Business Daily (Nairobi)
Wangui Maina And Washington Gikunju
17 January 2008
The political crisis that has gripped Kenya over the last 18 days is casting a dark cloud over the performance of national carrier Kenya Airways in the financial year that ends in March.
What had been scheduled as a good quarter, with massive tourism bookings and a high passenger load factor, is turning out to be a nightmare as the political crisis lingers.
With every image of rioting mobs splashed by both local and international media since the results of the disputed presidential polls were announced, thousands of hotel bookings and flights are being cancelled.
This is in turn translating into aircraft flying back home empty despite the high expenses.
Insiders at KQ and in the industry say the cabin load factor, which measures the level of available seats that the airline is able to fill per flight has fallen from a high of mid 80 per cent to mid 60s on some key routes.
With the cabin factor falling this low, it is only a matter of time before airlines such as KQ start announcing temporary layoffs until the situation improves.
All the major airlines are having major difficulties filling seats on flights to Kenya and some have or are contemplating suspending routes and cutting the frequency to Nairobi. They are however taking off full of passengers who have either cut short their stay in the country or those who have finished their business.
Even domestic routes such as Mombasa where passengers lived in the constant threat of being bumped off flights are performing poorly. Some airlines have suspended flights to Kisumu and Eldoret, towns which this week have been rocked by turmoil.
KQ sales manager for the Coast region, Ms Maureen Onyango, was quoted in the Daily Nation on Monday saying the airline was cancelling its direct flights from Mombasa to Johannesburg and London in what analysts called a sign of things to come if the current political standoff is not quickly resolved.
Ms Onyango said that the flights were not generating enough revenue to make a business case for their continuation.
Mombasa is a key tourist destination and with barely any tourists arriving there most airlines have ceased flights to the town, especially charter flights.
KQ in the last financial year (2006/07) posted Sh50.4 billion in revenues. It carried 2.6 million passengers to different destinations around the world last year, an increase from 2.4 million passengers the previous year.
The situation is not just affecting KQ since most international and domestic airlines are feeling the pinch.
Most airlines contacted by Business Daily reported poor passenger yields on their flights into the country.
"We have seen many cancellations of flights coming into Kenya from the UK and though this is traditionally a low season it is worse now," British Airways' East Africa manager, Mr Suneel Tyagi said.
Similar sentiments were expressed by SN Brussels. However both airlines plan to continue with their schedule in the country.
"We are not looking at cancelling any flights as of now and will continue as normal," Mr Tyagi noted.
However Virgin Atlantic, which entered the Kenyan market in June, is looking at reducing its schedule due to lack of passengers.
According to the airlines sales and marketing manager, Ms Nilanthi Manatanga, passenger demand on the flights to Nairobi has been quite low and the airline is looking at consolidating its frequencies thus affecting 11 flights until the end of February.
"We intend to resume normal schedules from the beginning of March," she noted.
Virgin is willing to fully refund affected customers or rebook them in another flight or airline. Ms Manatanga noted that Virgin's volumes for the summer season has risen by 25 per cent, up from last year, and believes the future will look good.
KQ generates most of its money in Africa region, which contributed 41 per cent to the company's revenues, while Europe contributed 32 per cent. Middle East and Asia and domestic flights each contributed 18 per cent and nine per cent respectively.
The first signs that the 2007/8 financial year was not going to be a smooth ride for the national carrier appeared in late September when the company presented reduced profits, which had gone down to Sh1.9 billion from Sh2.4 billion in a comparative period for the half year period to 2006/7.
The declining profitability was then attributed to increased competition, higher fuel prices and adverse effects of a weaker US dollar.
The carrier had recorded a declined pre-tax profit of Sh5.98 billion in 2006/7 financial period down from Sh6.96 billion in 2005/6.
KQ managing director Mr Titus Naikuni assuaged the investors then that the management was in the middle of implementing a turnaround plan that would see the company return to the profitability path.
The post-election violence and political uncertainty that has battered the country's international image must be a wild card to KQ that heavily relies on the tourism sector.
Tour operators have been watching with dismay as major tourist source markets issue travel advisories against the country that have in turn reduced tourist arrivals to a mere trickle.
Most European countries which form the country's principal source markets have issued warnings against any non-essential travel to the country meaning that no tourist would be willing to take the risk to travel to the country as they would not even obtain insurance cover during their travel.
KQ has also recently positioned itself as a link to Europe for most African travellers and especially those in West Africa, which is underserved by airlines, but reports are emerging that most would be passengers are now preferring alternate connecting flights due to the looming uncertainty.
Domestic flights to Kisumu, Mombasa, Malindi and Lamu which account for a significant nine per cent of the airline's total revenues are also likely to be severely affected following the disruption of economic activities in these regions.
Major players in the tourism industry have argued that the earliest that the tourism sector could recover from the current mess is in the second quarter and that is assuming that the situation is restored to normalcy in the next few weeks.
The Kenya Tourism Federation chairman, Mr Peter Karanja, says it is likely to take an aggressive public relations campaign to recoup losses already incurred in the tourism sector.
"The sector has lost the first quarter of the year as cancellations mainly extend up until March," says Mr Karanja. "If there are any changes we could see some of the guests re-booking for the second quarter or the second half of the year."
Mr Karanja says that charter planes have cancelled flights to Kenya thus affecting arrivals into the country and sector players are looking at campaigns to help rebuild the image of the country and encourage bookings.
South African Airways, which operates flights on the Nairobi Johannesburg route, says that January is traditionally the end of the peak season and the airline had already started recording a decline in bookings.
"Traditionally this is the end of the peak season and we had already started seeing a decline in bookings," says Mr Aaron Munetsi, the SAA head of East Africa and Middle East operations. "We have some incoming passengers though some have requested for reschedules."
While the stalemate persists, KQ is likely to be faced with a unique problem of underutilization of its resources, mainly aircraft and human resources, while on
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