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Kenya Airways new budget subsidiary Jambojet to focus on stimulating demand in domestic market

23rd March, 2014

Kenya Airways low-cost carrier subsidiary Jambojet plans to launch operations on 1-Apr-2014 with 737-300 services on Kenya’s three largest domestic routes. Jambojet becomes only the fourth LCC brand in the intra-Africa market and the first by most measures for Kenya.

Jambojet is primarily a defensive move for Kenya Airways, which recognises that if it did not make an early move in the LCC sector a competitor would. But it also sees a budget brand as the best option for stimulating demand and growing Kenya’s domestic market.

Jambojet plans to only operate domestically in its first phase. International services could come later but Kenya Airways seems in no hurry to pursue ambitious growth for its new subsidiary.

Jambojet to initially serve three domestic routes with fares one-way starting at USD33

Jambojet plans to launch services on 1-Apr-2014 with services from Nairobi to Eldoret, Kisumu and Mombasa. Eldoret will initially be served with one daily flight, Kisumu with two daily frequencies and Mombasa with six daily frequencies.

Ticket sales on jambojet.com commenced on 26-Feb-2014 with one-way fares starting at KSH2,850 (USD33) including taxes. Jambojet says these fares are permanent rather than promotional and will be available for some seats on every flight.

The KSH2,850 fare is still currently available on the Jambojet website for most flights in April and beyond. A slightly higher fare of KSH3,850 (USD45) is available on flights when the lower bucket has already been completely sold.

Competition in Kenya’s domestic market is now limited, with Kenya Airways and Fly540 Kenya the only operators on Jambojet’s initial three routes, according to OAG data. Fly540 Kenya labels itself as an LCC but is more of a hybrid regional carrier operating smaller aircraft and offering complimentary refreshments and one checked bag. Fly540 Kenya is now offering promotional fares on domestic routes that start at USD52.

Jambojet is charging for checked bags (starting at KES520 or USD6 for 15kg), refreshments, assigned seating including extra legroom rows and bookings that are not made on its website.

Kenya Airways to hand Nairobi-Eldoret routes to Jambojet

Kenya Airways has announced it will drop services to Eldoret on 1-Apr-2014 but the flag carrier plans to continue serving Kisumu and Mombasa. Eldoret is the smallest of the three markets with two daily flights from Kenya Airways and one to two daily flights from Fly540, according to OAG data.

As Kenya Airways serves Eldoret with Embraer E170 regional jets, the total capacity in the market will remain relatively flat despite Jambojet only initially serving the route with one daily frequency. Fly540 uses Bombardier Dash 8 turboprops on the Nairobi-Eldoret route.

Kenya Airways sees Jambojet as a better fit for Eldoret but by dropping its full-service product in the market it will make it more difficult for international passengers heading to or from Eldoret. Jambojet does not plan to offer connections and will not check bags through to flights operated by other carriers, including Kenya Airways, as it will focus purely on the point to point market.

Kenya Airways to operate alongside Jambojet on Kenya’s largest two domestic routes

Kenya Airways currently serves the Nairobi-Kisumu route with five daily flights and the Nairobi-Mombasa with 10 daily flights. Fly540 serves Kisumu with one to two daily flights and Mombasa with four to five daily flights, according to OAG data. Kenya Airways uses E190s on all its Nairobi-Mombasa flights and primarily E170s on Kisumu (with some E190 frequencies). Fly540 uses Dash 8s to Kisumu and primarily a combination of Dash 8s and Bombardier CRJs to Mombasa.

Kisumu and Mombasa are larger markets that Kenya Airways believes can sustain two brands operating side by side. Nairobi-Mombasa is by far the largest domestic route in Kenya while Nairobi-Kisumu is second largest. Nairobi-Eldoret is third largest but significantly smaller.

