“Aviation is not ready for party time,” according to Bram Steller. The Dutch national who joined Kenya Airways (KQ) in August 2008 as chief operating officer knows what he is talking about. Barely four months ago – in June – KQ reported a loss of KES5.66 billion (US$71.8 million) in the year ended March 2009, a result of fuel hedging costs, a labour strike and political unrest, after a revised pre-tax profit of KES6.52 billion a year earlier. For the carrier – which is 26 per cent owned by Air France-KLM – it was the first loss in 13 years prompting Richard Nuttal, the commercial director who was responsible for fuel hedging, to resign shortly before the results werereleased.

Focus Africa
For Bram Steller, the man who knows Africa and the aviation business insideout and is in his second stint with Kenya Airways – he was commercial director in 2000-01 – it must have been a blow. But seemingly unfazed by the losses, the COO has been working on a very carefully crafted strategy – open new routes within Africa while strengthening the carrier’s market in the Far East and China.

His moves have been on the right track and he found an avid supporterin KQ chairman Evanson Mwaniki who declared at the carrier’s recent annualgeneral meeting that the carrier’s goalwas to, “interconnect Africa and link thecontinent to the rest of the world.” Thisstrategy also won crucial backing fromKenya’s Ministry of Transport.

Linking Africa is paying off and the results are there for all to see. At the recently-released unaudited interim results for the six months ended 30 September 2009, KQ achieved an operating profit of KES162 million down from KES176 million in the previous year, but never-the-less in positive territory and despite the severe downturn.

The Gulf threat
While the recent scalding is still a recent memory, KQ – The Pride of Africa’s immediate worry is not from fuel prices or labour unrest within its ranks, but from aggressive Gulf carriers that have entered or are seeking to penetrate the Kenyan market.

On the cargo front, many of the Gulf carriers have taken the lead and have started operating freighters into Africa. The forays are a calculated move to increase market share. Ram Menen, Emirates’ divisional senior VP, Cargo, was quoted as saying recently that Kenya “is one of our leading markets in the region and we are recording a recovery”.

This optimism comes despite the fact that a bulk of Emirates’ freight from the Kenyan capital of Nairobi comprising fresh flowers took a beating due to drought-like conditions along with low demand in European markets.

But in fact, ferrying horticultural products has today become the biggest money-earner and most airlines are in cut-throat competition to grab a chunk of the business. So intense is the competition that prices have come tumbling down in 2009 and causing an imbalance in demand and supply.

KQ has had to live with four Emirates B747-400 freighters – each with a capacity of 120 tonnes – flying in and out of its territory every week. Tonnages have also decreased considerably – Emirates, for example, ferried only 18,664 tonnes of cargo this year against last year’s 24,724 tonnes.

In addition, there are two freighter flights a week – each with a capacity of 45 tonnes – operated by Qatar and Etihad. Even British Airways World Cargo with its daily freighter has been maintaining between 20 and 24 tonnes daily in addition to around 15-odd tonnesbelly cargo.

This has an inevitable affect on KQ Cargo. Tonnages dropped this year by 11.2 per cent from 2008 – from 62,596 to 55,606 tonnes. KQ group finance director Alex Mbugua cited the pressure on cargo volumes and passenger numbers as a result of the global recession. Speaking to Reuters, he said: “Whenever you have a blip in the world economy, the first impact seems to hit the air freight business. People prefer sea freight, they would rather wait a bit longer than havethe luxury of air freighting.”

KQ stands tall
But along with the Africa focus, the carrier’s management has taken a number of measures to ensure profitability and these clearly have taken into account the threats posed by the Gulf carriers. But these threats have not unnerved Steller.

Far from retreating, KQ’s management team are in no mood to throw in the towel. Said Dickson Osoo, head of cargo: “Our target this year is to uplift over 60,000 tonnes. We currently have no freighter aircraft – though freighters are part of KQ Cargo’s consideration for capacity increase in the near and long term.” This includes, “maximising the belly capacity on our passenger aircraft,” he added.

KQ has 26 planes in its fleet – four B777-300ER; six B767-300ER; five B737- 800; four B737-700; four B737-300 and three Embraer E170s – which will be used to the hilt.

