Kenya Airways rivals protest over ticket prices

Jetlink and AirKenya have asked the government to intervene in the ongoing price war on claims that recent Kenya Airways price cuts could drive them out of business.

The national carrier cut its fares on the Nairobi-Mombasa route by 50 per cent to Sh6,200, making it the cheapest on the route.

The rivals say they cannot recover their running costs if they match Kenya Airways (KQ) on pricing, arguing that the carrier has engaged in predatory pricing with the intention of locking them out of the market.

“What we are witnessing is uncompetitive behaviour by certain players who are prepared to charge below cost with the sole intention of killing competition and thereafter hike the fares,” said Elly Aluvale, CEO Jetlink.

JetLink, Fly540 and Air Kenya charge Sh10,500, Sh6,540 and Sh11,000 respectively on the route and they argue that the current market rates are not sustainable.

Dominance

“We are thankful to the government for creating the Competition Authority that we hope will clamp down on these unfair trade practices that will prove very costly to the consumer in the long-run,” said Mr Aluvale.

The Competition Authority was created by the government to fight price fixing and abuse of market dominance by companies that have a substantial market share.

The airlines hope the price watchdog will use the predatory restrictive price to act on Kenya Airways and Fly540, which they say has opted to join the national carrier in the price war.

Fly540 reduced its fares on the route to Sh6,540 from Sh9,540 two weeks ago.

Kenya’s anti-monopoly law defines predatory restrictive price as one that is below the average variable costs such as wages, fuel and hiring of planes and that there must be evidence of intention to drive a rival out of business.

The commission can force a company to revise its pricing upward or take it to court from where it can be fined Sh10 million or officials jailed for five years or both.

Jetlink and AirKenya are mulling reducing the number of flights on the route to cut losses and said they will not participate in the price war, which has been prompted by the reduced passenger numbers.

“AirKenya is not and will not participate in price wars. We believe in sensible pricing and will always strive to provide its customers with quality and reliability,” said Dino Bisleti, AirKenya general manager.

“If the war persists, the consumer will love it, but it will be very costly to the airlines and without some bottom line, hard decisions will have to be made,” said Mr Aluvale.

Though the low fares helped grow passenger numbers in December to double digits compared to last year, it has not translated to higher profits as airlines say they returned lower profits compared to the previous year.

The airlines have been facing low passenger traffic since the start of the year, forcing carriers to rethink their strategies amid dwindling returns.

KQ has the benefit of larger planes, which enjoys economy of scale compared to its rivals, and its larger operations can allow it to subsidise some of its domestic routes, which generate about four per cent of its revenues.