Kenya Airways to be split into various subsidiaries

Kenya Airways, the national carrier of Kenya, is set to undergo a significant transformation as it splits into various subsidiaries in a state-backed restructuring plan. The primary goal of this restructuring is to steer the airline from its current state of losses to a profitable and sustainable future. The decision to pivot towards a subsidiary model comes after the government abandoned plans for the nationalization of the airline. Gabriel Mendoa, a Chartered Financial Analyst, shared insights on this strategic move in an interview with CNBC Africa. The conversation delved into the rationale behind the division of Kenya Airways and the critical steps needed to address the high operational costs that the airline currently faces. Gabriel Mendoa addressed the question of whether splitting Kenya Airways into subsidiaries is the ultimate solution to its challenges. He emphasized that the key revenue streams of the airline, namely passenger services and cargo logistics, have traditionally been interconnected. While some divisions, such as charter and drone services, may warrant separate entities, the overall benefit of the split remains to be seen. Mendoa highlighted the lack of clear distinctions in the current services that justify a division. This raises questions about the necessity and efficacy of the proposed subsidiary structure. One of the pressing issues haunting Kenya Airways is its exorbitant operational costs and substantial debt burden. Mendoa highlighted the critical need to address these challenges promptly to put the airline on a sustainable financial path. He underscored the importance of analyzing and reconfiguring the cost structure to reduce operational expenses, particularly in fuel costs. Efficient fuel hedging strategies and renegotiation of leasing agreements are pivotal steps that could help alleviate the financial strain on the airline. By optimizing staff costs, lease agreements, and fuel procurement strategies, Kenya Airways can potentially mitigate its financial woes and reduce dependency on government bailouts. The conversation steered towards the comparison between privatization and the chosen path of splitting the airline into subsidiaries. Mendoa expressed skepticism about nationalization as a viable solution, citing the burden it places on taxpayers in the event of consistent losses. Drawing parallels with successful business models like Safaricom, which diversifies its services effectively, he emphasized the potential of the subsidiary model for Kenya Airways. The strategic introduction of new business lines, such as charter and drone services, could unlock untapped potential and drive revenue diversification for the airline. By innovating within these new segments, Kenya Airways aims to carve a competitive edge and enhance operational efficiency. The decision to restructure Kenya Airways through the establishment of subsidiaries marks a significant turning point in the airline's trajectory. As the carrier navigates the complexities of operational challenges and financial constraints, the focus now shifts to the effective implementation of this new strategy. The success of this transformation hinges on meticulous cost management, strategic decision-making, and operational agility in a dynamic aviation landscape. By embracing change and embracing innovation, Kenya Airways sets sail on a transformative journey towards sustainable growth and enhanced competitiveness in the aviation industry.