on top of the African network,” Chief Executive Officer Sebastian Mikosz said in March. “In 2018, we might announce maybe two, three new routes to be operated in 2019.”
The airline faces stiff opposition from its eastern neighbour state carrier though; Ethiopia Airlines has been able to expand rapidly over the past decade recording profits in the process. The airline can, however, learn from Ethiopia’s management of its own state carrier. Even though 100 percent owned by the Ethiopian government, the national carrier has remained the most profitable carrier in the continent.
“2018 is a year of consolidation, of finalizing all the cost-reduction measures we have put in place, making sure we have the systems in place in terms of a revenue point of view,” Michael Joseph said while revealing profitability plans earlier this year. “If everything goes according to plan, I think the path we are on is a good one.”