Kenya has opted to build a temporary terminal at its main airport to address the pressing space constraints as it awaits construction of the planned Ksh55 billion ($647 million) Greenfield facility — a project national carrier Kenya Airways is banking on to expand its operations and stem losses.

The Kenya Airport Authority (KAA) is revising its budget as it seeks to raise funds for the temporary terminal at the Jomo Kenyatta International Airport (JKIA). The proposal is expected to be approved by the authority’s board in a month’s time. Details of the cost of the temporary terminal, whose construction will take a year, are still scanty.

The government has budgeted the Ksh55 billion ($647) for the Greenfield Terminal which is expected to take three years to complete. But this project, which was initially riddled with controversy, is behind schedule by nine months, forcing authorities to come up with a stop-gap measure to expand the airport’s capacity.

KQ, which reported heavy half-year losses has singled out capacity constraints at the airport as one of its key challenges, saying it could hurt its growth and profitability in coming years, especially as it continues to receive more planes.

(Read: Kenya Airways posts $56.4m loss)

The airline, which announced recently it had made an operating loss of Ksh5.5 billion ($64.7 million) for the first time in its history in the six months to September, hopes the extra terminal will enable it pursue an expansion plan that would help it to recover from the slump.

The airline posted a net loss of Ksh4.8 billion ($56.4 million) for the period ended September 2012, compared with a profit of Ksh2.043 billion ($24 million) in a similar period last year, on the back of a drop in passenger revenues and the strengthening shilling in the period.

Passenger revenues, which analysts at Sterling Capital say on average account for 89 per cent of the total revenues, declined by 10 per cent to Ksh43.65 billion ($51 million). The shilling’s appreciation shaved Ksh2 billion ($23.4 million) from the airline’s passenger revenues.

Kenya has been keen to upgrade its airline infrastructure as it seeks to cement its position as one of Africa’s key hubs alongside Ethiopia and South Africa. The country has hired a consultant to design the country’s second runway, after which it intends to source for funds. It is also building 16 additional parking bays, set to be completed by June next year.

However, analysts say with most African governments strapped for cash, they are likely to increase airport fees as they look for financing, a factor that would reduce the competitiveness of African carriers by making their fares expensive, especially as they currently don’t enjoy low fuel costs like their peers in the Middle East.

“We foresee the risk of landing and handling fees increasing going forward, as JKIA will have to fund its expansion,” said analysts at Renaissance Capital in a research note to investors.

Initially, the airports authority had planned to expand the existing terminals one and two as soon as it completed the ongoing construction of the new Ksh4 billion ($47 million) terminal four sometime next year.

However, an official in the airlines industry said closure of the two terminals for expansion would have meant the airport would still have operated at the current capacity. “Therefore after discussions with other stakeholders, the authority opted for the artificial port,” said the source.

The proposed temporary terminal will have a capacity for three million passengers, thus enable the airports authority to expand its current three terminals without too much disruption.

Lesson from Malaysia

Last month, KAA sent several officials to Korea, Malaysia and Europe to look at some of the temporary terminals that have been done.

Kenya Airways chief executive officer Titus Naikuni confirmed the plans at a press briefing in Nairobi last week, while singling out capacity constraints at JKIA as one of the biggest threats to the airline’s expansion into new routes and acquisition of bigger planes. Most of KQ’s flights either originate, pass or end at the airport since it uses JKIA as its hub.

The airport has a capacity for 2.5 million point-to-point passengers — those who fly to the airport as their final destination — but it is currently handling over six million passengers. With construction of terminal four, its capacity will double, but will still be insufficient.
Kenya Airways plans to double its fleet to 68 by 2015, necessitating additional capacity at the airport.

But the high passenger fees charged at most African airports make it difficult for low cost carriers to operate in the market.

Kenya and Uganda, for example, charge an airport tax of $40 for each international departure, while Tanzania charges $30.

In the region Rwanda is set to build the two million passenger capacity Bugesera International airport at a cost of $350 by 2014. Sudan plans to build a seven million passenger capacity airport in Khartoum at a cost of $700 million. Works on the Chinese funded projected is scheduled to kick off next year.

Ethiopia also plans to build a new airport in its capital Addis Ababa, dedicated to long haul flights only.

The current airport, Bole International Airport, will be used for domestic and regional flights.