The carrier is keen to bring in new aircraft. It was banking on the Dreamliner delivery to enhance the airline’s expansion plans to new markets and increase frequencies but as Mbugua pointed out: “The Dreamliner was meant to be a big dream but it is turning out to be a nightmare.” Faced with no alternative, the carrier is re-looking to either extend the ageing Boeing 767 leases, acquire new B767s, or new Airbus 330s.

Niche markets
Even without the new aircraft, cargo head Dickson said that KQ had focused on network expansion with new niche destinations to Gaborone in Botswana, Ndola in Zambia, Malabo in Equatorial Guinea, and Bangui in the Central African Republic. “Further, we are preparing to open Kisangani (Democratic Republic of the Congo) in November. We are aggressively opening up Africa to trade with the rest of the world.”

The cargo chief was clearly echoing KQ’s managing director and CEO TitusNaikuni who never misses a chance to underscore the fact that KQ’s focusremains Africa. The top priority for KQis to develop a robust network in Africa.“Our immediate focus remains stayingtrue to our core market, which is Africa,”he says.

The Gaborone link, for example, was a coup of sorts for KQ, the East African skies heavyweight. When tendering for the route was announced, KQ outbid the Gulf carriers and tied up with Air Botswana to service the new Gaborone- Nairobi route. As a part of the codesharing deal, Air Botswana would sell seats on KQ’s direct flights, between Nairobi and Gaborone.

The move would encourage tourist traffic, intra-Africa business travel as well as cargo shipments. An upbeat Steller commented that the three weekly flights from Nairobi will open up Botswana for Kenyan investors, tourists and horticultural products. “It will also enhance the opportunity of exporting beef and beef products to Europe,” he said. On his part, Dick Omondi, KQ’s head of marketing and corporate communications noted that the link “will bring more opportunities to businessmen to transport cargo. That is one of the services we are providing.”

Sharper Asian focus One front that Steller has been concentrating on to bring in revenues and cargo is the enhancement of flights to the Far East and China, which is the KQ’s fifth biggest market in terms of passengers in its whole network. Recession has not stopped KQ to look at Guangzhou and Bangkok. The Chinese city, incidentally, is a major shopping stop for African business persons. As Steller mentioned to Xinhua sometime ago: “Kenya Airways will keep focus on increasing frequencies and capacities to Guangzhou and we are well planning to soon bring Beijing online with new B777 aircraft.”

The increased flights will bring in more Chinese tourists, traders and goods to Kenya and other African countries. As the COO put it in his rather forthright manner: “We also see good growth of cargo business out of China to the African market and this will be further supported by our Boeing 777 operations.”

KQ also has plans to establish other gateways in the Far East, which according to Steller would serve as second options. He also mentioned that the KQ management was also considering linking Beijing to Africa and “India will be a great stopover point”. That will certainly happen in the future as Dickson notes: “Apart from the stations we currently service, i.e. HKG (Hong Kong), BKK (Bangkok), CAN (Guangzhou), BOM (Mumbai) we will always look at opportunities and develop the network at all times.”

Continuous growth
Such opportunities have started in 2008-09, when Kenya’s Bilateral Air Services negotiating team headed by the Ministry of Transport successfully reviewed and concluded several Bilateral Air Services Agreements (BASAs) with a number of countries, several of which were in Africa. Among these countries were Uganda, Rwanda, South Africa, Malawi, Zambia, Republic of Congo, Burkina Faso, Yemen, Iran, Australia, USA and Sri Lanka.

These agreements, according to KQ chairman Evanson Mwaniki, offer continuous expansion opportunities and resulting growth of the airline by allowing KQ to increase frequencies to otherwise untapped markets. “Our expansion has not been without challenges,” conceded Mwaniki during the September annual general meeting. “The rapid growth has not been commensurate with the expansion of the infrastructural facilities at our Jomo Kenyatta International Airport (JKIA) hub.” He also went on to add that, “removing barriers to trade, investment and entrepreneurship in an open market should remain the preferred means of achieving long-term development.”

In an effort to maintain its supremacy in African skies, KQ has taken the Gulf carriers head-on and stymied their efforts to swallow-up the lucrative perishables market – the major foreign exchange earner and one of mainstays of the Kenyan economy. Aware that carriers like Emirates and Etihad have put top-ofthe- line perishable centres at their hubs, KQ too, is keen to set its infrastructure in place.

