Kenya Airways Limited

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Kenya Airways Limited

Airport North Road
Nairobi,
Kenya
Telephone: (+254-20) 3282-2000
Toll Free: (866) KENYA-AIR
Fax: (+254-20) 82-3488
Web site: http://www.kenya-airways.com

Public Company
Incorporated: 1977
Employees: 3,300
Sales: KES 58.8 billion (2007)
Stock Exchanges: Nairobi Uganda Dar es Salaam
Ticker Symbols: KQNA.NR; KA; KA
NAIC: 481111 Scheduled Passenger Air Transportation; 481112 Scheduled Freight Air Transportation; 481211 Nonscheduled Chartered Passenger Air Transportation; 488190 Other Support Activities for Air Transportation

ORIGINS

COMMERCIAL ORIENTATION

KLM PARTNERSHIP

PUBLIC IN 1996

DOMESTIC AND REGIONAL DEVELOPMENTS

THRIVING IN A DIFFICULT ENVIRONMENT

LOFTY AMBITIONS

PRINCIPAL SUBSIDIARIES

PRINCIPAL DIVISIONS

PRINCIPAL COMPETITORS

ORIGINS

Kenya Airways Limited (International Air Transport Assocation, or IATA, designation KQ) was established in January 1977 following the breakup of East African Airways Corporation (EAA). EAA had been formed in 1946; the government of Kenya was the leading shareholder with a 68 percent interest. Uganda had a 23 percent share, with the remainder held by the precursors to the state of Tanzania (Tanganyika and Zanzibar).

EAA kept within the region’s skies for its first decade. In 1957, a number of international destinations were added using leased long-range aircraft. The route network reached as far as London and Bombay (these were not nonstop flights).

EAA collapsed in 1976 after the East Africa Community disbanded. Some of its assets and staff were acquired by Kenya Airways, which began flight operations in February 1977.

COMMERCIAL ORIENTATION

While the creation of Kenya Airways provided a national airline, the carrier became known as a textbook case of inefficiency. Among other problems, it operated a varied fleet of a half-dozen different types of planes, each requiring distinct maintenance, spares, and training procedures. The airline lost KES 5.8 billion from 1987 to 1993, a considerable drain on the national economy.

There was little continuity of leadership, as ten different people had held the chief executive post since the company’s founding. New management was installed in 1991 with a directive to operate the airline on a commerical mercial basis and prepare it for privatization. British Airways plc’s consulting arm, Speedwing, was hired to help with the process. Its recommendations included installing more stringent financial controls, updating an inadequate information technology infrastructure, increasing customer service levels and employee productivity, and taking a new marketing approach.

The government of Kenya assumed responsibility for the airline’s outstanding debts, totaling KES 4.5 billion. Another KES 1.6 billion owed the government was converted to equity. However, the longstanding series of bailouts, averaging KES 92 million a year between 1989 and 1994, was coming to an end. The airline began turning a profit in the 1994 fiscal year. Revenues exceeded KES 10 billion in 1995, producing a pretax profit of KES 2 billion.

KLM PARTNERSHIP

To secure its future, the airline began seeking a strategic partner. After receiving serious interest from four major airlines, it chose the Dutch carrier KLM, which had operated a route to Kenya since 1969. KLM acquired a 26 percent holding in Kenya Airways for $26 million. This gave the airline a strong partner with global connections. Nairobi’s Jomo Kenyatta International Airport subsequently developed into one of Africa’s strongest hubs.

Kenya Airways also tapped into KLM’s reservations system and frequent flier program. A further benefit of the alliance was the opportunity to save money through joint purchasing. The two carriers shared sales offices in Africa, and KLM’s home base of Amsterdam turned into an important European hub for KQ.

PUBLIC IN 1996

Kenya Airways had a successful initial public offering on the Nairobi Stock Exchange in 1996. The government floated 51 percent of the company’s shares, ending up with a 23 percent holding after the offering, while KLM retained its 26 percent. Employees had 3 percent, while foreign and domestic investors bought the rest. The flotation had historic significance, as noted in The Wings of a Nation. Kenya Airways became the first airline in Africa to be successfully privatized. The company’s shares were cross listed on the Uganda Securities Exchange in March 2002. A listing on Tanzania’s exchange in Dar es Salaam followed a couple of years later.

Passenger and cargo figures rose through the last half of the 1990s despite a fall in the number of tourists visiting Kenya. KQ carried more than one million passengers in the 1999 fiscal year. By this time, revenues were up to KES 13 billion; the company had a pretax profit of KES 1.4 billion. There were about 3,000 employees.

By this time, the fleet had been standardized on Boeing 737 and Airbus A310 aircraft. In the first few years of the new millennium, the airline ordered two additional state-of-the-art long haul aircraft types, the Boeing 767 and Boeing 777. While business was booming, its customer service and on-time performance was drawing raves. Over the next several years, a number of periodicals would pronounce the carrier the best in Africa.

