Infrastructure and security are being bolstered

Despite a 2013 fire that gutted the arrivals terminal at Jomo Kenyatta International Airport (JKIA), Kenya is poised to become a dominant regional aviation hub, following years of investment in upgrades at regional airports, the launch of JKIA’s greenfield terminal construction project, and fleet investment that has seen national carrier Kenya Airways expand its routes to offer direct services to Asia and Europe, as well as low-cost services to regional airports and South Africa. Although security concerns and a rising tax burden could have an impact on future expansion, the sector’s consistent double-digit growth, rising passenger numbers and planned future regional expansions should see aviation expand to become the leading segment within the country’s rapidly growing transport network.

Aviation is overseen by the Kenya Airports Authority (KAA), which owns and operates 10 airports and airstrips in the country, and the Kenya Civil Aviation Authority (KCAA), a state corporation responsible for regulating the industry and for providing air navigation services in the Kenya flight region. Passenger traffic jumped from 6.88m in 2009 to 8.58m in 2012, according to the Kenya National Bureau of Statistics.

Capacity Expansion 

Kenya aims to expand aviation activity under the Vision 2030 development plan, which seeks to develop an efficient, nationwide multimodal transport network as part of its economic pillar. At the same time, President Uhuru Kenyatta’s Jubilee Coalition manifesto includes the goal of transforming JKIA into a regional hub via expansion and modernisation of existing airports, including facilities in Mombasa, Kisumu, Lamu, Eldoret and Isiolo. Air transport was allocated KSh12.08bn ($137.5m) in the 2014/15 budget.

Nairobi’s JKIA is the largest international airport in East Africa, and KAA figures show that it has been operating at more than double its maximum capacity of 2.5m passengers annually, with an estimated 6.5m passengers passing through its gates each year. According to the KAA, air traffic is currently growing by around 12% annually, and is expected to hit the 25m mark by 2025.

Project Plans 

In August 2013 a fire caused by an electrical fault swept through JKIA and provided an impetus to improvements at the airport. Within a month the KAA converted a parking garage into a new arrivals terminal, and just four months after the fire, the government broke ground on a massive rehabilitation and expansion project. The Terminal 4 greenfield construction project will span 178,000 sq metres, offering 50 international and 10 domestic check-in points, 32 contact and eight remote gates, an associated apron with 45 stands and linking taxiways, a railway terminal, bus park, and significantly expanded duty-free and dining sections. In August 2014 Kenya Airways began moving over to the new facility, and the terminal is expected to be fully operational in 2015. Other planned JKIA construction projects include the redesign of Terminals 1, 2 and 3, and construction of a second runway, remote stands and bussing gates. Upon completion, the airport is expected to have the capacity to handle 3133 international passengers per hour, 2403 transit passengers per hour and 845 domestic passengers per hour. The government will fund 15% of the $653m project, while the balance will come from loans to be provided by a consortium of local and foreign banks. China’s Anhui Construction will build the project, after negotiating a $546m long-term loan with the China Development Bank on behalf of the KAA in 2013. The World Bank, meanwhile, approved a $203.5m loan in March 2014 to help rebuild the airport, bringing the project’s total financing to over $850m. Given the high levels of capital spending for its spate of planned infrastructure projects, the government has moved to increase taxes and levies to help offset expansion costs. Even before the fire, air passenger taxes jumped from $20 to $40 in 2012, as the government prepared to tender the JKIA terminal project. The Finance Act of 2013 introduced a 16% value-added tax on spare parts for aeroplanes, a move that has been criticised by stakeholders as unfair to local airlines; Kenya Airways could see its operating costs rise by KSh1bn ($11.4m) as a result.

The KAA has also bolstered security. In April 2014 the government announced it planned to establish a camp for the country’s General Service Unit military squad at JKIA, and in May 2014, the KAA awarded a KSh557m ($6.3m) contract to Israel’s Magal Security Systems, which will provide security and oversee the installation of surveillance and access control technologies.

