KQ pays the price for heavy reliance on passenger revenue

The Covid-19 pandemic has exposed the weak points of global airlines, which are now struggling to stay afloat. Airlines such as Kenya airways which were already in financial mess have seen their situation worsen as the virus scourge continues to wreak havoc to key sectors of local and global economy.

KQ has now realised that its overreliance on passenger services is its undoing. The national carrier has thus been compelled to think harder to broaden its revenue streams in a bid to cushion itself against such global crises as the current Coronavirus.

The airline is already planning to diversify 40 percent of its business to other revenue streams and cut overreliance on passenger services, which forms the bulk of its revenue.

At the moment, 90 percent of the Kenya Airways revenue comes from passenger services with a paltry 10 percent from cargo.

KQ chief executive officer Allan Kilavuka says the carrier has been heavily reliant on passengers but it’s now time they diversified their business, having learned from the Coronavirus havoc.

“We have been heavily reliant on passengers but we now need to spread out our business. We are working on how to diversify to other revenue streams,” said Mr Kilavuka.

The lack of long haul cargo aircraft, the CEO said, has hampered the carrier’s ability to conduct a serious freight business at the moment.

Kenya Airways does not have long range cargo aircraft and the two B737F that the carrier owns can only provide regional services and there is no too much cargo to transport within Africa.

At the moment the carrier has converted its passenger aircraft into freighters. However, it carries very minimal cargo, making the venture not viable.

“The cost of using a passenger aircraft is higher than a freighter because of too much wasted space as the cargoes are placed on the seats,” he said.

Mr Kilavuka revealed that the airline is expected to make at least Sh200 million from about 53 missions that it will operate in different regions across the globe but pointed out that this is just a fraction of their revenue as the carrier is a multi-billion business.

A part from cargo, the airline has also been involved in repatriation missions. The carrier will this week bring in Kenyans who have been stranded in India and China.

The CEO said they plan to invest on long haul cargo planes, but this is just one of the things they need to explore as a way of diversifying their business.

Cargo business has become lucrative at the moment with only a handful of carriers operating from Kenya to other parts of the world after most of the airlines pulled out of the route following disruption by Coronavirus. The pandemic has seen most of the airlines close their airspace for passenger flights.

The total freighter capacity currently stands at between 1,500 tonnes and 2,000 tonnes a week at JKIA against a demand of 3,500 in terms of volumes.

The national carrier is banking on the cargo business, which generates about Sh11 billion annually, to pay salaries and utilities such as security, water and electricity.

However, by using passenger aircraft, the airline is only able to evacuate 40 tonnes of cargo on a one-way trip with very minimal cargo on return leg.

Freighters normally carry about 100 tonnes, with economies of scale making it viable for long haul cargo business.

However, it’s not just KQ that has been caught in the current mess. All other major airlines have also deployed their passenger aircraft for ferrying of cargo across the world.

But unlike KQ, these carriers have a sizable fleet of freighters and they are only using passenger planes to supplement their business.

The shortage in capacity has seen the horticulture sector express its concern over the high charges that freighters are levying at the moment with the cost having doubled because of high demand in the wake of low freight capacity.

“Airlines have increased their rates tremendously. They are currently charging more than double the initial cost from Nairobi to most market destinations. Exporters are unable to meet these exorbitant charges,” said Kenya Flower Council.