Share Price and Company Performance are DIFFERENT... therefore I will discuss what is important... not the share price but
the Company's and Management's Performance.
"Past performance is no predictor of future performance."
True... So true...
KQ is in the same league as Barclays, EABL, SCBK, etc... I did a review of what I think are TRUSTWORTHY MANAGEMENTS...
Business is about risk and vision. Credit goes to KQ's SMART & TRUSTWORTHY MANAGEMENT TEAM... They have not let me down, yet...
KQ has a measured expansion plan that allows them to be either #1 or 2 (remember GE's credo) on most routes they fly... Bilateral agreements make this the only choice (monopolistic or duopolistic) in some cases but let's look deeper....
- Kenya-Europe -> KLM & KQ dominate the Nairobi-Europe routes. KQ essentially runs the AMS-NBO route for KLM. Intense competition from BA & charter flights. Expect steady growth especially after the new Paris flights open up new tourist markets as well as another European gateway to N.America. Note that KQ uses its regional heft to ferry South & Central African passengers to Europe via JKIA.
- Kenya-MidEast -> In spite of strong competition from Qatar & Etihad... KQ & Emirates dominate the Kenya-Middle East routes. That said, the competition on these routes is intense. Definitely a challenging market but necessary since lots of traders like visiting Dubai.
- Kenya-S.Africa -> KQ dominates the business sector. KQ has 2 daily flights vs 1 for SAA. There is no other airline that comes close to SAA or KQ. The growth is limited but KQ can attract (wealthier) S.African passengers to use JKIA as hub to China, Dubai and India.
- Kenya-Southern Africa -> KQ is dominant in most countries it flies to from Kenya. KQ crushed Air Tanzania while Air Zimbabwe is almost dead. The other airlines are small and inconsequential, as yet, to KQ.
- Kenya-Central & West Africa -> Slow but surely... expanding. The goal is to connect to China and India using Nairobi was a hub thus the push to enlarge and modernise JKIA. This market is huge esp considering China's push into Africa e.g. Sudan and Zambia.
- Kenya-China -> KQ will face competition in due course but for now they are the only airline that serves China direct from Nairobi. Plus 3 destinations... Hong Kong, Guangzhou & Shanghai. This is the new market for KQ. There is potential for BUSINESS and TOURISM. Chinese tourists are among the highest spenders. Hong Kong's per capita is at OECD levels.
The bane of airlines for many years. KQ will do OK as long as it doesn't rise beyond $80. KQ is in a much HEALTHIER position than most African competitors including SAA and Ethiopian. A privatised SAA could become a formidable competitor but most African countries can't afford to start their own airlines thus there is a larger untapped market as African economies grow.
There is little one can do when idiots want to kill others. Definitely a threat but you have to learn to live with it. After 9/11, New Yorkers (more than ever) live in high-rises. Did the hijackings of 1970s & 1980s kill off air travel? No, coz the easiest way to travel long distances remains air travel.
Important to KQ but less profitable than Business tourism. I think most African travellers are business travellers thus less sensitive on price. The expansion to the Far East to reduce reliance on UK market for tourists while Paris will open new markets.
Kenya can maintain the tourism momentum by improving security & roads. Improved roads and security will boost the market for tourism thus creating a further need for KQ's expansion.
It is good. It is needed and it has forced KQ to be leaner & meaner. All African airlines have a deadline to be E-ticket compliant by 31 Dec 2007. Fewer than 10 airlines have done so by 31 June 2006 & among these are KQ, ET and SA. More airlines will become compliant b 2007 but many will not especially the struggling airlines. This will allow KQ, SA & ET to expand into these markets for international passengers.
KQ's "real" growth can only come from international routes since the local market is "small" in comparison. There are a limited number of Kenyans who can afford the Nbi to Msa/Ksm flights. As the roads and railway get rehabilitated, the local market for KQ will reduce or stagnate on these internal routes. Kenya is a small country and Tanzania has a larger number of towns served by Precision Air than KQ does!
KQ's biggest threat is Emirates, especially in the West African & Dubai markets. Unless KQ is restricted from further African expansion, I do not see SAA & Ethiopian as significant threats yet.
There is little any one airline can do but ALL international airlines will be affected.
For Kenya's part, it needs to ensure that humane rearing methods are used.
I recommend becoming vegetarians... less hassles with Avian Flu, Mad Cow or a host of other emerging diseases!
It seems the pandemics start in Asian countries which means more European tourists will perfer Kenya/Africa as a destination.
Yes, that is a problem.
Sometimes, it is NOT the employees but the vision that drives firms. When things are tough, employees cry about "working conditions" and "low wages" but when things are good they want to share in the pie... QUIT, if you think you are underpaid!
Anyway, whatever the merits of my views, I think KQ should sacrifice short-term gains to crush the unions. Unions generally want to reward "seniority" not productivity. KQ has started traning new staff who will probably supplement the current staff.
Brain drain IS a problem for KQ esp from the Middle Eastern airlines. Nevertheless, I hope Kenya produces more airline staff who can be "exported" since that brings in more forex!
KQ has embarked on recruiting staff fluent in Mandarin, Thai, French and Hindi as those markets become more important.
Mandarin - China (3 cities and counting).
Thai - Thailand is becoming a "hub" for KQ for the Far East e.g. Korea
French - The new Paris route with associated expansion to destinations like Mayotte, Brazzaville & Comoros.
Hindi - Daily flights to Mumbai with Delhi, as a destination, in 2007.
So without worrying about the "share price"... KQ is slowly becoming an engine for some of Kenya's economic gains. I expect the growth to continue with stumbles along the way. One important thing is I TRUST the Management.
Please comment... I do want to know if I am on the wrong track... or have missed an important part of the puzzle.