Said Dickson: “We are currently putting up an ultra-modern perishable centre at our hub in Nairobi. This initiative is a joint venture between KQ and the Stamina Group. As a leading hub for flowers and perishables in Africa, we are continuously investing in our infrastructure so as to remain the Pride of Africa.”

As a part of the infrastructurestrengthening process, KQ Cargo is investing in modern information systems to integrate work flow between sales, operations and accounts. “We have placed a lot of emphasis on technology in Kenya Airways Cargo and are currently at an advanced stage of replacing our existing booking system to one that integrates cargo reservations with cargo handling and accounting. The new system is expected to be live by January 2010,” Dickson said.

Other than the new booking system, KQ Cargo has also placed great emphasis on a number of unique products to woo customers. Among them are:

• KQ Mail: Designed for the uplift of Post Office mail which includes postal items as defined by the Universal Postal Union (UPU) convention. This product is offered to postal administrations and mail agents only and is an airport-toairport service.

• KQ Pharma: Again an airport to airport service designed to cater for transportation of pharmaceutical products in the most efficient and reliable way possible to ensure that product quality and safety is preserved. KQ Pharma offers four different temperaturecontrolled transportation that ensures that product integrity is maintained according to customer requirements.

• KQ Secure: An exceptional high security airport-to-airport service for vulnerable consignments, offering maximum security and streamlined processes. This product offers, upon acceptance, special storage areas, surveillance on ground and escort to the aircraft by trained personnel to guarantee a high level of protection for these vulnerable goods.

• KQ Live: A safe and caring service for transportation of animals. Carriage of live animals by air is considered the most humane method of transportation over long distances.

• KQ Express: A priority airport-toairport product designed to cater for urgent cargo shipments with speed and reliability, but not one that competes with retail express companies.

• KQ Fresh: An airport-to-airport service designed to cater for transportation of perishable products such as fresh fruits, flowers, vegetables, fish, meat and dairy products, in the most efficient and reliable way possible to ensure product freshness is preserved.

Dickson also mentioned the exclusive KQ Courier, pointing out that it is a product that is tailor-made to cater for the specific transportation requirements of courier companies like DHL, Fedex, TNT and UPS, to name a few. “The product was developed in response to our customers need for a reliable, efficient, priority service for their time-definite courier material,” he said.

Visible results
The sum total of these efforts are slowly bringing results. Though cargo volumes went down by 11.2 per cent in comparison to 2008, yields improved by 19.5 per cent this year – a somewhat remarkable feat given the adverse air cargo market conditions. Within Africa, there was marginal cargo growth in tonnes: 32 per cent and 17.3 per cent was achieved in West, Central and Northern Africa mainly as a result of increased frequencies. Some regions, however, saw signifi cant drops in cargo: East Africa (-28.1 per cent), Southern Africa (-10.8 per cent) and Europe (-11.4 per cent).

The drop in tonnage does not worry cargo head Dickson. He told Payload Asia that KQ Cargo has a vision to be a safe and profitable airline that guarantees world class service. “It works to maximise stakeholder value by consistently providing the highest level of customer satisfaction…we are continuously monitoring, measuring and improving the quality of service and overall customer experience by focusing on punctuality, schedule integrity and excellent handling of shipments,” heconcludes.

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Triple F: That’s the name of the game

Although the Triple F may sound a bit odd, it is what Kenya Airways Cargo swears by. Triple F is a joint venture between Kenya Airways and Dutchbased Stamina Group to establish a fresh produce handling facility. The company is keen to provide a Fast, Flexible and Fresh approach to the transportation of fresh produce in and out of Africa.

The joint venture is targeted to improve the gap in the cool chain with transport of goods from storage to the carrier under excellent temperature conditions, a higher level of service, fast handling, full traceability and an undisrupted cool chain. In addition to providing this service to the Kenyan horticultural industry, Triple F will also be handling perishables on transit from other key African markets like Zambia, Zimbabwe and Ethiopia.

The Triple F facility will, once it is completed, have more than 3,000 tonnes of cold storage and handling capacity with ultra modern cooling facilities, ramp access to aircraft scanning, tracking and tracing facilities. In fact, these infrastructural enhancements will reduce the gap in the cool chain at the Jomo Kenyatta International Airport. In addition, the integrated cool chain will bring down losses for growers and prolong the shelf life of vegetables, fruitand flowers.

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