How Kenya Airways is trying to re-invent itself. An insightful overview.

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Insight: Kenya Airways, Kenya’s national carrier, has undergone a tremendous transformation to stay afloat. For a long time, the airline has faced significant financial challenges due to the unusually high cost of operations coupled with intense competition from other airlines both within and outside of Africa. The restrictive nature of aviation from a compliance point of view, makes it expensive to run a profitable airline.

The catch is that killing a national airline is akin to burning the national flag. Despite its rich coastline by the Indian Ocean, Kenya needs air connectivity to keep the vibrant services sector, especially tourism and finance going strong. The Government of Kenya tasked the Airline to transform and continue flying the national flag. To do so, Kenya Airlines needed to understand the competitive pressures it faced and strategic opportunities to regain profitability and improve its market position. Any strategist knows that the best way to win is to focus – identify an ideal strategic model and apply it well. And well they did. Imagine yourself in Kenya Airlines several strategic discussions with middle and senior management teams.

Kenya Airways preferred Porter’s Five Forces to analyze the competitive environment. This model has been around for a long time and still makes sense despite its critique’s concerns that it oversimplifies strategy and doesn’t account for hybrid strategies. The team started by going in groups named after the major routes of operation. Each group was tasked to examine Porter’s forces against the airline’s situation. After a series of discussions and analysis, the following was agreed as the ideal representation of the Airline’s condition

1). Threat of New Entrants. This was assessed as Low in the context of KQ. The aviation industry has high entry barriers due to the significant capital investment required for aircraft, regulatory approvals, and establishing a trusted brand. However, new entrants with strong financial backing, such as Gulf carriers, posed a potential threat. The team analyzed the small regional operators like Rwanda Air and Uganda Airlines who were considered too small to become a real threat due to the lack of capital required to create capacity to become a major threat. They agreed that for the specific strategic routes of interest, KQ had a low threat of new entrants locally and regionally. However, not true for international airlines especially those bankrolled by the Gulf oil and booming tourism trade.

2). The Bargaining Power of Buyers was assessed as High. Leaders noted that air travel customers have numerous choices with many airlines offering similar routes, which increases price sensitivity, and the fact that the market is small to offer the “South West Airlines” business model of low cost and limited travel options. Kenya Airways needed to offer competitive pricing and superior service to attract and retain passengers. They noted that on-time performance, OTP, offered a unique competitive advantage if they could promise and deliver it as part of the customer experience. 

3). Bargaining Power of Suppliers, was also assessed as High. The airline depends on a few aircraft manufacturers (Boeing and Airbus) and fuel suppliers, giving these suppliers considerable power over costs. Additionally, maintenance, repair, and overhaul (MRO) services also hold significant bargaining power. When it comes to aviation, the suppliers are king. The airline has no alternatives, as doing so, voids the aircraft’s airworthiness warranty.

4). Threat of Substitutes assessed as Moderate. For long-distance travel, alternatives like road or rail are less viable, but for regional travel within East Africa, there were increasing investments in road and rail infrastructure that could serve as substitutes. Inter-regional connectivity for road and railway is still several decades ahead, and KQ saw an opportunity for a hub and spoke model, which was threatened by the entrance of Uganda Airlines, which has the same ambition. Overall, they agreed the rate of substitutes was moderate to low, especially for the target customer segments, who are middle class, and value time and convenience.

5). Industry Rivalry was determined to be Intense. Kenya Airways faces competition from both regional carriers (such as Ethiopian Airlines, RwandAir, and Uganda Airlines) and international airlines (such as Emirates, Qatar Airways and Fly Dubai). This rivalry was intensified by the aggressive expansion of Gulf carriers into Africa, offering better connectivity and service.

Based on this analysis, Kenya Airways implemented several strategic initiatives – competing on differentiation, to mention:

1) Service Improvement. KQ agreed to compete on enhancing customer service to differentiate themselves from competitors. This included upgrading in-flight services, improving on-time performance, and providing better customer support.

2) Route Optimization. KQ reevaluated its route network, focusing on profitable routes and discontinuing or reducing frequencies on less profitable ones. They created a route profitability criteria, to automatically decide a continue or discontinue decision. Any route that had been operational for more than 10 years, with less than 55% average occupancy for paying customers and cargo, was not a designated Kenya government strategic route, etc. They also sought to enhance connectivity through strategic alliances and code-sharing agreements with other airlines.  The autoroute optimization criteria were seen as a sort of aha moment, as it would enable operational and middle management to make such key decisions, considering that a route to an airline is akin to a strategic business decision conglomerate with a group structure.

3). Cost Management was identified as another key level.  The airline undertook measures to reduce operational costs, especially those that are controllable. This included negotiating better terms with suppliers, internal management of key operations like training of new hires, logistics ground operations, as well as negotiating competitive terms with staff – more ideas were to be sought for optimizing fuel efficiency through better flight planning and newer, more fuel-efficient aircraft, and reducing overhead costs.

4). Fleet Modernization. Many African Airlines are inspired by Singapore airlines, which has taken air travel to a whole new level.  Kenya Airways sought capitalization funds and invested in modernizing its fleet with more fuel-efficient aircraft. This not only helped reduce fuel costs but also provided a better passenger experience, which is crucial in a competitive market. More so, the airline, invested in aircraft to optimize its routes in respect to optimizing the flying time, to ensure the available airlines spent less time grounded. Specific aircraft optimization indicators like take-off turnaround time per destination, were examined to ensure airlines rested for the +/- 10 minutes of the recommended manufacturing time, subject to the age of the aircraft and its depreciation over the years of use. The crew was to be given a realtime dashboard of their performance per aircraft and where they did well, a bonus was to be paid instantly to the team doing great work. This was to avoid rather subjective performance appraisals that do more harm than good.

5). Strategic Partnerships were to be formed through alliances with other airlines to improve market reach and operational efficiency. This included joining the SkyTeam alliance, which provided greater connectivity and shared resources with other member airlines.  More so, recognizing that motivated and well-trained employees are key to delivering excellent service, Kenya Airways invested in extensive training programs and initiatives to boost employee morale and engagement. A more inclusive scheme for training all staff was considered and implemented.

6). One of the tough issues at KQ was financing. Kenya Airways undertook a significant financial restructuring to manage its debt and improve liquidity. This involved renegotiating debt terms with lenders, securing government support, and raising additional capital through rights issues and other means. Key stakeholders required serious changes in leadership reasoning that the management of the airline that put it into problems was inadequate to get it out. To this end, the airline brought in new leadership with a mandate to turn it around. This included hiring experienced executives from the aviation industry who had a track record of managing complex operations and driving profitability. Some airlines like Uganda Airlines, Emirates, etc lost some key staff to KQ. Come to think of it, this is how this industry works.  With new staffing and capital, came the need for technology for the new era. To improve efficiency and customer experience, Kenya Airways invested in new technology systems. This included upgrading their reservation system, implementing advanced analytics for better decision-making, and enhancing their digital channels to improve customer engagement and streamline operations.

Last but not least,  the airline revamped its frequent flyer program to enhance customer loyalty. This included offering more attractive rewards, better redemption options, and partnerships with other airlines and service providers. While KQ has faced significant challenges, these efforts have helped it navigate a tough competitive environment and position itself for a more sustainable future.

This is a fictional case by Mr Strategy to provide insight into how an established airline facing a crisis could make use of Porter’s Five Forces model to change its fortunes. Mr Strategy is available to facilitate your next strategic session. He has consulted for airlines, financial institutions, hospitality industries, ministries and agencies of government and more in Africa and UAE. To book, email strategy[at]summit[dot]com.


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