The future for Kenya Airways

As many thoughts turn to the Chinese majors and their figures due out this month, which are sure to be beset with FX-related costs, it is worthwhile not overlooking Kenya Airways as it continues to drive through what will no doubt go down as their most difficult period to date.

Kenya Airways has seen part of its core market –the tourist industry – deteriorate by a huge 81% over the past 12 months since terrorists began targeting the country on a regular basis. This has seen the Kenyan Shilling steadily deteriorate against the US Dollar, which in turn has seen all dollar-denominated costs increase by 9% over the past 12 months. Sensing a gap in the market, FastJet was very quick to move-in on the Kenya Airways routes that were cut.

Now in addition to all this woe, Kenya Airways may yet lose its substantial West African market due to the Ebola outbreak there. Kenya Airways is adamant that it will not suspend services to West African countries and it has been backed by the Kenyan government, which has been briefed that to do so would risk the airline needing financial assistance in the near future.

West Africa has some of the most profitable Kenya Airways routes, but of course there is a flipside to this story, many government rivals to the president, which includes the vast majority of the National Assembly and the vast majority of the voting public, see his explicit support of Kenya Airways to be a matter that will tarnish both him and the senior staff at Kenyan Airways should Ebola strike within the territorial borders of Kenya. And if it does there is likely to be calls for all to step down. It could therefore be argued that Kenya Airways is caught between a rock and a hard place in that it will, no matter the circumstances, be seen as its fault if Ebola strikes in Kenya and the fault of the president supporting the airline, which at a time when Kenya Airways could do with all the government support it can get, might be a risky scenario to say the least if the National Assembly were to become anti-Kenya Airways.  

So we must ask – Is taking the Ebola risk to help revenue, a risk too far?
 
Most major airlines will say yes it is a significant risk to the brand and its survival, as shown through their avoidance of West Africa of late, but the real answer lies in the detail of Kenyan’s yield figures on routes across Africa. From scanning these figures we can suggest that without West African transits Kenya Airways would be running a loss on intra-African routes (as a whole). West African transits brought in $130m last year for Kenya Airways and just under $210m for the Kenyan market. The latter has collapsed and the former is now in the process of collapsing. Given that the UN has not yet banned travel to West Africa or asked for the same in public, instead relying on airlines and their home governments to take action, Kenya Airways is well within its rights to act as it has, in fact the World Health Organization (WHO) does not want to see West Africa cut off.

But we understand that Kenya Airways, along with all other airlines serving West Africa, has seen load factors fall heavily over the past few weeks. It may be that time will allow Kenyan Airways to simply suspend the routes to save money. Either way Kenya Airways is moving through a difficult time that Ebola has made much, much worse.  Many think that the chances of getting Ebola from a commercial flight are very small given that the disease is transmitted via bodily fluids but this is not true, skin contact, long periods of exposure in close proximity and even using the same toilet seat could in theory cause infection (according to the WHO). Those factors alone make air travel suddenly seem far less appealing. Now put yourself in the position of the West African travelling public, who are having these messages drummed into them every day by the WHO and the media and suddenly you can see why air transits are falling away rapidly and indeed they may yet be slow to recover after the outbreak.