Ethiopian CEO Tewolde GebreMariam
TODAY ONE OF THE LARGEST AND MOST PROFITABLE AIRLINES IN AFRICA, Ethiopian Airlines launched its first commercial service on 08-Apr-1964 – a Douglas C-47 Skytrain, which travelled to Cairo via Eritrea’s Asmara. The airline, a joint venture between the Ethiopian Government and Trans World Airlines, experienced gradual and steady growth right up until early this century – when it decided to surge forward and make a name for itself as a significant worldwide player.
With 34 aircraft on order, including 10 B787-8s, a network of 56 international destinations, 16 codeshare partners, Star Alliance membership to its name and a 2010 operating profit of ETB1.6 billion (USD92 million), Ethiopian has forged a successful path for its expansion plans and has come a long way since its humble beginnings. The airline’s ambitious, but probably realistic, 15-year strategic plan includes becoming the largest airline in Africa, generating revenues of ETB171 billion per year, acquiring a fleet of 70 aircraft and obtaining a Skytrax customer service ranking increase from three to four stars.
The African launch customer for the B787-8 made its order in 2006 and originally planned to have the aircraft in service by Jun-2010 on the Guangzhou route. However, like many of Boeing’s B787 customers, the Dreamliner delays have left Ethiopian behind on expansion plans.
In 2010, Ethiopian placed its largest order to date – 12 A350-900s, due for delivery between 2016 and 2019. The order was designed to give Boeing a wake-up call – implying that its long-time African operator was unhappy with the delays, and that it was prepared to look elsewhere for new aircraft. Despite the apparent threat, Ethiopian Airlines reaffirmed its Boeing order and is expecting its first B787-8 between 12-Mar-2012 and 15-Jun-2014. Ethiopian stated the new aircraft, both the B787-8s and the A350-900s, will be used to complement and replace its existing fleet, with the A350s to be deployed on services to the Far East and the Americas, and the B787-8s likely to replace B767s and B757s.
Ethiopian was scheduled to join Star Alliance in early Nov-2011. Ethiopian, mentored by Lufthansa, joined fellow African Star Alliance members South African Airways and EgyptAir, as the alliance extends its coverage to all but the west and centre of the continent. In the lead-up to the approval, Ethiopian Airlines established codeshare agreements with several key Star Alliance members, the latest being Asiana Airlines, and the most important being founding members SAS and Lufthansa.
Ethiopian’s entry into Star Alliance means the global airline group now has three main bases in Africa – Addis Ababa, Johannesburg and Cairo. Ethiopian hopes Star Alliance membership will significantly boost Addis Ababa International Airport’s role as a prominent African gateway, boosting revenues, reputation and presence.
SkyTeam occupies a relatively strong presence in Africa through Air France-KLM and Kenya Airways. Air France and KLM have each built networks on the continent based around their longstanding colonial linkages. While leading Star member Lufthansa does not have the same historical ties as Air France and KLM, it does have fellow alliance members in the north, south and now the east of the country. Star made a point of recruiting strategic partners that spread across the continent, to complement the more than 50% of Star members that operate to Africa.
Within Star, EgyptAir provides a most challenging partner. Both EgyptAir and Ethiopian serve a handful of destinations in the Asia Pacific including Beijing, Guangzhou, Bangkok and Mumbai, aiming to feed in traffic from the African continent. Star will benefit from Ethiopian’s African network as it is more established than the Egyptian flag carrier, particularly in West Africa, while EgyptAir is much stronger in North Africa. Each carrier serves points in the Middle East – Kuwait, Bahrain, Riyadh, Beirut, Tel Aviv, Jeddah, Sana’a and Muscat – creating considerable overlap in Star’s Middle Eastern network and, again, in their respective goals for feeding beyond traffic from Africa.
Ethiopian serves many of the mineral-rich African countries, offering valuable additions to Star’s network. These include the Democratic Republic of the Congo (gold and diamonds), Namibia (via codeshare – lead, zinc, diamonds), Botswana (diamonds) and South Africa (iron, oil). Ethiopian also serves fast growing African economies, such as Rwanda, Ghana, Angola, Kenya and Nigeria.
A sub-region missing from Ethiopian’s network is northern Africa, where it offers service only to Cairo – already well covered by EgyptAir. Important gaps in its network include the oil- and iron-rich countries of Libya and Morocco in North Africa, each better covered by EgyptAir – which serves one destination each in Morocco, Tunisia, Algeria and two in Libya – with the natural advantage of serving multiple destinations within Egypt. But together Ethiopian and EgyptAir have Africa covered for Star.
