5 November 2018

Kenya: KQ Options On Challenging Route to New York

When Kenya Airways flight KQ02 touched down at the John F. Kennedy Airport in New York on October 28 -- making it the fifth African carrier serving the US market -- its managers and Kenya government officials were hoping that their experiment with a daily flight would yield positive returns on a route that has been rated as a low-revenue earner with a high load factor.

KQ joined South African Airways, EgyptAir, Ethiopian Airlines, Royal Air Maroc and America's own Delta Air Lines in offering scheduled passenger services from Africa to the US.

The carrier's managers are hoping this new route -- the most marketed since it began its turnaround plan -- will increase its 2019 revenues by roughly 10 per cent.

But opting for a daily flight to New York irrespective of the cabin load factor, on a route that has traditionally been difficult for African carriers, puts the plan in question.

KQ chief executive officer Sebastian Mikosz, in an interview with CNN last week, said that Nairobi's recent ranking as the eighth city in Africa that will be served from the US by this flight is a very important step in the carrier's development.

"It's a great moment. However, this operation is a huge commercial challenge for us," he said.

It is a challenge that KQ's African peers have faced: Non-stop flights between the US and Africa are notoriously difficult to break even on this as is the case with South African Airways, going by its financial books.

Until 2015, SAA used to serve the New York market with a connection via Dakar but the class of passengers forced the airline to drop it for a non-stop flight, despite the low load factor for the airline.

"SAA saw limited demand for Dakar-New York and as part of restructuring of its long-haul network, eliminated the Dakar stop despite the payload restrictions on Johannesburg-New York non-stops.

"The airline concluded that the premium demand for Johannesburg-New York non-stops was worth the extra cost associated with not being able to fill up the A340-600 passenger cabin to maximum capacity and restrict belly cargo.

"New York is a premium market and corporate passengers did not like the Dakar stop," says the Centre for Aviation in its analysis of the North American route.

This could be the reason why KQ is confident that it will manage to pull off the daily flights to New York as it seeks to wrest a share of this market from SAA.

Mr Mikosz has admitted that the new route, more than just being a Kenya Airways project, is also largely driven by the government.

"The success of this route will take time. In this industry, nobody makes business from day one; you have to build a route and give yourself time for the public and the sales power to kick in," Mr Mikosz said, adding that they were also planning on launching a long-haul route to Beijing later next year, when the Daxing International Airport opens.

But the airline will be fighting off speculation, especially on social media, that it is flying almost empty due to low bookings. There is talk of the management thinking of reducing the frequency on the route to three a week.

But a KQ insider told The EastAfrican that the average load factor for the past week on the New York flights has been around 60 per cent, which is good. "We still see a strong demand on that route and are not scaling down to three times a week as alleged," the source said.

Falling cabin numbers

Kenya Travel Agents Association chief executive officer Nicanor Sabula said that KQ's falling cabin numbers after the inaugural flight are mostly attributable to the northern hemisphere approaching the winter season.

"Airlines have two schedules, winter and summer. During winter, they usually reduce frequencies, but I am not aware of KQ reducing its frequency. Our bookings show they are still taking on passengers for a daily flight," Mr Sabula said.

Kenya Airways hopes to create an East African hub in Nairobi, tapping travellers and cargo business from the region, from Southern Africa and the Indian Ocean islands, which it expects to feed into this new route.

This, it hopes, will be fashioned on the model of the West African hubs created by SAA in Accra and the Ethiopian Airlines in Togo.

According to global airline traffic analyser OAG, there were around 23,800 indirect passengers between Nairobi and JFK last year, with a US-African traffic origin split of 52 per cent to 48 per cent -- an indication that there was more demand from New York compared with Nairobi.

According to the data, the top three hubs for connecting traffic on the Nairobi-JFK route was Dubai at 34 per cent of the overall traffic, via Emirates, followed by London's Heathrow at 16 per cent, with most passengers travelling by British Airways.

Doha controlled 13 per cent of the traffic, via Qatar Airways. Amsterdam, which services KLM, a shareholder of KQ, came in fourth at 9.7 per cent.

This could potentially mean that KQ will slow down its Amsterdam frequency and KLM's as it seeks to ramp up its New York-Nairobi numbers.

In terms of the airline's turnover, its intercontinental routes accounted for 48 per cent of its revenue in the 2016/17 financial year, a slight drop from 48 per cent in the previous financial year.

The addition of the New York route is expected to increase these numbers slightly, adding it to its seven intercontinental destinations -- Bangkok, Paris, Amsterdam, Dubai, Jeddah, Mumbai and Heathrow.

The Kenyan airline will also be banking on cargo haulage, especially flowers, for revenues on the new route. KQ Cargo transports close to 58,000 tonnes annually in its freighters and aircraft belly.

It has constructed new cargo cages to meet the US Federal Aviation Authority regulations for cargo transport.

"We have separate cargo haulage sections specifically for this flight and it has already attracted clientele, mostly the flower firms that have traditionally shipped their US-bound cargo via Europe.

"It is separate because it was one of the requirements FAA gave us. We expect to use the belly space to move this cargo," said the airline's general manager for cargo, Dickson Murianki.

The airline said its maximum payload on the route outbound from Nairobi, at two tonnes and outbound from JFK at seven tonnes, will be a natural attraction for express business cargo and also dense perishable product segments that will be a secondary tier after niche segments are maximised.

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