DOMESTIC AND REGIONAL DEVELOPMENTS

Domestic services were also greatly improved after the airline began operating on a commercial basis. The carrier’s “Jetlink” service plied the skies between Nairobi and Mombasa eight times daily. New destinations were added via franchise agreements or the company’s tiny Flamingo Airlines unit.

A few local competitors emerged. While the main Nairobi airport was closed to charters, the government allowed a handful of local airlines to operate scheduled services to domestic, regional, and intercontinental destinations.

COMPANY PERSPECTIVES

Kenya Airways aims to grow into a decidedly dominant carrier in Africa with notable presence in Asia, Europe and the Americas, while operating a modern fleet of 30 to 40 aircraft. Kenya Airways intends to forge strong partnerships and be a respected member of the global airline community.

Members of the Common Market for Eastern and Southern Africa (COMESA), including Kenya, were liberalizing air travel between countries. Kenya Airways entered into a number of joint marketing agreements. Its partners included Uganda Airlines and Air Afrique in the late 1990s. Increased cooperation among the region’s airlines followed the rebirth of the East Africa Community. Kenya Airways signed a code-sharing arrangement with Air Tanzania Corporation in 2001 and bought a 49 percent interest in Tanzania-based Precision Air two years later. In 2002 it enhanced its presence in West Africa by signing up Air Senegal as a feeder.

THRIVING IN A DIFFICULT ENVIRONMENT

The airline opened a half dozen offices in North America in 2002, aiming to raise awareness among travel agents and tour organizers. Its strategic partner KLM was also closely linked with Northwest Airlines of the United States, but KQ’s expansion plans there were hindered by threats of terrorism and other issues.

Kenya Airways managed to earn record profits in 2002, a very difficult year for the global aviation industry due to terrorism and high fuel costs. Its income for the fiscal year ending December 31, 2002, was KES 868 million ($12 million).

The company was replacing its Boeing 737s with the latest version of the ubiquitous, midsize workhorse. It used these to support an expansion in West Africa around 2004. The airline had a fleet of nearly two dozen planes by 2005; all were Boeings, except for a couple of SAAB turboprops operated by its small feeder subsidiary, Flamingo Airlines Limited. The airline was operating the Boeing 767 and Boeing 777, and officials were preparing to order the gigantic Boeing 787 Dream-liner then in development.

Net income tripled to KES 3.9 billion in the fiscal year ended March 31, 2005, as revenues rose 36 percent to KES 42.2 billion. A number of factors were at play. The global economy was finally getting better after a couple of dismal years exacerbated by the September 11, 2001, terrorist attacks against the United States (9/11); wars; and the SARS crisis. Business traffic, particularly between Africa and Asia, was booming, reflecting the growth of Africa as a trading center.

A separate cargo division had been established in April 2004. Freight revenues were growing at a similar pace to the passenger business, rising 40 percent to almost KES 4 billion ($50 million) in fiscal 2005. For the airline as a whole, after-tax profits doubled to a record KES 3.88 billion ($50 million). Profits continued to climb in 2006, reaching KES 4.82 billion. Revenues were KES 52.8 billion ($769 million).

The company’s performance in the post-9/11 environment was striking. In fact, noted a writer for the Africa News Service, it ranked among the top ten most profitable airlines in the world. By one count, its share price rose more than fivefold in 2005.

LOFTY AMBITIONS

The 2004 merger of minority owner KLM with Air France brought a new dimension to Kenya Airways’ global connections. It began flying directly to Paris in November 2006, opening up an important connection for travelers from southern Europe and the United States. The airline extended its reach in Asia by adding a code-sharing arrangement with Korea Air Lines in 2006.

The new routes were supported by an ambitious $1 billion fleet renewal program. The first of a half-dozen Boeing 787s on order was due to arrive in 2010. On feeder routes, the company was replacing its Saabs with Embraer 170s. New livery appeared on the planes in 2005, featuring a stylized version of the company’s “KQ” IATA designator and the tagline “The Pride of Africa.” Sadly, the airline experienced a couple of tragic setbacks, including the loss of one of its new Boeing 737s in Cameroon in May 2007. The accident claimed 114 lives.

East Africa’s increasing importance as a global trade and tourism center attracted competition from abroad. Kenya Airways shared the Nairobi-London route with British Airways and others and in 2007 Virgin Atlantic Airways appeared on the scene.

Pretax profit slipped to KES 6 billion in the 2007 fiscal year from about KES 7 billion the year before. A 20 percent increase in fuel costs was blamed, in addition to currency fluctuations and more competition. Revenues rose 11 percent to KES 58.8 billion.

Frederick C. Ingram

KEY DATES

1946:: East African Airways Corporation is launched; Kenyan government is majority shareholder.
1977:: Kenya Airways is formed following breakup of East African Airways.
1994:: After years of government bailouts, company posts first profits.
1995:: Strategic alliance is formed with KLM.
1996:: Company completes its initial public offering.
1998:: Airline carries more than one million passengers.
2004:: Company expands presence in West Africa.
2006:: Paris route is added a couple of years after KLM’s merger with Air France.