Kenya Airways Will Start JamboJet Unit as Growth Plan Slows

Kenya Airways Ltd., sub-Saharan Africa’s third-biggest carrier, will begin operating low-cost carrier JamboJet later this year even as a failure to hit a fundraising target forced it to revise an expansion plan.

The carrier tore up its first business plan for JamboJet after deciding it needed more time to learn how to run a budget airline, Chief Executive Officer Titus Naikuni said in an interview last week. An amended version is now almost ready and will soon be voted on by the board.

“If the board approves, we see ourselves getting started sometime this year,” Naikuni said at the airline’s headquarters in Nairobi. The new low-cost service will help Kenya Airways compete with FastJet Plc, the project backed by billionaire airline entrepreneur Stelios Haji-Ioannou that is intended to be the first pan-African budget airline.

Carriers are betting that rising salaries and consumer confidence in Africa will boost demand for air travel within the continent. It is currently often cheaper to fly between two African destinations via a European hub than take a direct route.

Kenya Airways and FastJet were granted regulatory approval by the Kenya Civil Aviation Authority to start operating their low-cost carriers there in October. FastJet has since become involved in a legal battle with its sister carrier Five Forty Aviation Ltd. over access to Kenyan routes.

Doubling Routes

Kenya Airways said last year it plans to raise $3.6 billion over the next 10 years to fund expansion that includes increasing its fleet to 107 aircraft and more than doubling its routes to 115.

An initial 20.7 billion shilling ($244 million) rights offer last April was under-subscribed, raising just 14.5 billion shillings. The setback forced the company to cut the plan to five years while it decides on how best to raise the next round of funding, Naikuni said.

“This plan is reviewed every year. We are looking at all options that are available to us: bonds, maybe another rights issue,” he said.

Kenya Airways reported a first-half loss of 4.8 billion shillings for the six months through September on lower passenger numbers and a stronger local currency. The shares have fallen 4 percent in the year to date.

Shed Jobs

“If you look at our performance in the second-half, it is better than the first-half,” Naikuni said. “I see a positive trend going forward.” The company shed about 578 jobs last year to save as much as 1 billion shillings in remuneration costs, Naikuni said. It hedged about 70 percent of its fuel requirements, little changed from a year earlier.

Kenya Airways currently flies to 59 destinations worldwide, of which 47 are in Africa. It has 38 aircraft, with an order for an additional 31 over the next three years, and carries 3 million passengers a year, according to its website.

Naikuni may be named as a Cabinet secretary by Kenyan President Uhuru Kenyatta, Nairobi-based Daily Nation said today without citing anyone. Kenyatta was sworn in as the country’s fourth president yesterday.

(Updates with more CEO comment from 10th paragraph.)
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