KQ have halved their prices - presumably as a temporary loss leader - since Fastjet announced it was taking bookings. That's routine practice to try to ward off new competitors and it's the kind of benefit Kenyan travellers have long been waiting for.
Although KQ will probably put their prices up again soon, I think they are misguided to tackle Fastjet head on since they aren't direct competition to a full-service airline. I've seen some stats which show that a third of Fastjet's passengers in Tanzania had never flown before.
Fastjet will expand the market and some of their passengers will eventually upgrade to a full-service airline, thus benefiting KQ.