Kenya’s aviation sector: who next to fall to hard times?

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(eTN) – Aviation in Kenya is generally a thriving industry with the number of aircraft registered and the daily flights recorded at the main airports, at Wilson, and across the entire country’s airf

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(eTN) – Aviation in Kenya is generally a thriving industry with the number of aircraft registered and the daily flights recorded at the main airports, at Wilson, and across the entire country’s airfields and airstrips dwarfing the entire rest of the East African Community. No cause for concern then one might think. Think again.

Jet aviation, connecting Nairobi with Malindi, Mombasa, Kisumu and Eldoret, has seen a mighty change take place when Kenya Airways (KQ) decided to return to the domestic aviation market per force, re-constituting the shuttle to and from Mombasa and returning to both Malindi and Kisumu after runway expansions and repairs had permitted “The Pride of Africa” to do so.

The introduction of new aircraft to the KQ fleet, namely the Embraers 170 and 190 models, has allowed them to fly as many as 10 times between Nairobi and Mombasa a day, and while flights to Malindi are only daily at present, more can be added should demand so require, as was the case with Kisumu.

While Kenya Airways was absent from the Kisumu and Malindi routes and had shown for some time less inclination to claw back market share on the Mombasa route, this changed with the arrival of the Embraers, and it also changed the entire market equation for the privately-owned airlines, which had taken advantage of KQ’s “slumber.” Jetlink and Fly 540 – the latter has already taken over East African Safari Air Express – found themselves in a sudden fight to the death over passengers and had to reduce fares while still maintaining the same number of flights in spite of lower occupancies.

With fuel prices escalating at the same time, margins started to shrink and aviation observers now think that with KQ’s unrelenting presence and pressure on the domestic market, with new aircraft, inventive marketing, and a superb frequent flyer loyalty program, it will only be a matter of time before something, or someone, finally gives.

Several reasons can be cited for this development in Kenya’s mainstream aviation.

First, there is the need to bring modern aircraft to the fleets, causing aged DC 9s and F28s to be phased out, as this is a demand in the market place. These ageing aircraft were cheap to procure though expensive to operate, considering their fuel consumption, an acute issue when the cost of aviation fuel JetA1 soars. Kenya Airways bringing new aircraft on stream almost inevitably compels competitors to do the same, and though the present CRJs flown by Jetlink and Fly540 are not brand new, they do constitute the newer aircraft the market was looking for. That, however, required often syndicated funding, and with interest rates again on the rise, the payments for these newer aircraft are becoming a challenge for such comparably small privately-owned airlines.

Secondly, in particular, pilots are becoming a real issue for smaller airlines as they are just as much in demand by the national airlines – where they have “real” career prospects of eventually migrating to wide-bodied planes and to fly further abroad. However, aggressive recruitment by, in particular, airlines from the Middle East, where a severe pilot shortage is said to be looming, considering the ongoing expansion of their main players like Emirates, Etihad, Qatar, Oman, Air Arabia, and Fly Dubai, also plays a major role for qualified pilots in Eastern Africa, and it is little surprise that those remaining at home have flexed their muscles and successfully re-negotiated their terms and conditions to a point of near financial pain for the smaller airlines and also for Kenya Airways, which only recently had so sign a new deal with their pilots and KALPA. This has eaten deeper into the narrower margins of smaller airlines, making it more difficult to make financial ends meet.

Thirdly, the return of KQ in numbers to the Mombasa route and to Malindi and Kisumu has eaten into the client base of smaller jet airlines, and the at times extraordinary special offers to fly with “big brother” Kenya Airways has eroded occupancies of those private airlines, which can only make ends meet with regular high occupancies on one side and efforts to keep their fares up – both elements in this equation, however, no longer hold, as pressure on fares has been intense while occupancies have actually reduced, in particular, during the long and hard low season between after Easter until the end of June.

All of this is taking its toll and the report today from Kenya that one of these private airlines is being taken to court by another demanding protection from asset shifts and cash transfers, which would potentially make it impossible to receive a settlement, should the original suit over some US$900,000 in dispute be decided in their favor, only is the tip of the iceberg it was learned.

“Times are tough right now, tourism is just entering its mid season, inflation is running high, and the shilling is low, which makes procurement of spares and external services like insurance or maintenance a lot more expensive in shilling terms. So business and leisure travel is not as heavy as we would like, and the elections next year are not helping us either. It is a difficult period for private airlines now.

“Kenya Airways now even flies twice a day to Juba, where a year ago they did not fly at all. This left the route to us and another Kenyan airline, and now there we also have to share the cake like for Mombasa and Kisumu. Our financial resources are more limited, our cash flow is more limited [than] that of KQ, and who knows, maybe in a few weeks or months another private airline is going to fold over financial issues,” said one regular source from Nairobi, sounding not exactly convincing though and certainly not as cheerful as usual when passing information, as always under the cover of strict anonymity, to this correspondent.

For now it remains to be seen where the present situation is taking the aviation industry in Kenya, and while the safari airlines report booming business, in particular on their services to and from the Masai Mara where the great migration is presently underway, others are not so lucky.

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Editor in chief is Linda Hohnholz.