By Mohamed Abdullahi
A slight plane mishap and social media ignites with commentators casting the all familiar harbinger that all is not well with Silverstone Air. If you have gone through the comments on social media, a trajectory of disgruntled or bankrolled individuals emerged. Let us have a look at the aviation industry.
The aviation industry plays a critical role in Kenya’s development agenda. The industry catalyzes other sectors such as tourism, manufacturing, horticulture and the hotel industries, which contribute billions of shillings to Kenya’s economy and also offers thousands of jobs.
In 2016, for example, the aviation industry contributed Ksh58.9 billion to the economy, which represents 1.1 per cent of GDP. In addition, more than 620,000 jobs were created directly and indirectly within the industry and other associated sectors. The industry is expected to achieve annual growth of five percent by 2030.
Air travel was considered a preserve for the rich but since the launch of the low-cost carriers (LCC) in the country, this notion has changed. Low cost carriers control an estimated 25 per cent of the global aviation market, according to the International Air Transport Association (IATA).
The rise of low cost carriers in Kenya has revolutionised travel, brought affordable air transport within economic reach of a large part of the Kenya population and the market for air travel has massively expanded. This is largely because these LCCs operate a model that features low fares and an online booking all which keep costs lower than the traditional airlines.
According to a World Bank Group book, “Ready for Takeoff?” the LCC model could help catalyse air transport in the world’s less developed countries especially in Sub-Saharan Africa.
Silverstone Air operates in a LCC industry that has grown over the last 10 yrs. The company has operated routes including Nairobi-Mombasa considered the industry’s gem thus jostling for space in a market dominated by large companies including Jambo jet and Fly 540.
So what kind of market structure is the company operating in? There is need for some economics 101 here.
The market model here is a perfectly competitive. This indicated by easy exit and entry of players, consumers have enough information, the products are near homogeneous , rational buyers and consumers considered to be price takers.
To put the many economics jargon to simple context, the market is open and has little regulation from the government, especially on marketing and prices.
However, general regulations including safety, standards and industry policies are regulated by the Kenya Civil Aviation Authority (KCAA).
The speed with which the mishap generated furore in social media with notable commentators calling for scrutiny into likely machinations and schemes in this highly fluid sector.
The company operates in a market initially dominated by large carriers notably Jambo Jet, Fly 540 and some routes KQ also jostles for space here. The Kisumu, Western and Coast destinations are prime and therefore cut throat competition for customers.
The large carriers aided by experience in the industry and financial muscle accords them a ‘heavy weight’ status in a ring where featherweight opponents also huddle for a space.
The heavyweights, in this case, large low cost carriers have used their comparative advantage to transform the market into ” a near monopoly status ” thus enjoying what economist call ‘abnormal profits ‘.
This abnormal profits even though plummets later, attracts featherweights such as Silverstone, Safarilink, Air kenya, among others into the ring that is the airline industry.
What happened then is a situation where the abnormal profits are devoured by many players each scrounging away a juicy morsel. The new entrants have ‘eaten into’ profits of the large carriers who begin feeling immediate short term effects in terms of reduced customers and zero profits in some of their routes.
The nature of competition in this industry attracts all groups such as bloggers, commentators, saboteurs and generally hostile rubble rousers who would set off a fire alarm where a small glittering spark is located.
For Silverstone, there is need to;
●Institute internal investigation on recent cases of mechanical and structural mishaps
●invest more in crisis communication to counter narratives likely peddled by competitors.
●Ensure to invest in capacity-building for management to deal with industry dynamics and volatility.
●The airline should strive towards achieving international standards on safety and professionalism
For the regulator KCAA, there is need for impartial investigation on the series of mishaps and near misses for a company that has relatively new fleets in the industry.
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