Airline swoops into Kenya market

Added competition from China Southern likely to lower ticket prices for traders, travelers

There was a time when areas of downtown Nairobi were becoming ghost towns. Companies were moving their offices to the city outskirts, away from the milling crowds and noisy public service vehicles that were increasingly becoming a bother.

Subtly but surely a dramatic change started to occur. Hammers and drilling noises could be heard behind makeshift curtains as repair work went on day and night. In about two weeks, gleaming shop units were up for grabs - and they filled up fast.

Prior booking was needed and, sometimes, landlords were demanding unreasonable goodwill payments from potential tenants.

This metamorphosis was the tail end of the economic growth that had been happening in Kenya. Adept entrepreneurs realized the potential presented by the growing middle class, and so they traveled to Dubai to bring back trendy designer clothes, shoes and electronic gadgets to meet the dynamic and demanding lifestyles of this new market.

But soon they discovered Dubai was just a hub, and that the same merchandise could be found for affordable prices in China. And as more businesspeople went to China, in particular Guangzhou, these small shops in Nairobi, popped up more and more.

To capitalize on this traffic, Kenya Airways, the national carrier, in 2013 launched direct flights to Guangzhou, in southern Guangdong province. Using newly acquired, state-of-the-art Boeing 777-300ERs with a capacity of 400 passengers, the airline operates seven flights a week to Baiyun International Airport.

Ethiopian Airlines, Turkish Airlines and Korean Air also run services on this competitive route, with China Southern Airlines joining the fray in early August.

The airline industry tends to be competitive and capital-intensive. This generally brings about high barriers to exit but low barriers to enter. The low barriers to enter are brought about by the liberalization of market access caused by globalization.

Notably, customers have a high bargaining power, as the aviation industry deals with what could be considered a perishable product. This is further accentuated as airlines have limited options to differentiate their services from their competitors. This is even more so for passengers who travel for leisure purposes because they are highly price sensitive.

The selling strategy for China Southern squarely lies in good product positioning and a sustainable, mutual relationship with local travel operators. By maintaining a lean workforce, the airline can cut its operational costs and leave ticket processing to local agents, which can go a long way toward helping to build a sustainable brand.

The target audience for China Southern will mainly be businesspeople who travel to Guangzhou to import goods for sale. While this group can be loyal to an airline, they are price sensitive. They will be the biggest winners, as lower prices for tickets and luggage will ultimately reflect on their bottom line.

On the flipside, the Chinese airline will have to contend with moving into untested waters, including dealing with customer loyalty to "local" brands and the loss of revenue for connecting passengers in Nairobi.

The airline may also build a strong passenger base from those traveling for leisure if they have a package rate that includes flights, hotels and an itinerary that inclides visits to many of the beautiful places in China. It can also target Chinese passengers and urge them to travel to Kenya for tourism.

As Kenya is looking to China to help boost the African nation's tourism, the memorandum of understanding between the two countries on the matter should be promoted aggressively to drive additional tourists.

Corporate executives may also constitute a good target market. This group is more sensitive to customer satisfaction and is looking for value for money. This means that China Southern's entry into the market will take the competition up a notch. This always happens with the entry of a new airline or when existing airlines expand services to new markets.

Because the cost of switching loyalty from one airline to another tends to be low for passengers, regional players such as Kenya Airways and Ethiopian Airlines may have to fight to retain their customers.

Those in the business community who travel this route will now no longer need to make individual bookings through a local representative and transfer to a Kenya Airways flight. Passengers can book directly with China Southern, which will keep all the revenue its generates.

The author is an aviation analyst and holds a doctorate in organization and management leadership.