Kenya scheduled domestic routes ranked by weekly seat capacity: 17-Mar-2014 to 23-Mar-2014

Rank Origin Destination Total Seats
1 NBO Nairobi Jomo Kenyatta International Airport MBA Mombasa Moi International Airport 16,264
2 NBO Nairobi Jomo Kenyatta International Airport KIS Kisumu Airport 7,274
3 NBO Nairobi Jomo Kenyatta International Airport EDL Eldoret Airport 3,044
4 WIL Nairobi Wilson Airport MRE Mara Lodges Airport 2,212
5 NBO Nairobi Jomo Kenyatta International Airport MYD Malindi Airport 1,308
6 WIL Nairobi Wilson Airport ASV Amboseli Airport 1,228
7 WIL Nairobi Wilson Airport UKA Ukunda Airport 1,096
8 NBO Nairobi Jomo Kenyatta International Airport WJR Wajir Airport 994
9 MYD Malindi Airport LAU Lamu Airport 908
10 LAU Lamu Airport WIL Nairobi Wilson Airport 632
11 EDL Eldoret Airport LOK Lodwar Airport 518
12 MYD Malindi Airport WIL Nairobi Wilson Airport 464
13 NUU Nakuru Airport MRE Mara Lodges Airport 350
14 WIL Nairobi Wilson Airport NUU Nakuru Airport 350
15 WIL Nairobi Wilson Airport UAS Samburu Airport 280
16 WIL Nairobi Wilson Airport NYK Nanyuki Airport 266
17 NYK Nanyuki Airport MRE Mara Lodges Airport 182
18 KTL Kitale Airport WIL Nairobi Wilson Airport 126
19 WIL Nairobi Wilson Airport LKG Lokichoggio Airport 114
20 NYK Nanyuki Airport UAS Samburu Airport 98
21 KIS Kisumu Airport EDL Eldoret Airport 98
22 WIL Nairobi Wilson Airport WJR Wajir Airport 76
23 NBO Nairobi Jomo Kenyatta International Airport LOK Lodwar Airport 74

While Kenya Airways is dropping Eldoret as it is a small market where the carrier has struggled since launching it in late 2012, Kenya Airways is not concerned about cannibalising its full-service operation in larger Kisumu or Mombasa. The dual brand strategy has succeeded on other domestic trunk routes around the world, including in South Africa with South African Airways (SAA) operating alongside its budget subsidiary Mango and Comair (which has a full-service British Airways franchise) operating alongside sister budget carrier Kulula. With the right implementation it should be able to work in Kenya, allowing the flag carrier to stimulate demand while not impacting its existing operation.

Kenya Airways to focus domestic operation on connection passengers

Kenya Airways prefers to focus its domestic operation on higher yielding passengers including business passengers and passengers connecting to its growing international network as well as flights operated by its SkyTeam partners. As CAPA analysed in this first series of analysis reports on the Kenya Airways group strategy, the flag carrier is now focusing on expanding in Asia and improving connections within Africa.

See related report: Kenya Airways to focus on Asia, with new Beijing and Shanghai routes, as 787s and more 777s arrive‏

Kenya Airways would like to focus on the international market while maintaining a relatively small full-service domestic operation and using Jambojet to pursue domestic growth. Kenya Airways currently allocates about 20% of its seat capacity to the domestic market with over half of its domestic capacity allocated to the main Nairobi-Mombasa route, according to CAPA and OAG data. This figure will decrease over time as Kenya Airways focuses on international expansion.

Kenya Airways’ executive team is confident it can stimulate demand in the domestic market, pointing out it has seen stimulation through promotional fares under Kenya Airways. But to unlock growth it believes low fares are needed on a more widespread basis.

Jambojet is not the first time Kenya Airways has taken a stab at the budget end of the market. Just under 10 years ago it shut its Flamingo Airlines subsidiary. But Kenya Airways believes the domestic market has evolved – with Kenya’s middle class and internet penetration rate having expanded significantly over the last decade – to merit a second attempt. Perhaps more crucially, Kenya Airways realises if it sits still someone else will end up making a move.

Kenya’s domestic market is ripe for LCC penetration

Kenya’s domestic market currently consists of only 1.2 million annual passengers, according to Kenya Airways. At the right price point the market can be expanded significantly, attracting a new segment of the population which now travels domestically on long bus journeys over rough roads. Jambojet will focus on the leisure and visiting friends and relatives (VFR) segment, where there is a huge opportunity for growth if fares are low enough to create a large first time flyer segment and persuade occasional flyers to travel more frequently.

Kenya is currently the fifth largest domestic market in Africa based on current seat capacity data from CAPA and OAG. Only South Africa, Egypt, Nigeria and Algeria have larger domestic markets while Morocco is slightly smaller.

