Kenya Air CEO Open to SAA Pact as Ailing Carriers Restructure

Kenya Airways Plc could cozy up to rival South African Airways as the embattled companies seek to narrow the gap with the continent’s biggest carrier, Ethiopian Airlines Enterprise.

The Nairobi-based airline, sub-Saharan Africa’s third largest by passenger traffic, views a closer relationship with SAA, the No. 2, as a possibility amid turnaround efforts at the unprofitable operators, Chief Executive Officer Sebastian Mikosz said in an interview.

Mikosz said he has spoken with Peter Davies, the restructuring expert recruited by the South African carrier last year, to see “what we can do together.”

Kenya Air was taken under government control in November after posting the biggest loss in the nation’s corporate history in 2016 and is cutting routes and planes to help revive earnings. SAA, under an eighth CEO since 2010, reported a seventh straight annual loss this month and is seeking emergency funding even as it targets break even by 2021. Cooperation between the companies could range from a simple code-share agreement allowing reciprocal ticket sales to a more extensive joint venture arrangement, Mikosz said.

“One of the key components of our growth is partnership,” said the former LOT Polish Airlines SA chief, who this week reaches his first anniversary at the helm of the African carrier. Kenyan isn’t holding “a sword and a gun” to its rivals, but is “here to push things forward in a positive manner,” he added.

Smart Move

Any agreement with SAA would probably be a “long way” off and it’s not clear whether the Johannesburg-based company would be interested, according to Mikosz. Still, there are strong links between markets served by the carriers, and there are intra-African routes “where it would be smart to do something.”

Kenya Air may also pursue deeper links with Air Mauritius Ltd., with which it already has a code-share accord, and even Ethiopian Airlines, according to Mikosz, though the level of competition between the two and the proximity of their markets is such that regulatory approval would be much tougher to secure. “Just code-sharing would be a huge challenge,” he said.

Addis Ababa-based Ethiopian is planning to establish half a dozen international offshoots before the end of the year, adding to stakes in Malawi Airlines and Togo-based Asky, as it steps up efforts to dominate markets across the continent, CEO Tewolde GebreMariam told Bloomberg this month.

Ethiopian Air Seeks Africa Dominance With New Carriers, Jet Deal

Kenya Air doesn’t plan to adopt that model, which would require it to be “co-responsible” for running other airlines without having full control, Mikosz said by telephone Friday, adding that he’d prefer partnerships on commercial terms.

Cooperation between African carriers is being partly driven by the pressures they face from the big three Persian Gulf operators and Turkish Airlines, which have captured a major slice of the market. The continent’s traffic flows are also relatively small, accounting for just 2.4 percent of the global total last year, with the region’s 99.1 million passengers carried amounting to 30 million fewer than at European discount specialist Ryanair Holdings Plc alone.

“It’s a small market, so you’re better off talking to people rather than just fighting them,” Mikosz said.

Kenya Air’s financial performance is “improving,” but it’s too early to say that the carrier, 27 percent owned by Air France-KLM Group, is out of trouble, according to the CEO. “We’re still in a phase of healing ourselves,” he said. SAA didn’t immediately respond to calls and emails seeking comment.