KQ justified to sell unprofitable B777

The KQ-KLM partnership is startlingly detrimental to KQ’s financial wellbeing.

Thursday March 17 2016

The Kenya Airways Dreamliner B787 on touchdown at the Jomo Kenyatta International Airport (JKIA) on April 5, 2014. The B787 Dreamliner is the new cash cow in Kenya Airways’ fleet and the obvious successor to the B777 on long-haul destinations. The aircraft has better propulsive and aerodynamic efficiency and less weight, resulting in better fuel efficiency. PHOTO | SALATON NJAU |

The Kenya Airways Dreamliner B787 on touchdown at the Jomo Kenyatta International Airport (JKIA) on April 5, 2014. The B787 Dreamliner is the new cash cow in Kenya Airways’ fleet and the obvious successor to the B777 on long-haul destinations. The aircraft has better propulsive and aerodynamic efficiency and less weight, resulting in better fuel efficiency. PHOTO | SALATON NJAU |  NATION MEDIA GROUP

The Saturday Nation of March 5, 2016 carried a special report on Kenya Airways that tried to dissect what could be ailing the national carrier.

The writer presented what he deemed to be irrefutable proof of a malevolent conspiracy by KQ’s management to nosedive the troubled airline into further financial headwinds.

The crux of the writer’s argument is that KQ’s inchoate turnaround strategy is underhanded and meant to bring it further down, to the eventual benefit of its supposedly benevolent partner, KLM.

I concur with the writer on many aspects: the poorly executed Project Mawingu strategy, gross mismanagement, and an inordinately skewed partnership in KLM’s favour.

At best, the KQ-KLM partnership is startlingly detrimental to KQ’s financial wellbeing and at worse, it casts an ominous cloud on KQs overall future as a going concern.

HEATHROW LANDING SLOT

However, the writer fails to articulate the rationale of why the sale of the Heathrow landing slot might sink Kenya Airways into deeper financial troubles.

Owning a landing slot at Heathrow is not an irrevocable guarantee to profits in the same way that not owning a landing slot is not a spell of doom.

My conjecture in this matter is validated by the rebuttal by the airline’s CEO, Mr Mbuvi Ngunze, in which he states: “While London is a strategic destination for KQ, it is not the most profitable.”

Insinuating that Kenya Airways should maintain a fleet of B777s since Emirates does so is equivalent to the proverbial keeping up with the Joneses.

Emirates is the world’s largest carrier of international passengers, the second largest by scheduled freight tonnage transported, and the third largest by the number of countries served.

Kenya Airways is a minnow when compared to Emirates. In fact, it is not even among the top three carriers in Africa.

Why is this important? You see, Emirates needs as big a fleet of B777s as it can lay its hands on to serve its international traffic by passenger volumes, in which it is the world leader.

From its Dubai hub, Emirates has dozens of far-flung global destinations, from the Far East to the Americas, down under in New Zealand and Australia, Europe and back to Africa.

Kenya Airways’ international destinations, only covering a couple in Europe and the Far East, pale into insignificance when compared to this.

Factor in the less-than-fully-booked B777s flying to these destinations and you have a recipe for financial calamity.

Now consider the insurmountable cost of maintaining an idle B777 fleet, salaries for both ground and airline crews, and the continuous training for pilots and a justifiable need to dispose of the B777 fleet arises.

The best Kenya Airways can do is a leasing arrangement where it only pays for time flown.

During hard times, the airline would resort to unorthodox techniques to utilise its B777 fleet capacity such as delaying its hourly flights to Mombasa and filling a B777 with two scheduled flights to the coastal city, or having an inbound flight from Mumbai rescheduled to Mombasa to pick up Nairobi-bounds passengers.

B787 DREAMLINER

The writer also fails to mention the new cash cow in Kenya Airways’ fleet and the obvious successor to the B777 on long-haul destinations — the B787 Dreamliner.

This aircraft has better propulsive and aerodynamic efficiency and less weight, resulting in better fuel efficiency.

The only drawback is that it seats less than the B777, with a variance of approximately 90-30 passengers depending on the seating configuration and specific type of Dreamliner. However, lower revenues due to fewer passengers per seat are offset by lower fuel burn, leading to higher revenues.

The article is commendable in its detailed look at the beleaguered airline’s woes, but it falls short of the much-needed holistic introspection that would give a yearning public some closure on the origins of the troubles at the airline.

For example, it does not touch on competition from the Middle Eastern airlines.

The financing arrangement that led to its liquidity risks and the fuel-hedging losses and debacles that were making headlines a few months back were not addressed either.

There is also the issue of Kenya Airways overcharging on all its routes, thereby turning away patriotic Kenyans wishing to support it.

Finally, there is the much-needed soul-searching on Project Mawingu. What went wrong?

The writer is an auditor with a passion for analysing the aviation industry in Eastern Africa. [email protected]

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