By David Onjili
American Airlines (AA), and Delta Airlines are the most profitable and largest airlines by fleet size respectively, occupying the number one slot interchangeably over the last 3 years. AA has a fleet size of 1,556 as compared to Delta’s 1330. In the same year, AA made profits of $44.54b followed by Delta with $44.44b and in third position came Lufthansa Group with $42.18.
Ethiopian Airlines (EA) on the other hand is the most profitable airline in the African continent. In fact, it is the only airline to make a profit on the continent for the last three years; it reported $260m (Sh28.9 billion) in operating profit – more than all African airlines combined – and an operating revenue of $4bn (Sh446 billion) in the financial year ending 2019.
Looking at global aviation best practices and comparing it to the sound management of EA, what makes it such a behemoth on the continent and one of the most respected airlines in the globe?
In 2011, Kenya Airways (KQ) launched Project Mawingu, an ambitious ten-year plan aimed at rivalling EA and making Nairobi the hub for flights to the East. The plan was so elaborate that Boeing had chosen KQ as the African airline that would first fly the Boeing 787 Dreamliner. KQ had also planned to increase its fleet to 100 in the next decade.
Almost a decade later, Project Mawingu has never taken off, and KQ operates a fleet of just 38. Meanwhile, in August 2012, EA became the first African airline to fly the 787-8 Dreamliner from Boeing, with KQ acquiring its first one two years later in 2014.
ET currently boasts of 126 airplanes, according to the official company’s website. There are 47 orders for new planes which will increase her fleet to 173, cementing its status as the biggest airline on the continent. ET also embraced Boeing’s rivals Airbus, purchasing the A350-900XWB and placing orders for ten more. But it is not just the numbers that are impressive, but also what the numbers say about Ethiopia’s status as Africa’s premier airline.
Owned by the state, run by professionals
The success of a state-owned carrier is never given; in the same vein, profitability is rarely coincidental; market dominance even less so.
Yet today, EA is now the most networked African carrier, both in terms of scheduled routes within the continent itself as well as in terms of international connectivity. It serves 91 international destinations. 52 of these are in Africa, 15 in Europe and the Americas, and 24 spread across Asia – from the Gulf to Tokyo. The fleet is the largest and youngest in Africa: 68 sophisticated passenger planes with an average age of five years make over 230 daily departures. This is one of the major factors underlying EA’s success – or its strategic capture of the African market at least: the establishment of a ‘multi-hub system’ on the continent.
The airline also dominates freight and cargo within Africa. Plans were recently announced to build a 1.2 million tons annual capacity cargo terminal at the airline’s hub in Addis Ababa. This is just slightly smaller than that of London Heathrow, Europe’s 4th largest, and speaks of the ambition of the airline. It currently covers 48 cargo routes with eight dedicated aircraft. By 2025, it aims to have increased the cargo fleet to 18.
EA has been state-owned ever since its creation in the 1940’s at the behest of Emperor Haile Selassie. At the same time, government oversight is retained much in the same way as all other state-owned carriers – through political appointments to the board of directors. So, how does this scenario reconcile with EA’s success?
Firstly, the Ethiopian government, in their capacity as owners as the board of directors, and in their capacity as representatives of the owners, have prioritized hiring professional management staff on merit rather than political placements motivated by patronage and cronyism.
The current management team has over 421 years of airline industry experience between them. The CEO, Tewolde Gebremariam, began working for EA in 1985 in the cargo traffic handling department. He worked his way up the ladder gradually, gaining experience, until finally reaching the position of CEO. He has since won multiple awards: including African CEO of the Year 2012 from the African CEO Forum and The Best Africa Business Leader from the Washington DC based Corporate Council on Africa.
Secondly, the Ethiopian government allowed the management team, in their capacity as the professionals, to run the company on sound business principles. In other words, the government and board understand that EA is a company and it has to be operated on commercial considerations. There are no opportunities for patronage.
EA’s diligent, experienced and reliable management team are trusted by the shareholder and given the autonomy to act without concern for political interference or fear of political reprisal. At the same time, and like any business, they are also made aware of their accountability – which is judged purely on performance, not partisan objectives.
An African leader
Beyond its own operations, the airline has also been helping other African national carriers.
It revived and owns a 49 percent stake in Malawi Airlines and a 45 percent stake in Zambia Airways and has announced plans to help re-launch a new airline in Mozambique. It is also in talks to establish smaller regional bases in Djibouti, Chad, and Equatorial Guinea. It already operates hubs in Malawi and Togo.
This strategy of reviving defunct national airlines, launching more connections and setting up more hubs across Africa has helped Ethiopian Airlines become a leader in its industry.
Adapting to COVID-19
In 2020, the biggest airlines in Africa are reeling from the devastating economic effects of coronavirus. Kenya Airways, the sixth largest airline on the continent, has occasionally asked the country’s government for an urgent bailout to avoid going into bankruptcy, and protect the jobs of its 4,000 employees.
But it seems the COVID-19 pandemic has just handed Ethiopian Airlines an opportunity to follow up on its vision of becoming the leading Africa airline by 2025.
In an interview with the Reuters earlier this year, Tewolde admitted that they had experienced a 90 percent drop in passenger numbers – and forecast a $1bn loss in revenue in the first six months of the pandemic ravaging the global economy and aviation industries.
But, leveraging on its extra capacity, Ethiopian sought help African countries meet both their export and import demands, by removing seats in its passenger planes to hold cargo. EA also bought an additional 20 freight airplanes during the pandemic.
In the period of the pandemic, the carrier had operated more than 360 chartered cargo flights to distribute Personal Protective Equipment (PPEs) to various countries around the globe. Tewolde observed that they are setting aside 40 additional airplanes to distribute the coronavirus vaccine once it starts being used. In so doing, not only did it avoid a loss but made an impressive profit during a year not so many companies did!
Aviation experts expect that after the COVID-19 pandemic, these collaborations will be established well enough for the long haul.
The lessons for SAA’s shareholder, our government, are manifold and yet straightforward and easy to implement. KQ’s board should be appointed with a mandate to operate along business lines, using EA as a model. The senior management team should be strengthened by the appointment of people with industry experience who can develop the strategic vision to take the airline forward as a business. Then allow the managers the freedom to do their jobs.
It’s that simple. (