Kenya currently has about 38,000 weekly domestic seats with Kenya Airways accounting for about a 60% share and Fly540 Kenya about a 17% share, according to CAPA and OAG data. Smaller regional carrier Airkenya has about a 14% share. It operates small regional aircraft from another Nairobi airport, Wilson, to about 20 destinations that are generally not served by Kenya’s two main airlines.

Kenya domestic capacity (seats) by carrier: 17-Mar-2014 to 23-Mar-2014

Rank Airline Total Seats
1 KQ Kenya Airways 22,560
2 5H Fly540 6,464
3 P2 Airkenya 5,264
4 B5 Fly-SAX 1,776
5 XLK SafariLink 1,428
6 XU African Express Airways 464

African Express Airways is a narrowbody operator which is technically based in Kenya but serving as the de facto flag carrier of Somalia with some of its flights from Nairobi to Somalia stopping in the northern Kenyan city of Wajir (it also operates several domestic routes within Somalia and international routes beyond Somalia). Kenya has several air taxi operators which are used to serve remote airstrips, catering particularly to tourists heading on safaris. While some flights operated by fly-SAX and SafariLink are counted by OAG, some of these flights are not included in Kenya domestic capacity data as they operate on a charter or ad hoc basis.

Fastjet drops plans for Kenyan operation, leaving opportunity for Jambojet

The Fly540 Group – which in addition to Kenya includes franchises in Angola, Ghana and Uganda – is the main competitor to Kenya Airways and now Jambojet on domestic trunk routes. Pan-African and London-listed LCC group fastjet acquired Fly540 in 2012 but does not consider any of the Fly540 franchises to be LCCs. fastjet has since been looking at transitioning some of the Fly540 operations into LCCs using the group’s fleet of A319s instead of the current diverse portfolio of regional aircraft operated under the Fly540 brand.

fastjet also looked at bringing the fastjet brand and A319s to the Kenyan market using Jetlink Express, a Kenyan carrier which last operated in late 2012 but has been looking at resuming operations with an LCC model. fastjet and Jetlink signed an MOU in early 2013 but the joint project has not progressed at all and fastjet has since dropped – at least for the time being – ambitions for a fastjet-branded LCC in Kenya.

As CAPA reported in Jan-2014, fastjet instead is now focusing on entering Zambia as its second market after Tanzania. fastjet has operated in the Tanzanian domestic market since late 2012 and plans to enter the Zambian domestic market in 2014. It also now operates international services from Tanzania to South Africa and Zambia with several new international routes planned from its initial base in Dar es Salaam (Tanzania) and the planned second base in Lusaka (Zambia).

See related report: Zambia provides fastjet with easier affiliate option than South Africa, Ghana, Kenya or Nigeria

With fastjet turning its attention away from Kenya, there is a clear opening for Jambojet. Kenya Airways realises its home market is ripe for LCC competition and while fastjet has had second thoughts that if it does not make a move someone eventually will. In this respect the move to launch an LCC subsidiary is very much a defensive strategy for Kenya Airways.

Jambojet to start modestly but could be pressured to expand more rapidly

Without competition from pure LCCs, Jambojet will likely expand slowly. This follows the developments in South Africa, where Mango has been used for several years to compete in the domestic market against other LCCs while SAA has been reluctant to use Mango to enter the short-haul intra-Africa international market, which has generally been SAA’s most profitable segment due to a lack of competition. 

Jambojet has stated it aims to serve the regional international market as part of a second phase, including Addis Ababa, Bujumbura, Dar es Salaam, Kigali, Kilimanjaro, Mwanza and Zanzibar. But Kenya Airways executives tell CAPA that international services are not currently in the plan and the focus will be on growing domestically and stimulating demand in Kenya’s domestic market.

The speed at which Jambojet enters and expands in East Africa’s international market, which is virtually un-penetrated by LCCs, could hinge on the speed at which competitors enter and expand. Again this follows what is starting to occur in other parts of Africa as fastjet looks to launch more international routes. LCCs now account for less than 1% of international capacity within Africa – this inevitably will go up and now that Kenya Airways has established Jambojet it will be better prepared to respond as the competitive landscape in Africa gradually changes.

See related reports:

Jambojet to operate three 737-300s by end 2014

The initial commitment for Jambojet in terms of fleet is also modest. Jambojet’s fleet will initially consist of 737-300s in 148-seat single-class configuration. Kenya Airways tells CAPA that Jambojet plans to operate in 2014 a fleet of three 737-300s, all of which are being phased out from Kenya Airways’ mainline fleet.

