Ethiopian Airlines makes profit despite global turbulence

ADDIS ABABA — Ethiopian Airlines has collected 45pc more revenue in the first eight months of the 2008-09 budget year than it has planned according to its officials.

The phenomenal performance has come during the global economic crisis that has put contributed to a loss of 8.5 billion dollars for the aviation industry in 2008 and an anticipated 4.7 billion dollars loss this year. The airline has registered 8.37 billion Br in revenue over eight months, three per cent higher than the 8.15 billion Br plan for the entire year.

Of the gross revenue, 6.12 billion Br was collected from ticket sales for about 1.95 million passengers. This represents 99pc of the planned passengers for the eight months.

Boosting operations with three additional aircraft to its fleet size in the current fiscal year, the flag carrier’s performance in the cargo service has also, equally, gone beyond the plan its executives authored for their operations through the year.

“To facilitate the country’s export sector, the airline has bought a cargo plane for $60 million and rented two passenger airplanes, a Boeing 757 and a Boeing 737-800.” Girma Wake, chief executive officer of the national carrier, said. He was reporting the performance of the Airline to the Infrastructure Affairs Standing Committee of the House of People’s Representative last Wednesday June 3, 2009.

Ethiopian has collected 1.33 billion Br in revenue from transporting 354 million tons of freight overseas. The revenue from the cargo is five per cent higher than the actual plan for the eight months.

It has also collected 850 million Br from payments for extra luggage, training and postage services. Previously, its plan was to collect 570 million Br from these sources.

Its expenditures over the same period were 7.64 billion; representing 96pc of expected expenses. This is a 45pc increase compared with the same period last year.

The increasing oil consumption due to increased operations accounts for 3.39 billion Br of the total expenditure. This represents 44.3pc of its total expense.

“We are astonished by the performance of the airline,” said a member of the Standing Committee as he asked the CEO of Ethiopian Airlines how they managed to achieve such a performance at a time many other airlines are closing or loosing money due to the global financial crisis.

“33 of the 53 flight destinations of the airline are in Africa which has not been hit hard by the financial crisis,” said the CEO.

Conference travellers have also contributed to the performance of the airlines, according to Girma.

“Unlike Ethiopian, many airlines have more leisure travellers who are tourists. Thus, when a crisis like the one besieging the world happens, travelling for leisure is likely to decline. Business travellers, however, have to travel,” the CEO said while explaining the questions raised by the MPs.

“The airline has increased flight frequencies to many of its destinations and a modern airport facility built by the Airports Enterprise increases travellers’ comfort,” Girma said.

Many airlines have faced challenges in continuing their services during the global economic downturn which has decreased business and leisure travel worldwide. Some governments such as the republic of South Africa and China have been forced to inject hundreds of millions of dollars to ensure their airlines are able to continue providing service.

South African Airways, one of the biggest airlines in Africa and one of only two Star Alliance members in Africa, received a 2.8 billion Rand (a little over 348 million dollars) injection from their government while China Southern is set to be the first mainland carrier in China to fly out of the financial turbulence after getting a capital injection of three billion Yuan (approximately 440 million dollars) from their government.

Hit by declining passenger traffic, China Southern lost over 4.8 billion Yuan (a little over 700 million dollars) in 2008.

Similarly British Airways reported 850 million dollars in losses over the same year.

The aviation industry experienced losses in 2008 due to the increasing price of oil. In July 2008, oil reached 147 dollars per barrel. The aviation industry lost 8.7 billion dollars. Now, with oil prices decreasing to their current price of approximately 66 dollars, the aviation industry still continues to suffer from losses. The CEO’s report also included speculation of industry experts that this year, the aggregate loss is will reach 4.7 billion dollars.

Despite a daunting global context where profitability has become rare, Ethiopian Airlines has managed to surpass its plans.

“We found the performance of Ethiopian Airlines impressive,” Wubneh Emiru, chairperson of the Infrastructure Affairs Standing Committee, told Fortune. “We cherish the achievements of the airline.”

But not surprising is the performance for experts in the industry.

“The achievements of Ethiopian are expected,” Zemedenen Negatu, managing partner of Ernst & Young, who has been consulting the airline since 2004, told Fortune.

He attributes the success of the airline to an efficient management system and the visionary leadership pursued by its management and board.

Nevertheless, its domestic operations seem to have enjoyed less attention. The CEO was asked to explain the contrast.

“It is a fair criticism,” Girma said.

But there are plans in the making to improve the domestic services.

“We have bought eight Bombardier Airplanes from Canada,” he said. “We will buy four or more planes from the same company next year.”

Ethiopian is also working to upgrade its pilot training institution at a cost of 30 million euro (45 million dollars) with financing through a loan from French Bank. With the finalization of the expansion, the training institution would be upgraded to an Aviation Academy, according to the CEO.

As part of its preparation for membership in the Star Alliance, it has also signed a code share agreement with Singapore, Thai and United airlines of Singapore, Thailand and United States, respectively.

It has also bought 25pc equity share in the establishment of ASKY airline in Togo in collaboration with the government of Togo and the Economic Community of West African States (ECOWAS), a regional block of 16 countries founded in 1975.

Ethiopian will be responsible for maintaining the air crafts and management of airline operations.

Togo will serve as the airline’s West African hub, according to the CEO, though Nigeria offers the largest number of passengers for Ethiopian in the continent.

Addis Fortune