KLM deal flying Kenya Airways into losses, Senate team told

Kenya Airways Chief Executive Officer Mbuvi Ngunze (right) at a past appearance with Finance Director Alex Mbugua. Mr Ngunze on August 7, 2015 told a Senate committee investigating the national carrier's problems that a deal with KLM was not making any money for the airline because of a drop in the number of travellers in the shared routes. FILE PHOTO | DIANA NGILA | NATION MEDIA GROUP 

In Summary

• The partnership has come under scrutiny following the Sh26 billion loss suffered by Kenya Airways in the last financial year.
• CEO Mbuvi Ngunze said that the deal has not been making any money for the national carrier due to a drop in the number of travellers in the shared routes.
• Senators asked whether market surveys were done before certain routes were opened.

By JEREMIAH KIPLANG'AT
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The partnership between Kenya Airways and KLM has plunged the entities into losses in the last three years, a Senate inquiry was told yesterday.

Kenya Airways CEO Mbuvi Ngunze said that the deal has not been making any money for the national carrier due to a drop in the number of travellers in the shared routes.

The partnership has come under scrutiny following the Sh26 billion loss suffered by Kenya Airways in the last financial year.

Appearing before a Senate committee investigating the problems facing the carrier yesterday, Mr Ngunze said that the partnership, however, protected the company from feeling the effects of the losses.

“With the deterioration in numbers in the route we have made a loss in the joint venture on the trunk route. In the context of the revenues and the cost on the route we share 50/50 and over the last three years the route has been loss making.

‘‘However, KQ has been paid a settlement out of there. Because of the agreement we have, we get a cash settlement because of the balance in transaction,” said Mr Ngunze.

TRAVEL ADVISORIES

Some leaders and shareholders have been asking for a review of the agreement, saying it had contributed towards the massive losses.

The CEO told the committee, chaired by Kisumu Senator Anyang’ Nyong’o, that they had been struggling to get travellers in Europe because of the travel advisories that have affected the number of tourists coming to Kenya.

Most European countries issued travel advisories to their citizens planning to visit Kenya following a spate of terrorist attacks by Somalia-based terror group Al-Shabaab.

On the closing of some flight paths soon after they were launched, Mr Ngunze said:
“It is not unusual in aviation industry to start routes and stop them. It is not abnormal. In the last one year we closed Abu Dhabi, New Delhi and Bangui.

‘‘We suspended Freetown and Monrovia because of the travel restrictions.”

Senators, however, asked whether market surveys were done before such routes were opened.

“You say it is normal to open and close routes but was there a market research before opening them?” said Mombasa Senator Omar Hassan.

UNFORESEEN CHALLENGES

Mr Ngunze said they had done research but some challenges could not be wholly foreseen.

He said the airline had invested in other routes that have shown promising growth over the last five years.

“Even if we are closing some routes we are increasing the density in others, for example, in East Africa. We were flying to Kigali three times five years ago but now five times a day.

‘‘To Paris we were flying four times a week but now it is daily. To Mumbai it was 10 times a week but now it’s 14 times,” he added.
China routes

The entrance China Southern Airlines that landed in Nairobi this week also came up.

“Is it correct to say that we are closing routes in China because there is a mismatch between the aircraft we are using vis-à-vis the kind of aircraft that can be used for the Chinese routes?” said Nyeri Senator Mutahi Kagwe.

The CEO said the entry of the Chinese Southern Airlines would not affect KQ’s daily flights to China.