Ethiopian Airlines Wants To Grow Revenue Sixfold In 15 Years
Nov. 01 2010
Ethiopian Airlines has ambitious plans to grow sixfold in the next 15 years and create new subsidiaries in other parts of Africa, together with Star Alliance members South African Airways and Egyptair.
The airline was invited to become Star Alliance’s third member in Africa at an event here last month. Following the integration process, Ethiopian is expected to join the group in mid-2011. If Ethiopian comes close to implementing its growth plans across the continent, then Star will have such a big advantage over the other two alliances that it will be almost impossible for them to catch up. The Addis Ababa-based carrier would also become a more serious competitor to Emirates, which has been focusing on connecting West Africa to its Dubai hub.
Ethiopian’s goals are based on its Vision 2025 plan. Since the carrier exceeded the targets of its Vision 2010 strategy, the airline leadership decided to devise formal strategic guidance and firm targets over a longer period of time. Ethiopian had $1.3 billion in annual revenues in its fiscal 2010 (ended June 30) and a $118-million profit. Its fleet of 32 jets plus turboprops serves 59 international destinations. Within the next 15 years, Ethiopian aims to reach $10 billion in annual revenues and $950 million in profits and grow its fleet to more than 100 aircraft.
Today, Ethiopian has 37 aircraft on firm order, among them 10 Boeing 787s, five 777-200LRs, 10 737-800s and 12 Airbus A350-900s.
“For us, there was no recession,” says CEO Girma Wake. Ethiopian has been growing 20% on average in the past five years and has been profitable in the last 10 years. “We live in a completely different world [than airlines on other continents],”Wake says. The carrier does not depend on leisure traffic and the economy is not tied to a broad banking system that could have brought it down. Instead, many Ethiopian passengers are government employees or executives who need to travel to go after their business because the country’s weak ground and communications infrastructure forces them to do so. “The nature of our traffic is such that you continue to grow even if the whole world is in recession,” Wake says.
If anything, Ethiopian believes it cannot serve the market properly. The airline has been desperate to receive its first Boeing 787s, which have now been delayed by almost three years. “Boeing called it the Dreamliner, and for us so far it remains a dream,” Wake jokes. But contrary to reports, the company is not considering cancelling the order.
Ethiopian is not only counting on its own expansion; it has ambitious plans to develop a network of airlines that will eventually cover important parts of Africa. Wake confirms that Ethiopian is talking to South African Airways (SAA) and Egyptair about jointly setting up two new carriers, one in Central and one in West Africa. Fellow Star Alliance member Brussels Airlines is also involved in the talks. Brussels proposed starting an airline called Air DC to operate BAe-146s based in the Democratic Republic of Congo. But the project was shelved following renewed political unrest and severe violence in the country in 2008-09. “There is a big vacuum in West and Central Africa that has to be filled,” Wake says.
Details of the new joint venture are still being negotiated, although the CEOs of the three airlines tell Aviation Week they expect to make a formal announcement in the coming months. Egyptair Chairman/CEO Hussein Massoud also confirms the first venture should be launched early next year.
Lufthansa Deputy CEO Christoph Franz says his airline was very supportive of the Brussels Airlines plan and encourages the strategy envisioned by Egyptair, SAA and Ethiopian, as well. He indicates that Lufthansa could contribute financially to the venture on a limited basis, thus potentially becoming a minority shareholder. The three African airline CEOs said they would discuss their proposed ventures after the Star Alliance event here.
The first venture will be located in one of the six Central African nations—Cameroon, Central African Republic, Chad, the Democratic Republic of Congo, Equatorial Guinea and Gabon—because the region has a more advanced aviation sector, says SAA CEO Siza Mzimela. This will be a new airline, she says, although she hints that future ventures could include investment in existing airlines. Mzimela also confirms that any new entity will focus on intra-African traffic. “There is little feed or de-feed in the region,” she notes. No subsidiary is expected to adopt a low-cost model, she adds.
Various business models are being considered, including direct investment and non-monetary support. Egyptair’s Massoud says the airlines could provide aircraft from their own fleets, but he stresses that many options are being discussed.
“Africa is too big for five or six carriers,” Wake says. “The three of us are working together so we can create a critical mass.”