Jambo Jet: Will Kenya Airways succeed in low-cost airline market?

Kenyan LCC Fly540: Kenyan LCC market already faces stiff competition

Kenya Airways recently announced its intention to establish a low- cost, “no frills” airline to be called Jambo Jet.

The stated intention is to establish a low- cost regional carrier that will presumably take back the market share that KQ has lost to Jetlink and Fly540.

The question is: will this move succeed?
KQ already has a significant minority interest in Precision Air, which it bought following the now failed entry of South Africa Airways into the East Africa market via the purchase of Air Tanzania.

The then management of KQ saw the threat from a big carrier such as SAA on their doorsteps and rightly reacted by buying into an existing carrier with air operators’ licences and route approvals.

Globally, no full service carrier has been able to start a low cost brand from scratch and succeeded.

The cases of United Airlines, Delta and British Airways are all available for one to read and learn valuable lessons from.

South West, which is the global leader in the budget airline business, Ryanair and EasyJet were all started from the ground-up as budget carriers without the baggage of trying to also run a full service airline.

In the book “In Search of Excellence”, Tom Peters and his colleagues successfully argued that a key success factor in most businesses is to “stick to the knitting”.

KQ has been formidable in turning Nairobi into a sub-Saharan African hub bringing in passengers from as far north as Sierra Leone and as far south as Harare to take long haul flights to Europe, Asia and the Middle East.

That model which had previously been used successfully by Ethiopian Airlines in the late 80s and early 90s has certainly been refined by KQ and they should stick to that.

My gripe with KQ on Jambo Jet is that this may distort customer perception of KQ’s brand image, there is a danger of blurring the distinction with the main line carrier and when it fails it will destroy value for shareholders.

Yes there may even be advantaged in terms of gaining experience from a new business model and defending existing market share but at what cost to shareholders especially given the lack of any successful examples globally?

It is not my place toadvise the board of KQ, but as an investment banker I would rather see them go and scout for an acquisition opportunity much like they did with Precision Air and that way take-over an entity with a viable business, licenses, facilities and perhaps even non-unionized staff.

Adapted from Business Daily Africa