The recently restructured Kenya Airways will turn its focus to niche markets, but with a distinct role for China, Peter Musola, the carrier’s acting general manager for cargo, told Asia Cargo News in a recent interview in Nairobi.
Long a noted exporter of perishables, which comprise some 70% of Kenya Airways’ perishable cargo. The airline has shipped 55,000 tonnes of perishables through late November 2016 and 62,000 tonnes last year.
Kenya is reportedly the world’s largest exporter of cut roses; the country earned an estimated Sh63 billion (US$607.6 million) from the sale of 122,000 tonnes of cut flowers in 2015. A January report by Kenyan broadcaster Citizen reported that the airline had inked a deal with Australian carrier Qantas to export cut flowers to Sydney and Melbourne via Johannesburg. Citizen also reported that KQ is seeking additional export capacity to Asia through Bangkok.
Flowers are the largest share of the trade at 40%, with fruit and seafood each making up just under a third at 30% each, Musola said.
At the moment, some 70% of the perishables trade is Europe-bound, Musola said, but that looks set to change with the Nairobi-headquartered carrier aiming to increase its capacity into China by working with its partners – a key theme to its approach.
“KQ has a niche market into Asia. These are actually some of the new markets we are developing,” he said.
In the short term, the emphasis is on flowers, which is helped by Chinese plans to build a flower auction facility in the southwestern city of Kunming similar to the one at Amsterdam’s Schiphol airport.
“Every week, we are moving about 16 tonnes of flowers into China. [This trade lane] never used to be there,” said Musola, who pointed out that two years ago, the trade lane was merely samples of between 200 and 300 kilograms. “You can see the build-up,” he added.
Hindering things is the trade relationship between China and Africa. Heavily biased in Beijing’s favour, the Africans, with Kenya first and foremost, are engaging with the Chinese to open their markets to rebalance trade.
Flowers are an important part of the Kenyan economy, accounting for 7% of the country’s exports. The flower industry is fairly well organized and on the case.
At its recent industry conference, the Kenya Flower Council reported that “panel discussions identified the logistical challenges faced not only by the growers, but by all the value chain players at large, for example policies and regulation, insurance, investment, the safety and the quality of the cargo and cost of doing business.”
Another commodity KQ hopes to move more of to Asia is seafood.
The airline knows there is interest in the export of crabs – sometimes as many as 15 tonnes from Madagascar and Mozambique. Normally, that would warrant the use of either or both of the airline’s 17-tonne-capacity Boeing 737-300 freighters – except for the lack of inbound cargo.
“You don’t have the cargo going to Maputo, so you are really operating a ferry leg,” Musola said. This is a particular problem for Kenya Airways and is not just about crabs in Mozambique.
While flights are busy on the outbound, imports into Kenya are a limited range of high-value goods such as machinery and high-tech consumer products such as iPhones and other electronics.
Still, there is hope as increases to oil prices could bring oil and gas machinery back into play. Carrying such equipment has “handsome yields,” according to Musola, and KQ has hopes of a 2017 resurgence. This year, the airline will also see its state-of-the-art express facility open in Nairobi.
The building itself should be operational during the first quarter of the year, Musola said. For KQ, some of the benefits are obvious and immediate as it will mean the carrier is not paying rent for its current express services facility. Constructed within KQ’s own facilities, there are, he said, “a lot of savings.”
More important, though, is the revenue generated by KQ’s plans to rent out its facilities to integrators and to use it to extend its own footprint for services throughout the region.
While Kenya Airways has aims for Nairobi to become an African hub – and not just in express, but also in pharma – there are some practical reasons why it is looking to Asia rather than its more established markets. Not only are the traditional markets growing more slowly than many Asian markets, but existing and changing regulations also need to be considered.
One such regulation being watched is the trade policy of the incoming administration of US President Donald Trump and particularly how it will approach the existing African Growth and Opportunity Act, a 2000 US law which significantly enhances market access to the US for qualifying Sub-Saharan African countries, including for exports such as textiles. The law initially covered an eight-year period from 2000 to 2008; it was later extended to expire in 2015, and again to 2025.
“These, of course, will be at risk should these policies change,” said Musola.
The potential loss there, though, is small when compared to what is happening in the airline’s own backyard, although having worked with the US Federal Aviation Administration lately on addressing security gaps in Kenya, there is, according to Musola, the opportunity “for us to access US markets in the future [but] I wouldn’t say [in] 2017 or 2018.”
Before that, the plight of the African market must be dealt with. The basic problem is a global one, albeit with an African twist: Africa saw whopping cargo capacity increases last year with available ton kilometres rising 19.9%, while cargo grew by low single digits – 3% or 4%, Musola reported – all of which impacts the carrier’s bottom line.
“The outlook really is a dilution of yields. This really presents a major, major challenge for the industry,” he said.
By Michael Mackey
Correspondent | Nairobi