Kenya Airways currently operates nine 737NGs and six 737-300s, including two 737-300 which it converted in 2013 into freighters, according to the CAPA Fleet Database. Kenya Airways mainline plans to phase out its four remaining 737-300 passenger aircraft in 2014 with Jambojet taking over three of the aircraft.

All four of Kenya’s remaining 737-300s were manufactured in 1997, according to the CAPA Fleet Database. Two of the aircraft are owned by the airline.

Kenya Airways sees the 737-300s as a temporary aircraft for Jambojet. Kenya Airways plans to transition Jambojet to 737-700s, with the first 737-700 potentially being operated by Jambojet in 2015.

Jambojet’s 737-700s will also be sourced from Kenya Airways, which is planning to start phasing out its older 737NGs as it leases newer model 737NGs. Kenya Airways' 737-700s were manufactured in 2001 to 2003 with one aircraft being owned and three leased, according to the CAPA Fleet Database.

Jambojet project moves slowly but is a major milestone for Kenya and Africa

Kenya Airways has proceeded very slowly in launching the budget carrier. The flag carrier first announced the establishment of Jambojet in 2011. The new subsidiary received its licence in 2012 and was initially expected to begin operations by the end of 2012.

See related report: Say “hello” to Jambo Jet: Kenya Airways’ low cost subsidiary

There were several delays in the project until Sep-2013, when Kenya Airways appointed a CEO for Jambojet and preparations began in earnest. Jambojet’s CEO is Willem Alexander Hondius, KLM’s former GM for Eastern Africa who brings LCC experience as previously he was EVP and CCO of KLM budget subsidiary Transavia. While only appointed Jambojet CEO in Sep-2013 Mr Hondius has been in charge of the Jambojet project since 2012 while continuing his job at KLM, which has a stake in Kenya Airways.

There was no pressing need over the last three years to proceed quickly with the Jambojet project as no pure LCC succeeded at emerging in the Kenyan market. But Kenya Airways was quick to recognise it would eventually need to have a second budget brand as part of its portfolio and long-term strategy.

Jambojet becomes only the fourth real LCC in the intra-Africa market 

Even with the delays in launching and its very modest initial size, the establishment of Jambojet marks a major milestone for the Kenyan market and Africa’s nascent LCC sector. Besides fastjet Tanzania and (soon) fastjet Zambia, there are no LCCs operating in the intra-African market outside South Africa. In South Africa, the LCC market is mainly domestic with Mango only operating one international route (which is not served by SAA) and Kulula not currently serving any international routes.

There are two LCCs in North Africa, AirArabia Egypt and AirArabia Maroc but neither carrier currently operates any services within Africa (domestic or international). Both carriers are focused on the Middle East and Europe markets, sectors which have significant LCC penetration. North Africa is currently served by nine European LCCs and three Middle Eastern LCCs, according to OAG data.

The intra-Africa market is only currently served by three LCC brands – Mango, Kulula (operated Comair), fastjet – with about 140,000 weekly seats, according to CAPA and OAG data. Less than 1% of these seats are in the international market. (Fly540, which is a relatively small player, is excluded as it follows more a regional hybrid than LCC model.)

LCC capacity (seats) within Africa by carrier: 17-Mar-2014 to 23-Mar-2014

Rank Airline Total Seats International seats
1 MN Comair (dba Kulula) 75,624 744
2 JE Mango 54,330 0
3 FN fastjet 12,480 1,560

There are tremendous opportunities within Africa to use LCCs to unlock a period of new growth. The LCC penetration rate outside the South Africa domestic market and the North Africa to Europe and Middle East markets is virtually zero.

Jambojet will usher in a new period of domestic growth for Kenya Airways and could eventually also be used to stimulate demand in the under-penetrated East African regional international market. With Jambojet, Kenya Airways will be able to focus on expanding outside the region, particularly to Asia, while improving its financial performance in the domestic market.

While a defensive move, the launch of Jambojet is a step forward for Kenya Airways as it positions the group to benefit from the inevitable rise of the budget sector in Africa – whenever that finally comes.

CAPA employs a leading team of writers and analysts positioned around the world. Find out more about CAPA's regional and global analysts.
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