National Carrier 

Kenya Airways’ 2012/13 annual financial results reported turnover of KSh98.9bn ($1.12bn), down 8.34% from KSh107.9bn ($1.23bn) in 2011/12. The decline was largely attributed to passenger traffic, which fell by 3.6% to 9.58bn revenue passenger kilometres (RPK), while passenger revenues declined to KSh85.1bn ($970.14m), from KSh95.3bn ($1.09bn) in 2011/12 – a contraction that was exacerbated by a 5% rise in fuel costs, which comprise 38.5% of total operating costs. This resulted in a KSh7.9bn ($90.06m) loss after tax, compared to 2011/12 profits of KSh1.6bn ($18.24m). Thus far 2014 looks more promising; with the start of the new terminal and airport upgrade project, Kenya Airways has finally been able to move forward on expansion plans that will see its fleet more than double to reach 80 planes by 2018. In February 2014 the airline took delivery of its first Boeing 787-8 Dreamliner, the first of six to be delivered in 2014, which will replace the 767-300ER aircraft previously used on long-haul flights. With the new fleet, the airline will be able to offer non-stop flights to Paris and Beijing, with direct services to Paris launched in June 2014. It has also introduced two Boeing 777-300ER aircraft, launching direct flights to Guangzhou in China in 2013 after receiving the first 777.

JKIA is still unable to offer direct flights to the US as it has not yet achieved the International Air Safety Assessment Category 1 status. However, the KCAA reported in 2013 that it is working with its international partners to improve the human resource capacity of the authority to deliver oversight services, resolve safety and security issues, and implement regulatory reforms based on recommendations from the International Civil Aviation Organisation. An evaluation for the Category 1 status is expected to take place in October 2014.

Low-cost carriers (LCCs) are also poised to see activities increase, with Kenya Airways’ subsidiary Jambojet – which began services in April 2014 – offering flights to regional cities including Kisumu, Mombasa and Eldoret. Jambojet offers low prices, with a ticket from Nairobi to Mombasa running as little as KSh2850 ($33), less than the cost of some bus tickets. Kenya Airways suspended services to Eldoret the same month it launched Jambojet, and is widely expected to continue reducing its regional flights to make space for Jambojet, with the LCC operating as a feeder airline for Kenya Airways’ international operations. At the same time, a codeshare agreement signed with LCC kulula.com will see Kenya Airways expand its LCC activities to South Africa’s OR Tambo International Airport near Johannesburg. “It is expected that LCCs will create their own market segment in East Africa, catering to those who previously could not afford to fly,” said Austin Nyawara, the regional manager for East Africa and the Middle East for South African Airways.

Regional Airport Upgrades 

In addition to JKIA, several regional airports including Eldoret and Isiolo are also poised to see capacity and passenger numbers grow, following expansive upgrades. Mombasa’s Moi International Airport, Kenya’s second largest, received KSh200m ($2.27m) in funding from the KAA in June 2013 for terminal upgrades aimed at reducing congestion, including installation of new screening machines, weighing scales, counters, seats and biometric equipment. The airport currently offers capacity for up to 30 wide-body aircraft, two runways, and three aprons serving general aviation and military aircraft, as well as a cargo facility with a capacity to handle 500 tonnes of exports and imports each month. The airport is now set to undergo runway renovations, as well as security and communications upgrades, with Rémi Maréchaux, the French ambassador to Kenya, announcing in February 2014 that the French government plans to invest an undisclosed amount in the project.

Upgrades at Kisumu International Airport have also bolstered regional connectivity, with the KAA allocating KSh1.9bn ($21.66m) in 2012 to implement the second phase of the airport’s expansion, which includes construction of a cargo apron, parallel taxiway, hangars and new cargo facilities. The KSh3bn ($34.2m) first phase, which involved lengthening runways to 3.3 km from 2.1 km, as well as construction of a new terminal and taxiway, launched in 2009 and wrapped up in 2011, with the China Overseas Group Company contracted to carry out the construction works. Finally, in January 2013 the KAA announced that upgrades to the Lamu airport were nearing completion, resulting in total capacity doubling to 600 passengers per day. The KSh1bn ($11.4m) project was launched in 2011 and includes construction of a 2-km runway which can handle larger aircraft, a new terminal building, additional water supplies and fencing, and a new fire station; all critical for the realisation of the Lamu Port and Lamu-Southern Sudan-Ethiopia Transport Corridor project.

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The Report: Kenya 2014

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