Jambojet plans to shake up East Africa's airline industry
Low-cost carrier Jambojet, a subsidiary of Kenya Airways, is set take to the skies on April 1.
Kenya’s largest airline is betting on the country’s expanding middle class and recent economic growth to drive the success of its new low-cost subsidiary a decade after it was forced to shut down a similar venture.
Low-cost carrier Jambojet, a subsidiary of Kenya Airways, is set take to the skies on April 1, flying from Nairobi to three major towns in Kenya (Mombasa, Kisumu and Eldoret). The airline’s entry is likely to shake up the budget airline market given that it is offering one-way tickets for US$33.
A lot has changed in Kenya in the last 10 years since Kenya Airways was forced to abandon Flamingo Airlines. Today more people have access to the internet and can make online bookings, the middle class is growing, the private sector has expanded and smaller towns are becoming business hubs.
Jambojet CEO Willem Hondius told How we made it in Africa that Kenya Airways’s re-entry into the budget airline market was necessitated by demand. He says Jambojet will “attract a lot of new customers who were not flying before”.
Hondius cites the case of businesspeople who frequently travel to Kenya’s coastal city of Mombasa to transact business at the port. If they travel by bus they would spend two days on the road – Kenya recently instituted a night travel ban on all public transport vehicles.
“Now they can fly up and down in one day. They can grow their business by being there more frequently. Of course, the people who pay KSh.700 ($8) for the bus will not take the step towards flying because that [price] gap is too big. Their first aim is to move from the ugly bus to the nice luxury bus. The people travelling on luxury buses can start flying. There are also people who fly, but only once or twice a year and now they can fly much more frequently.”
Hondius was appointed project manager of Jambojet in 2012 while serving as general manager for East Africa for KLM Royal Dutch Airlines (a Kenyan Airways shareholder) and then as CEO last September.
To pave the way for Jambojet, Kenya Airways recently announced it would cancel some frequencies in Mombasa and Kisumu and withdraw all its flights to Eldoret. Hondius explains the move would ensure the two airlines don’t produce too many seats on the same route and avoid “competing with each other”.
“Together we offer more seats than Kenya Airways flying alone on those routes.”
Jambojet’s target is to fly 600,000 people in one year. The airline will fly five times a day to Mombasa, twice a day to Kisumu and 10 times a week to Eldoret.
“First we want to establish, be sure that everything works because every startup might have some teething problems here and there. We want to iron out those first, stabilise and then, after eight to 12 months, we will start looking at new destinations.”
Jambojet intends to go regional and launch flights to Bujumbura, Kigali, Juba, Goma, Mwanza, Zanzibar, Kilimanjaro and Addis Ababa in a year’s time.
Why this will work
Hondius explains that the success of a low-cost airline depends a lot on the economy, the nation’s middle and upper classes and the airline’s ability to be “fair and strict on price control”.
“Then you should have, as we call it, price elasticity which means that if you drop the price, demand goes up. I give a counter example that if you fly to Juba there is no price elasticity because somebody who needs to be in Juba only goes there because he needs to be there, not for fun. So if you go up with your price he will pay, if you go down he will pay but you will not attract more passengers.”
While the number of budget airlines is increasing in Africa, Hondius says it will take a while before the model is fully adopted across the continent because “some markets are simply not ready”. Not so for Kenya, he says.
“In Kenya you see that a lot of potential traffic is from people who like to fly but it is simply too expensive. You see so many people travel up and down to visit family and friends and attend weddings and funerals. There are so many occasions when people want to fly. The only thing is you just have to make it affordable. That makes Kenya attractive to a low-cost carrier.”
Competition is stiff
While consumers are excited by the $33 tickets, Jambojet’s competitors are not very pleased. Fly540, an existing low cost carrier, has expressed concerns that the entry of Jambojet would undermine the industry and lead to monopolisation by Kenya Airways.
Other than existing operators, Jambojet also has to contend with the potential entry of international players who find the Kenyan market attractive. The “stiff competition” that could ensue, Hondius says, “could make things a bit difficult”.
“It depends on how many passengers want to fly because if they are too few then we start fighting and then it’s a matter of who is the strongest and smartest. In Europe you will see there are not many low cost airlines flying together on the same route. They avoid each other because they know we are fighting with the same weapons. You have to fight very smart otherwise you lose the game.”
The hurdles
As it prepares to make its first commercial flight in two weeks, Jambojet’s challenge is to ensure everything is ready, not too early, but at the right time.
“If you have your aircraft too soon you already start paying without earning.”
Hondius notes that “getting an airline flying is very complicated”.
“When you [want to] fly you buy a ticket, you go to the airport, you check in, you go up to buy your perfume [and] you fly. It is easy. But there are so many things you have to do behind the scenes to get an aircraft into the air in a reliable and safe way. There are lots of regulations so you cannot fiddle around. Everything needs to be properly done.”