Ethiopian flies ahead of the African pack

Ethiopian Airlines has come a long way during its first 70 years – and it has plenty of groundbreaking plans for the decades to come. Gary Noakes reports for Routes News.

A 70th anniversary is a milestone event and since April, Ethiopian Airlines has been marking what many would consider a momentous aviation achievement. Apart from celebrations in Addis Ababa and all its major markets, two landmark events will highlight just how far the carrier has come since 1946. This month, Ethiopian received its first Airbus A350 while on July 3 it resumes services to New York after a 12-year gap. CEO Tewolde GebreMariam says it does both while remaining the only profitable airline in Africa.

Ethiopian will this year cap the $175 million profits made in 2015, he asserts, pointing out that the carrier’s A350 will be Africa’s first, just as the airline was the launch customer on the continent for the Boeing 787 Dreamliner. The carrier is no plaything for the country’s leaders but seen as a development tool and vital for the connectivity of the continent as a whole. GebreMariam’s plan is for the Star Alliance member to become a continent-leading aviation group of seven divisions by 2025, encompassing areas including cargo, third-party maintenance, catering and training.

Investments in other airlines are part of the Vision 2025 plan, and part of this strategy is Togo’s ASKY Airlines, in which a 40% stake gives the company a presence in West Africa, plus Malawian Airlines, which adds a footprint in the south via a 49% investment.

Vision 2025’s target is a near quadrupling of turnover to $10 billion, with international passenger services providing the biggest slice, followed by cargo, then domestic flights. To reach this target requires a growth rate of 20% a year, which GebreMariam says is “sustainable”.

Ethiopian has a track record here, GebreMariam says, as the airline’s earlier Vision 2010 plan was successful: “We’ve not only achieved all the targets – we’ve exceeded them. We aimed for 90 flying to 92, 10 years ahead.” In terms of revenue and passengers, the airline has doubled in size in the past five years and at 7.6 million passengers last year, he says it is now Africa’s largest.

“We have every reason to believe it will continue this way,” he adds. He is probably right, given the difficulties of his rivals in Africa. EgyptAir and Kenya Airways are still hampered by their country’s perceived risk of terrorism, while South African Airways, at the continent’s tip, has geography and currency movements against it. On that account, GebreMariam names the Gulf carriers and Turkish Airlines as his main rivals but adds that for the benefit of the continent, he wants his fellow African airlines to grow.

When it comes to Ethiopian’s own growth, GebreMariam reels off the list of new and planned routes, with Jakarta, Hanoi, Singapore and Chengdu planned in Asia, plus Oslo, Geneva, Chicago and Houston. Speaking in London, he expresses his frustration at his “irregular” slot times at Heathrow, but says any more slots there are “way beyond our means”.

While London’s slot issues will remain an issue for the foreseeable future, there are plenty of other markets open to the airline. Chengdu will be the airline’s sixth Chinese route and underlines China’s investment in Africa. “We first flew there in 1973 and were one of only four airlines in the western hemisphere to do so. Early morning in Addis, every single day, about 2,000 Chinese people pass through,” he says.

At 2,400 metres, Addis’s elevation provides technical challenges to the airline’s long-haul services, prompting it to seek partnerships with airports en route. US flights were previously routed via a tech stop at Rome Fiumicino, but a deal with Dublin Airport means that since May 2015, Washington, Toronto and Los Angeles services have stopped in Ireland, shaving 15 minutes off the journey.

“Dublin Airport is progressive in its business development strategy,” says GebreMariam. Only the LA flights have fifth freedom rights and pick up passengers there, and Ethiopian does not use the Irish facility’s immigration pre-clearance.

The Irish capital is not the only transatlantic stopover point. Ethiopian’s New York Newark flight will be routed via Togo’s Lomé airport, where GebreMariam hopes ASKY will feed it from the lucrative Nigeria and Ghana markets. The São Paulo flight was re-routed via Lomé in May.

This is in part the reasoning behind the ASKY investment. ASKY, with seven aircraft leased from Ethiopian, serves 22 destinations in 20 West African states and, GebreMariam says, “is now profitable”.

ASKY’s presence on these West African routes means Ethiopian can allow its partner to operate them, gaining both feed to long-haul flights and point-to-point revenue. There are still gaps in the network, however, as ASKY does not cover countries like Sierra Leone and Mauritania, while Ethiopian still lacks Namibia, Mauritius and Madagascar in its network.

“We are almost covering sub-Saharan Africa, but North Africa is difficult for us because of the trade flow and the geography,” adds GebreMariam.

Cargo is a big plank of Vision 2025. Addis is already exceeding its 250,000 tonnes annual capacity and in 18 months’ time, a new ¤115 million facility to handle 600,000 tonnes with parking for seven Boeing 777s will be complete. A second phase, costing ¤100 million, will double this. “Being able to handle 1.2 million tonnes puts us on a par with Schiphol or Hong Kong,” adds GebreMariam.

It comes back to development again. He gives the example of Ethiopia’s flower industry, which after only a few years is beginning to rival Kenya’s as the biggest exporter to Europe. “It’s now a $200 million a year industry. It could not have grown as fast as it did without Ethiopian Airlines.” Meanwhile, a $500 million catering facility opens this month, producing 80,000 meals a day. Vision 2025 also includes expansion of the airline’s training facility.

The airline also has a role to play in Ethiopia’s nascent tourism industry, which has huge potential. Ethiopia attracts only around 770,000 tourists a year (Kenya boasts around 1.3 million) and the plan is to reach 2.5 million by 2020.

GebreMariam admits that Ethiopia’s sometimes negative image needs to be overcome but says there is much to promote, including world-class cultural and natural attractions. He adds that so far, “honestly speaking, we have not done a good job as a country or an airline”.

The airline group is clearly going to be a major part of Ethiopia’s economy in the next decade and a major foreign currency earner. Because of this, GebreMariam rules out privatisation in the near future. “The economic model [of Ethiopia] is one where the state will continue to be the driver of economic development,” he says.

Given the state of African aviation, it is likely Ethiopian will also continue to take a leading role throughout the continent in the next decade. The potential for a new start-up or a resurgent rival is slim, GebreMariam believes, and he is predictably dismissive of any notion of a low-cost carrier (LCC) linking individual African states: “The inter-African market is small and fragmented. We did some research and found that the average number of passengers per day on city sectors within Africa is only 50.”

Ethiopian’s average load factors bear this out – in the low 70s compared with the global average of the mid-80s, but, says GebreMariam, they are aided by the airline’s hub connectivity – 65% of Ethiopian’s passengers are making connections at Addis.

He adds: “There are no secondary airports to cut costs and LCCs have the same fuel costs as us. Fuel is 40% of our total costs – we are paying $1.20 a gallon in Europe, but $3.50 in most African countries.”

This last issue is one potential brake on Ethiopian’s own development, and GebreMariam is critical of the taxation that African nations impose on jet fuel, largely, he believes, because air travel is still seen as a luxury, not a tool for development.

“This is a continent where air travel is taxed more than cigarettes or alcohol. Wrongly, it’s considered as a rich man’s means of transport, but look at the ground – it is a very large mass with a very poor road and rail network. Aviation is an essential public service, but unfortunately African governments do not see it that way.”

GebreMariam is lucky his own government disagrees. “We’ve come through 70 years of challenges including wars while the last 10 have been very dramatic in terms of growth,” he says. “The fact that we have been able to grow very fast and meet global standards is a remarkable achievement. The airline is tested and proved.”

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