Ethiopian was the first foreign airline to operate into China more than 30 years ago. At that time a political link, it has proven a valuable and longstanding connection into the Asian powerhouse. Times have changed however; though Ethiopian may have been safe from competition 30 years ago, this is no longer the case and Middle Eastern carriers are rapidly expanding alternative links between the region’s oil- and mineral-rich countries and China. Eight Middle Eastern carriers now operate between China and the Middle East including Emirates, Qatar Airways, Etihad, El Al, Mahan Airlines, Saudi Arabian Airlines, Yemen Airways and Iran Air.
Only two airlines operate third and fourth freedom services between Eastern Africa and China – Ethiopian Airlines and Air Mauritius – offering approximately 9500 seats per week combined. Emirates, however, offers considerably more than 12,000 seats per week from Dubai to China, with numerous connections on to the Middle Kingdom, which is three times more than Ethiopian’s offering to China. Middle Eastern carriers provide a convenient, one-stop link between multiple points in both Africa and China that rivals the offering of many African carriers, with their multiple stops and limited capacity and frequency.
The Gulf airlines are also achieving major capacity share on routes to Europe. While a similar number of airlines operate Middle East-China and East Africa-China, the importance lies in the number of seats on offer. Emirates, the second largest carrier to operate between Africa and Europe, offers more than 88,000 seats per week, while Air France, the largest carrier to operate between Europe and East Africa, offers just 7000.
Despite the competition coming from the northeast, Ethiopian Airlines’ most direct source of competition is found closer to home, by way of SkyTeam member Kenya Airways. Kenya’s flag carrier is another leading African carrier with aggressive expansion plans. The airline aims to serve “every African country by 2013” and is making steady progress towards that goal, including a rights issue scheduled for Nov-2011 designed to give the carrier a major cash injection. Kenya Airways’ operating profit surged in FY2011, up 73.9% from a dismal 2010 result, suggesting the carrier is back on track to achieve profitability.
A strong point in Ethiopian Airlines’ portfolio is its substantial freight operation, with a dedicated cargo fleet of five aircraft and four B777-200LRFs on order. Cargo and freight services accounted for 17% of its total 2010 revenue. The carrier serves more than 40 destinations in its freight network through dedicated freighters and belly space on passenger aircraft. In 2009, Ethiopia’s export in goods was worth ETB28 million, the same as 2008’s levels but still well up on 2007’s ETB20.7 billion.
So what is Ethiopia’s secret in being able to support one of the few profitable airlines in Africa? One significant factor is the national airline’s major capacity share at its home in Addis Ababa, thanks largely to the Ethiopian Government’s restrictions on foreign airline access. Ethiopian Airlines also holds a near-monopoly on domestic routes, where it competes with just one other Ethiopian-registered carrier, Trans Nation Airways, which has one aircraft in service and none on order.
Ethiopia has proven one of the least LCC-friendly markets. Full service carriers account for no less than 99% of capacity at the airport, with flydubai the only LCC to operate into Ethiopia, operating a three-times weekly B737-800 service from Dubai.
Here, protective policies do little to help Addis Ababa’s aspirations to become a large hub, so its future remains inextricably linked to the flag carrier’s growth plans. The result is, paradoxically, to make Ethiopian more exposed to competition from the Gulf carriers’ services into Ethiopia and other African ports. As long as Ethiopian shoulders all of the hub development, so the airport’s attraction limits the flag carrier’s potential to on-carry traffic from other airlines.
Ethiopian Airlines has been consistently profitable over the past four years and is likely to see future profitability as its expansion plans are rolled out. Freight, although sensitive to market fluctuations, remains a strong point. Ethiopian has experienced considerable success with its network and sees it as a future revenue generator. Now, armed with a Star Alliance membership that gives it access to even more destinations worldwide, there may be no stopping the “new spirit of Africa”.
Liberalisation must surely spread across Africa, but Ethiopian – more than almost any other airline in the region – has the opportunity to restructure in time to meet the new challenges this brings. So long as it continues to expand rapidly, this revitalisation process will be made easier – provided it is addressed as a key priority. Expansion alone will not suffice.
Article republished from Airline Leader Magazine
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