Low cost airlines brace for price wars

Kenya Airways’ budget carrier will match FastJet on ticket prices in a looming bruising battle to control regional routes.

The national carrier, which is fighting one of its greatest employee unrests in court after it retrenched about 600 employees, says it is prepared to charge as low as Sh6,000 on the East African routes, the same range that FastJet has indicated it will price its tickets.

“We will match that price, given that it is the reason we want to launch Jambo Jet. We will keep our costs down to allow us to make flying affordable to even people who would otherwise go by bus,” Kenya Airways chief executive Titus Naikuni told Smart Company in an interview.

This is now promising to shape up into a price war that will reduce the cost of travel in the East African region.

Customers may, however, be required to pay for extras like food and baggage. It is also likely to rattle other low cost carriers such as Air Kenya and Jetlink. FastJet is expected to begin flights next month to Tanzania, where it will have a base and later rebrand Fly540 into FastJet.

It has already applied to the Kenya Civil Aviation Authority (KCAA) to be allowed to use the Airbus fleet A319.

Bigger planes are critical in influencing prices, given that airlines enjoy economies of scale.

But Kenya Airways is yet to secure a licence for the new airline. Jambo Jet is its subsidiary and is expected to be managed independently and with its own team.

“We have not got a licence yet. There was a licence review last week but we believe we will get a positive response from KCA,” said Mr Naikuni.

The airline will deploy the Embraer jets on the route it says will allow it headroom to keep down the costs. It maintained that the planes are better suited to run the region at a time when pilots have raised concerns over the competitive edge of the Embraers.

“It is only pilots who have opposed the use of Embraers but this is because they are paid using the weight of the plane and given that these planes are lighter, then you can decipher what that means,” said Mr Naikuni.

The airline has indicated that it will launch daily flights to Eldoret from October 17 in an effort to consolidate its domestic market share using the Embraer E170 jets. It will start with an introductory promotional fare of Sh5,000 ($59).

It is counting to tap into travellers drawn from the academic community that frequents the town and athletes.

Analysts at Citi have, however, criticised KQ’s planned entry into the low cost business on grounds that aviation has low penetration.

According to Citi, penetration of low cost carriers in the region lags behind its peers on the continent. The Citi report puts East Africa’s use of low cost carriers at about 9 per cent compared to an African penetration of 12 per cent. This is still a far cry from the world’s average of 25 per cent.

But Mr Naikuni maintains that the low penetration has largely been due to unaffordability of aviation services to the larger population.

Kenya Airways has assembled a team that is working on the finer details ahead of the launch later this year.

“We have a team that is working on the details, but if you look at the East African region, we are looking at using about 10 or so aircraft,” said Mr Naikuni.

Failure to launch its low cost carrier could expose it on the regional routes as its rivals will find a way to undercut it at home at a time when it is also facing competition from other African carriers, including Ethiopian Airlines.

Kenya Airways is hoping to be allowed to hire about 15 captains in the coming weeks to bridge a shortfall.

“We have very many pilots, but we do not have enough captains. Therefore, what we are asking for is let’s bring in the expatriate captains to help us in training ours and as soon as ours have achieved the hours, then we can remove those expatriate pilots,” said Mr Naikuni.

It is also hoping to launch its first US flight in three years.