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Ethiopian Airlines: A glass half full

The challenges in African aviation cannot overshadow the promise of a bright future, says Tewolde Gebremariam, CEO of Ethiopian Airlines.

Tewolde GebremariamIs the airline in good shape?

Considering the airline is 67 years young—we don’t like to say old—I think we are in excellent shape.

This wasn’t always the case. Back in late 2004, we felt the airline hadn’t grown as much as it should have done. We came up with a Vision 2010 program. Its main aim was to achieve a turnover of $1 billion by 2010, which meant about 20% growth per annum. There were very few African companies with that kind of turnover at the time—just a few banks. In June 2010, we got to $1.2 billion.

So we’ve done well. But this result also showed that we can do even better. We knew we had huge potential so we are now starting on our Vision 2025 program. We made it longer—15 years instead of five—because we wanted to include the strategic change of our fleet and we wanted a longer-term financial plan.

What are the goals of Vision 2025?

We want to achieve fast, profitable, sustainable growth. There is no point in making profits one year and a loss the following year. You have to breed confidence so it is important to turn a profit every year.

By 2025, that should mean that Ethiopian is a $10 billion airline. And it will also be an aviation group with several business units and four hubs in Africa—in the east, west, central, and south. Africa is a big place and you can’t serve it through one hub. We will be operating some 120 aircraft flying to 90 international destinations and carrying around 18 million passengers per annum. We will carry 820,000 tonnes of cargo and the number of employees will grow from 7,000 today to 17,000.

How will you achieve such remarkable growth?

Vision 2025 is built on four pillars. The first pillar is our fleet. Fleet commonality is important. We will use the Boeing 737 for shorter ranges and the Boeing 787 for mid-range operations. Long haul will use a combination of the Boeing 777 and the Airbus A350.

For our regional and domestic services we use the Bombardier Q400, which is a very economical aircraft. We will get more of this aircraft type.

The second pillar is infrastructure. In Ethiopia, the airports are owned and operated by a sister company. We are working with them to expand our hub at Addis Ababa. The first phase of development has been completed and we now have enough parking spaces for aircraft. The next phase is to expand the passenger terminal by 2015.

Looking ahead to 2025, there will be a completely new airport, some 60km south of the current facility. This will allow us to address the altitude issue. Addis is 7,700ft above sea level. By going south, we will drop to 5,000ft, which is much better for aircraft on take‑off performance.
We won’t ignore cargo. There is capacity for 250,000 tonnes annually, but that is already being exceeded. A new warehouse will allow for 1.2 million tonnes annually. We will also increase the number of hangars for maintenance within the next few years to improve aircraft utilization.

The third pillar is human resources. This really is our foundation. People are our strongest and most precious asset. In a hostile business environment, it is your staff that make the difference. We know we can’t just go out to the market in Africa so we have to rely on training our own people. The airline has to be self-sufficient in terms of personnel.

Brain drain has been a major issue and it is still a challenge. But we saw that it could be an opportunity too. We said, “instead of complaining, why don’t we train enough people not only for our airline but also for the region.” We knew that with hard work and the right investment it would be a win-win situation.

We have already expanded our aviation academy from 200 intakes every year to 1,000. We plan to increase intakes to 4,000 a year. There is a huge demand for skilled aviation personnel in Africa.

The fourth pillar is IT systems. It’s about well-defined processes that tie the other pillars together and ensure efficiency.

Why is Ethiopian Airlines doing so well when other airlines are struggling?

There are a number of factors, not least of which is the fact that we have been very fortunate. But I can also say that there have been a number of elements that are working in our favour.

First and foremost, the airline has exceptionally dedicated and uniquely committed employees and management. Ethiopian Airlines employees do not consider their association with their airline as a simple contract of employment for a monthly pay check; rather they consider themselves to be in a long-term mission of building a competitive global airline brand for their country.

The airline has also been very strict on cost leadership. We knew we had to be a full-service network carrier but we wanted the lowest possible unit cost while providing a product that meets global standards. That has given us a competitive advantage in terms of pricing flexibility.

And we have a long-term vision. Very few airlines think in terms of a 15-year strategy. If you just go from quarter to quarter you may hit a few targets but you will neglect your longer-term goals.

Corporate governance has played a role too. The ownership and management of the airline are completely separate and this has been a successful set-up. The government is the 100% owner, but the management are aviation professionals and run the airline as an independent business. There is no unwarranted interference and management are responsible and accountable for day-to-day operations. Last but not least, we have a strong brand in Africa. We have been providing connectivity for a long time and we have a lot of good will from all African countries.

