GLOBALIZATION AND THE DEVELOPMENT OF THE AIRLINE INDUSTRY: ANALYZING THE CASE OF KENYA AIRWAYS BY ANETTE MOGAKA UNITED STATES INTERNATIONAL UNIVERSITY - AFRICA SPRING 2018 GLOBALIZATION AND THE DEVELOPMENT OF THE AIRLINE INDUSTRY: ANALYZING THE CASE OF KENYA AIRWAYS BY ANETTE MOGAKA A THESIS SUBMITTED TO THE SCHOOL OF HUMANITIES AND SOCIAL STUDIES (SHSS) IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF MASTER OF ARTS DEGREE IN INTERNATIONAL RELATIONS UNITED STATES INTERNATIONAL UNIVERSITY - AFRICA SUMMER 2018 STUDENT DECLARATION I declare that this is my original work and has not been presented to any other college, university or other institution of higher learning other than United States International University Africa Signature: ……………………… Date: ………………………… Anette Mogaka (651006) This thesis has been submitted for examination with my approval as the appointed supervisor Signature: …………………. Date: ……………………… Maurice Mashiwa Signature: …………………. Date: ……………………… Prof. Angelina Kioko Dean, School of Humanities and Social Sciences Signature: …………………. Date: ……………………… Amb. Prof. Ruthie C. Rono, HSC Deputy Vice Chancellor Academic and Student Affairs. ii COPYRIGHT This thesis is protected by copyright. Reproduction, reprinting or photocopying in physical or electronic form are prohibited without permission from the author © Anette Mogaka, 2018 iii ABSTRACT The main objective of this study was to examine how globalization had affected the development of the airline industry by using Kenya Airways as a case study. The specific objectives included the following: To examine the positive impact of globalization on the development of Kenya Airways; To examine the negative impact of globalization on the development of Kenya Airways; To examine the effect of globalization on Kenya Airways market expansion strategies. This research was a case study on Kenya Airways. Both qualitative and quantitative methods were utilized. The positive impacts include the expansion of global airline markets to which other local and international airlines can access. For Kenya Airways, this means the expansion in passenger numbers, resulting in the expansion of the airline's annual revenues. The negative impact of globalization on the airline sector on the development of Kenya Airways include high costs of operations, high costs of fuel, increased domestic and international competition, and restrictive and stringent BASA agreements. The main strategies used by Kenya Airways to develop in the face of globalization include Route expansion, airports expansion and modernization and strategic alliances. This study concludes globalization has had a more positive impact on the development of Kenya Airways than negative effects. This study recommends that Kenya Airways should engage in fuel hedging that is pegged 5% volatility margins above and below the market rate to avoid huge losses attributed to fuel costs and mitigate the cost of failures of previous open-ended hedging that was disastrous for the airline. iv ACKNOWLEDGEMENT I would like to acknowledge my supervisor Maurice Mashiwa for wonderful guidance during the process of writing this thesis. Thank you. v DEDICATION I would like to dedicate this thesis to my family and friends for their excellent support during my studies and writing of this thesis. Thank you. vi LIST OF ACRONYMS AfDB Africa Development Bank AFRAA Africa Airline Association BASAs Bilateral Air Service Agreements CAPA Center for Asia Pacific Aviation GDP Gross Domestic Product GFT Green Field Terminal IATA International Air Transport Aviation ICAO International Civil Aviation Organization LCC Low-Cost Carrier SSA Sub-Saharan Africa WTO World Trade Organization vii TABLE OF CONTENTS STUDENT DECLARATION .................................................................................................. ii COPYRIGHT ......................................................................................................................... iii ABSTRACT ............................................................................................................................. iv ACKNOLEDGEMENT ........................................................................................................... v DEDICATION......................................................................................................................... vi LIST OF ACRONYMS ......................................................................................................... vii CHAPTER ONE ...................................................................................................................... 1 1.0 INTRODUCTION......................................................................................................... 1 1.1 Background ..................................................................................................................... 2 1.2 Statement of the Problem ................................................................................................ 6 1.3 Objective of the Study .................................................................................................... 7 1.4 Research Questions ......................................................................................................... 8 1.5 Justification of the Study ................................................................................................ 8 1.6 Scope of the Study ........................................................................................................ 10 1.7 Chapter Summary ......................................................................................................... 10 CHAPTER TWO ................................................................................................................... 11 2.0 LITERATURE REVIEW .......................................................................................... 11 2.1 Introduction ................................................................................................................... 11 2.2 Concept of Globalization .............................................................................................. 11 2.4 Theoretical Framework ................................................................................................. 20 2.5 Chapter Summary ......................................................................................................... 22 CHAPTER THREE ............................................................................................................... 23 3.0 METHODOLOGY ..................................................................................................... 23 3.1 Introduction ................................................................................................................... 23 3.2 Research Design............................................................................................................ 23 3.3 Data Collection Methods .............................................................................................. 24 3.4 Data Analysis Methods ................................................................................................. 24 3.5 Research Limitations .................................................................................................... 25 3.6 Chapter Summary ........................................................................................................ 25 viii CHAPTER FOUR .................................................................................................................. 26 4.0 RESULTS AND FINDINGS ...................................................................................... 26 4.1 Introduction ................................................................................................................... 26 4.2 Positive Impact of Globalization on Development of Kenya Airways......................... 26 4.3 Negative Effects of Globalization of Airline Sector on Kenya Airways ...................... 41 4.4 Kenya Airways Expansion Strategies in the Era of Globalization ............................... 54 4.5 Chapter Summary ......................................................................................................... 60 CHAPTER FIVE ................................................................................................................... 63 5.0 DISCUSION, CONCLUSION, RECOMMENDATIONS ...................................... 63 5.1 Introduction ................................................................................................................... 63 5.2 Summary of the Study .................................................................................................. 63 5.3 Discussion ..................................................................................................................... 65 5.4 Conclusion .................................................................................................................... 70 5.5 Recommendations ......................................................................................................... 71 REFERENCES ....................................................................................................................... 74 ix LIST OF TABLES Table 4.1: Kenya Growth in Domestic Airlines ...................................................................... 27 Table 4.2: Kenya Airways Fleet .............................................................................................. 28 Table 4.3:Kenya Airways