In this blog, a year ago , a colleague of mine suggested that Kenya Airways should not follow the example of South African Airways and other legacy carriers by building a low cost subsidiary focused on the regional/domestic market. This is a model that has always proved a failure as many airlines have been unable to reconcile the two business models and run profitable businesses. In many cases, LCC subsidiaries are often a hole in the bucket, hemorrhaging cash until eventually they are shut down. After a conversation with some of the industry experts, he had come to the conclusion that it's better for an airline to keep to the knitting, its full service model, instead of fumbling with the two business models and incurring some losses in tough economic times.
But now I think an LCC subsidiary would be the best thing for Kenya Airways as it will cater for the passengers in the domestic and the sub regional market while the airline focuses on its ambitious Pan African expansion strategy.
For one, regional airlines that market themselves as low cost are eating away at Kenya Airways Load Factors so it makes sense for Kenya Airways to counter the competition through an LCC strategy; to introduce a totally low cost product to compete with airlines like Fly540, Air Uganda, Jet Link, airlines which also have ambitious expansion plans of their own. The East African aviation market is becoming more competitive. A few years ago, Kenya Airways had a virtual monopoly in the Nairobi-Entebbe route, but now it has to compete with Air Uganda; Kenya Airways had to shut down some of its domestic routes in Kenya, which gave the room for Fly540 and Jetlink to fill the vacuum. So the domestic market definitely needs some development but with a different product that can offer travelers competitive pricing at par with other airlines.
A second reason, international investors are already smelling the opportunity. Stelios Haji-Ioannou,
the British airline entrepreneur and billionaire who founded the European LCC EasyJet is planning to set an LCC operation in Africa, probably in Kenya through the FastJet brand. So it's better to establish a presence in the market ahead of time before newer competitors eliminate you from the equation.
As the economic recession continues to bite, travelers are increasingly looking for cheaper travel options. Low cost is the latest fad with LCCs taking 23 out of 100 seats in the travel market globally. It therefore makes sense to build low cost consumer friendly brands early in preparation of the coming boom in the travel market in Africa. Consumers love LCCs not only because of the low costs but also their vibrant brands. I think Jambo Jet will provide Kenya Airways an opportunity to build a new vibrant airline brand that Kenyans can closely identify with to boost its image in the domestic market. Kenyans have been having issues with their favorite company :)
The old image of the national carrier with the flags and the aura of air travel is first disappearing. Consumers want small, personal and innovative brands they can easily identify with. Look at the South African LCC market and the emergence of brands like Kulula, Mango Airlines, 1Time and then recently Santaco Airlines. Look at Europe and the popularity of airlines like EasyJet or Asia and the popularity of AirAsia. For short point to point to domestic air travel, consumers want airlines that will simply take them from point A to B, without all the "unnecessary" frills that inflate the costs for nothing. Full service carriers like Kenya Airways, the flag carriers, might be considered unresponsive to customers, riddled with labour disputes and generally lack creativity. They offer the same products year in year out while LCCs have the flexibility to surprise their customers with some out of the box promotions and small innovations. So I think, for Kenya Airways, it's now time to test life on the other side of the fence.
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