Ethiopian Airlines has an excellent safety performance. Will the African Strategic Improvement Action Plan improve safety on the continent?

There are world-class airlines in Africa like Ethiopian Airlines, but the entire continent is clouded by the safety issue in a few countries—which is real. Without belittling the challenge, we should remember that Africa is huge and the problems tend to occur with smaller airlines that just don’t have the structure to ensure operational safety.

At a political level, the plan commits governments to safety oversight and that will certainly help. But agreeing to the plan is just the first step. Now we must enforce it. At a practical level, the work to bring non-IOSA airlines up to the standards and onto the registry will support the government commitments and improve safety performance.

What needs to be done to further liberalization in Africa?

I am not sure we are yet at the point where governments understand that it is no longer necessary to put a national flag on a tail of an aircraft. But a small airline from a small country will find it very hard to be successful in a competitive market.

African markets are very fragmented and we are not talking about a large number of frequencies on most routes. There is no Madrid-Barcelona or Rio-Sao Paulo here. But we have cooperated with many African airlines and we are used to working together to help our partners. We have the technical ability to help smaller airlines and countries.

Ethiopian Airlines is planning something similar to LAN. We are looking at a franchise model where we manage a franchisee airline but do not exceed a 50% equity stake so we stay within bilateral rules. But we can’t use the name of Ethiopian all over Africa. People like to see their country name. In Togo, we have a 40% stake in Asky, for example, which stands for African Sky. So I don’t think Africa is ready to follow in LAN’s footsteps just yet, but it will come.
 
So are you pushing for liberalization in Africa?

In Africa, we have many challenges. Fuel is more expensive, taxes are high, and much of the infrastructure is poor. Operating in this environment is different and difficult. That is to say that the playing field is not naturally even. A carrier from outside the continent faces these challenges only on their African routes. We face them on every route.

We need a single aviation market in Africa and reciprocity with the rest of world. And by reciprocity I mean mutual benefit. Competition is good. But you will lose a fight with an 800-pound gorilla if you are unprepared!

Is the fastjet model also a sign of things to come?

Their business model is essentially the low‑cost model used by certain carriers in Europe and the United States. I am sure they have studied the market and they have a compelling business rationale.
But a low-cost business model doesn’t make sense for Ethiopian Airlines. If you look at Ryanair or Southwest, they reduced cost by flying to secondary airports, for example. But there is no secondary airport in many African cities. There isn’t enough flexibility to enable us to replicate a truly low-cost model in the high-cost African context.

Do governments understand aviation’s role in driving growth?

Aviation has a lot of work to do convincing governments of the power of aviation. Given the state of road and rail infrastructure, it is understood that aviation is irreplaceable, but governments seem to take it for granted. They do not give airlines the right economic incentive to grow. This will become more apparent to governments as Africa’s economy expands. Insufficient connectivity will hinder both trade and tourism.

Most African airlines are owned by governments. Why aren’t they more concerned about the success of their investments?

It is natural that the priority of many African governments is to give their people food, electricity, healthcare, and education. Aviation is very important, but there are so many pressing issues that it is easy for aviation to get left behind. And there are also some governments that still think aviation is a rich man’s game. We are working to convince them that this is not true. Aviation helps trade, tourism, and foreign direct investment. That creates jobs and that helps ensure people have enough money for food. Aviation is the key link in this economic cycle.

Africa is the focus of international economic interest. What impact
will this have?

It will mean quite significant change. I read an article recently about someone who drove from Senegal to Cape Town and he says tremendous change was apparent compared with a decade ago. The road was paved and it was peaceful.

Everyone knows China is showing an interest in Africa and working hard on infrastructure. It is bringing change. But we should not forget that there is also grass root demand for this change. African governments are under tremendous pressure to be transparent and accountable. The number of democracies has grown and so has the middle class.

This continent has tremendous potential, but we have to see the glass as half full if we want to realize it.

Is holding the IATA Annual General Meeting in Africa significant?

Definitely. Tony Tyler promised a focus on Africa and he has been true to his word. Aviation connectivity is playing a critical role in a changing Africa. It’s a good decision to hold the AGM here and the timing is perfect.

Your job must be very challenging?

It’s not easy, but it is interesting and exciting. The industry is full of challenges. When you wake up you don’t know what you might find- perhaps an increase in fuel price or a new crisis in Europe. The news can come from anywhere and cover any aspect of business.

www.ethiopianairlines.com

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