Aviation industry pins hope on new regime to fly it out of turbulence

Stakeholders, perhaps buoyed by the inclusion of the aviation industry in President Ruto's manifesto, which hints at fresh efforts to help KQ improve its fortunes, are eager that the new administration will help the industry turn around.

And it's not just KQ that is facing tough times. A number of local carriers which grounded their operations at the onset of the Covid-19 pandemic have struggled to recover.

While the new administration is yet to give details of how it will turn around KQ, it said that it would within a year put the national carrier back on its feet and cut its reliance on State bailouts.

Finding a cure for the long-ailing KQ has proven to be a headache for previous governments, with the airline gobbling up billions in bailouts without any sign of a recovery.

To address what ails the carrier, the Kenya Airline Pilots Association (Kalpa) said there is a need for the overhaul of the carrier's management and board, to inject fresh thinking into the future of KQ.

The pilots' union believes that the current organisational structure of KQ mirrors that of a financial institution and not of an airline making it the reason why the carrier continues to be in the red.

Kalpa has proposed the inclusion into KQ's board of players from different industries heavily reliant on the airline such as horticulture and tourism, noting that these sectors suffer major blows whenever there are inefficiencies at the airline.

The union further wants more technical people, such as pilots and engineers, in the management of KQ. It says the government should first initiate a critical leadership change that will facilitate a transparent review.

Continental partnerships

"An organisational structure is the core of everything, and in the case of KQ, it is the heart of the problem," said Kalpa.

"There has to be new leadership at the airline ... If you look at our structure, it does not tally with what should be the airline's key economic drivers such as tourism, horticulture and others that bring business to KQ."

Financial Standard did not get responses from KQ's management for this article by the time of going to press.

The previous government planned to roll out a Sh156 billion (1.3 billion dollars ) multi-year restructuring programme which included taking over debts, streamlining the operations of the airline and possibly seeking continental partnerships for scaling up.

According to Kalpa, among the low-lying fruits that could form big quick wins for KQ include restructuring aircraft leases and renegotiating contracts for the supply of aircraft fuel and oil. These, the lobby notes, could give the carrier plenty of breathing space enabling it to grow revenue.

Kalpa noted KQ's aircraft leases are priced much higher than industry averages.

"Our monthly cost of leasing per aircraft about 1 million dollars (Sh120 million) is very high when compared with other industry players such as American Airlines, Qatar Airways and Ethiopian Airlines which pay 625,000 dollars (Sh75 million), 475,000 dollars (Sh57 million) and 450,000 dollars (Sh54 million) respectively per month on average," said Kalpa.

KQ has recently said it had successfully renegotiated aircraft leasing costs and managed to get a 20 per cent reduction, which it noted would significantly reduce its operating costs.

The Kenya Association of Air Operators (KAAO) said the country needed a strong policy that will enhance its position as a regional aviation hub.

The association's chair Mbuvi Ngunze explained that a regional hub strategy such as what has been implemented by Gulf states, Turkey, China and Ethiopia required a National Aviation Policy to be put in place.

KAAO also said the local tax regime has over the years suppressed the growth of the industry. A significant chunk of fares charged by carriers including the domestic routes is in form of taxes.

Lower taxes and even an industry stimulus package could help airlines that are yet to restart operations after taking hits from Covid-19.

"The industry has over the years made petitions to the Government to review the tax regime so as to provide the needed relief to the industry players in order to give them a fighting chance in the face of fierce regional and international competition," said Ngunze.

"In the past when tax breaks were granted by government, the industry managed to get access to newer, modern aircraft, a fact that has played a major role in enhancing the safety standards."

Veteran tourism industry player Mohammed Hersi has in the recent past been pushing for international carriers to be allowed to operate scheduled flights to Moi International Airport Mombasa.

Mombasa has in the past greatly benefited from charter flights. Hersi said that since Covid-19, charter flights have significantly reduced, and the government now needs to consider allowing international airlines to operate scheduled flights to Mombasa.

Last week, he started mobilising the public to sign an online petition in which he requested transport and civil aviation authorities to liberalise Kenyan skies.

Protectionist policy

The government has in the past selectively allowed international carriers to operate flights in and out of Mombasa.

It however largely runs a protectionist policy that limits such flights and instead, international airlines fly into Nairobi and their passengers going to other parts of the country are flown by local carriers.

Hersi wants foreign carriers allowed to fly directly to Mombasa, said the coastal city would have 39 charter flights a week but this has gone down to a few and far between, with many weeks going with Moi International Airport receiving such flights.

International carriers flying to the Coast, he argues, will be a boost for the tourism industry as well as other industries that might see cargo flights export produce by local farmers such as fruits, fish and meat to international markets.

"In the old golden years of tourism until 2012, Moi International Airport was receiving 39 charter flights per week. Due to changing trends charters are a slowing concept and more travellers are now opting for scheduled flights," he said, adding that airlines that had been operating scheduled flights before the Covid-19 pandemic have not had their licences renewed.

"Most international travellers would prefer to fly direct to Mombasa since the majority avoid going through Nairobi. We humbly appeal to the new government to give this matter priority since it is keen on creating jobs and tourism is the easiest vehicle to achieve that goal."

Hersi said that open skies had changed the fortunes of Morocco as a tourism destination, with its visitor numbers going up from two million to 12 million in less than a decade.

Liberalisation also transformed the South African cities of Durban and Cape Town, which he said were saved from death and became leading conference tourism hubs.

KAAO is also of the view that Kenya could significantly benefit from opening up its skies. It, however, cautions that this should be done gradually, initially starting at the East African Community (EAC). An abrupt opening up of Kenyan skies, it warned, could lead to the unintended impact of foreign carriers running down local airlines.

"Substantive research has repeatedly found that liberalisation has led to increased traffic volumes, greater connectivity and choice and lower fares. Whilst open skies policy is the way to go, it must be approached in a gradual manner starting with various regions such as the East African Community to avoid cannibalisation of local operators by foreign carriers," said Ngunze, adding that the different EAC member countries should standardise regulatory requirements.

This could, however, be a challenge as not all states are at par.

"We as an industry have always argued for East Africa to be considered domestic. We believe strongly that reducing air passenger taxes which are over 100 dollars (Sh12,00) on the cost of a ticket would stimulate increased flying and still earn the countries revenues they desire," said Ngunze.

"It has been estimated that open skies between the five EAC countries could result in an additional 46,320 jobs and 202.1 million dollars (Sh24 billion) per annum in the gross domestic product (GDP). I would advocate the creation of a regional champion first before we go wider."

Opinion on whether to open African skies is divided. There have been attempts to get individual countries to adopt the Single Africa Air Transport Market, an initiative of the African Union (AU) to create a liberal civil aviation market. It has however been opposed by some airlines that fear other more financially muscled airlines might crush them.

SAATM, which has been in the works for years, is designed to create an air industry akin to what the European Union has, where carriers and passengers have an easy time moving from one country to another.

Through SAATM, the AU hopes to ease flying on the continent. SAATM has received the backing of aviation bodies such as the International Air Transport Association (IATA) and the African Airlines Association.