4 minute read

Ethiopian Airlines: From the Horn of Africa to the Top of the Airlines Industry

An Industry Leader    4 minute read

Ethiopian Airlines: From the Horn of Africa to the Top of the Airlines Industry

Ethiopian Airlines is somewhat of an mystery, in an industry of African airlines with painfully weak prospects of growth. In 2015, the East African airline made more profit than all other African carriers. It’s phenomenal feats don’t stop there. The average growth rate in the industry, at 5%, is dwarfed by the airline’s average growth of 25% in the past seven years.

Its revenue of $2.43bn in 2016 served as further justification of its plans to expand its fleet and network to more than 90 international destinations across five continents. Its plans to generate $10bn in annual revenue may certainly be realised sooner rather than later.

An Ethiopian Vision

Referring to the airline carrier’s 15-year strategic plan , Vision 2025, Ethiopian Airlines Group CEO Tewelde Gebremariam stated:

“In the last seven years Ethiopian Airlines Group has witnessed a very fast growth. The main success factor has been long term planning. The main driving factor of the vision was to become the leading aviation group in Africa and we have achieved it almost ten years in advance.”

The CEO attributes the airline’s success to its ability to manage its costs and its operating model effectively, as well as a sustainable approach to diversification enabled by infrastructure. With flair, Ethiopian Airlines used the relative deficiencies of resources in Africa’s airline industry to its strength, developing its business centres: Ethiopian Domestic and Regional Airline; Ethiopian International Passenger Airline; Ethiopian Cargo; Ethiopian MRO; Ethiopian Aviation Academy; Ethiopian In-flight Catering Services; and Ethiopian Ground Service.

Currently, the airline carrier has the largest aviation academy in Africa, with an investment of $100m. It remains fully aware of the rising demand in for air travel in Africa, which has been spurred by a growing middle class on the continent. Excuses regarding lack of labour, inflation, and regulations are but self-debilitating actions which will only prevent it from reaching its full potential in emerging markets.

Many state-owned carriers have come and gone. What could have proven to be an advantage for state-funded airlines in Africa was in fact counterproductive for them. Considering this, the question must be posed: is Ethiopian Airlines at an advantage or disadvantage as a result of its government-led business model?

Standing on its Own Two Wings

As a state-owned airline, the East African carrier benefits from continued support from the government in the form of reduced labour and financing costs. Tewelde Gebremariam, however, stressed that his airline does not expect a cent from the government. Thus, in many ways, the airlines isn’t completely shielded from the challenges that many private airlines in the African region are exposed to.

Credit-worthiness remains a significant concern, as well as forex risks. While these pressures on financials persist, Ethiopian Airlines is aided by its unique mode of building capital through unpaid dividends. Its owner does not demand dividends, making it easier in many respects for the airlines to focus resources on long-term business value for fewer stakeholders.

Consequently, there may be less pressures to gloss up the books and more incentives to create intrinsic value through practical methods of business development. The government’s $4bn plan for a new hub airport will ensure that its capacity may be increased in line with the practical application of its vision.

Leading by Learning

Ethiopian Airlines remains passionate about providing air travel in Africa – so much so that it was involved in discussions to explore the possibility of reviving Air Zimbabwe, which was reported to be in debts exceeding $300m. Reports were also made of the possibility of the carrier aiding Nigeria with similar challenges in its airlines industry.

Looking to not only aid those it leads but to learn from other titans of the industry, Ethiopian Airlines has taken the initiative to sign an expanded codeshare agreement with Singapore Airlines, offering customers travelling between Africa and Asia to enjoy access to the networks of both airlines. There is much to be learned from Ethiopian Airlines. Its approach is simple but incredibly impactful. As always, it is the simplest approaches that are the hardest to execute.

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