9 December 2013

Africa: Customer Service, Cost Containment and Continental Duty Drive Ethiopian Airlines - CEO Tewolde

Photo: Ethiopian Airlines
Ethiopian CEO Tewolde Gebremariam receiving the 'African Airline of the Year' award from IATA CEO Tony Tyler.

interview

Ethiopian Airlines began operations in 1946 as a joint operation managed by the American carrier TWA, using World War II aircraft acquired from the U.S. military to transport passengers and cargo to Cairo and other nearby destinations. During the 1960s and 1970s, the government-owned airline expanded service across Africa and to several European and Asian capitals. Regular service to the United States began in 1998. In 2011, the airline became the third African carrier to join the Star Alliance.

Africa is a major part of the airline's aggressive growth plan for the next decade. Accepting the African Airline of the Year Award last month, Chief Executive Tewolde Gebremariam deplored the fact that non-African carriers account for 80 percent of the continent's passenger traffic and called for deregulation of the continent's skies. A career airline executive who has been CEO since the beginning of 2011, Tewolde outlined his roadmap for rapid expansion in an interview with AllAfrica's Reed Kramer. Excerpts:

What distinguishes Ethiopia Airlines from your competition?

We fly to 76 international destinations on five continents. The only populated continent where we don't is Australia [and] in the near future we will reach there also and be a completely global African airline.

With the addition of Niamey, Niger [this week] we now reach 47 destinations in Africa and 17 destinations here in Ethiopia. We have 61 airplanes in service - nine Boeing 777s, five new 787s, twelve 767s, four 757s, fourteen 737s and thirteen Bombardier Q 400s. We have on order eight more 787s, four 777 freighters, three 777-300 ERs and 14 Airbus A350s.

This puts us in a position to say we are the fastest-growing carrier in Africa and one of the most profitable. We are also the largest cargo carrier in Africa with six Boeing freighter airplanes, two 757s each with 35-ton capacity, two MD 11 freighters each with 85-ton capacity and two 777 freighters with 100-ton capacity.

We cover the continent and have a European hub in Liege, Belgium, a Middle East hub in Dubai, a hub for the Indian sub-continent in Madras and a Hong Kong hub for Asia. We are also flying [freighters] to Guangzhou and recently we added Shanghai - both passenger and cargo service. In the last seven years the airline grew seven-fold - meaning 700 percent in all parameters: size, fleet, revenue, number of destinations, number of passengers carried. We plan to continue this fast growth trajectory.

Vision 2025, the airline's 15-year blueprint for expansion, was considered by some as overly ambitious when it was unveiled in 2010. Do you still believe those projections can be met?

Many were not confident that we would meet the targets. But in each of the last three years, we have exceeded all the targets we put forth. In this the fourth year, the fleet number was projected to be 58, but we are already at 61 - three aircraft more than projected. This puts us in a confident position to claim that Vision 2025 is really achievable, though it is very challenging. The airline is going to grow in terms of revenue to U.S. $10 billion from $2.1 billion annually.

The airline will transform itself to an aviation group with seven business units: the international network , domestic and regional - and by 'regional' we mean the immediate neighbors of Ethiopia: Kenya, Uganda, Somalia, Djibouti, Yemen, Sudan and South Sudan. There is cargo , which today is the second largest business unit next to international.

Then we have maintenance and repair. We are pioneering the maintenance and repair business not only for Ethiopian Airlines but also for the region. Our maintenance facility, which has been FAA-approved (U.S. Federal Aviation Authority) since 1968, has evolved from maintenance of C-47, DC-6, B720/707and B727 to the present day of B737NG, B757/767. B777and MD11 to name the major ones. The facility will grow to handle our own aircraft and third-party business.

[The fifth business unit is the] aviation academy which has been the backbone of Ethiopian Airlines for five decades, supplying the airline with critical manpower - pilots, aircraft technicians, cabin attendants, marketing and ground operations personnel. Now we are growing the capacity from 200 students per year to 1,000, with the aim by 2025 to have the capacity to train 4,000 students a year from all over Africa.

Finally, we have the inflight catering and ground services businesses. Our aim is to provide five-star in-flight catering service with an African flavor and to grow daily meal capacity from 7,000 meals a day to 39,000 by 2025. We aim to be the leading catering company in Africa.

These seven business units put together will generate annual revenue of $10 billion. Operating independently they will generate 50 per cent of their profit from services rendered to third-party clients (mostly African and Middle Eastern Airlines) on top their service to the Airlines group. The airline group will operate more than 120 airplanes, flying 18 million passengers per annum to 121 destinations by 2025. And cargo is going to grow from 182,000 tons today to more than 820,000 tons by then. Employees, who today number around 7,300, will grow to about 17,000. So it is going to generate a lot of jobs for the country and for the continent because we will be employing all over the continent.

How do you plan to meet these targets?

We have several strategies. The first is cost leadership. There is a high operating-cost environment in Africa, with higher aviation taxes, fees and fuel prices than in western countries. With our geographic location here, we believe we can be a cost leader. It doesn't mean we are going to be a low-cost carrier. We will remain a full-service carrier, but our differentiation will be in the labor cost advantage that we have here. We are convinced that we can achieve global standards and features at the lowest cost. For the customer that is going to translate into very good value for money.

Another strategy is to expand the hub concept in Africa - hub and spoke. We have successfully developed Addis as one of the best gateway entries to the continent, collecting traffic from all over Africa, channeling it through Addis to Europe, Middle East and Asia, and vice versa, and to North America with destinations in Washington, DC, and Toronto.

Going forward, since the face of the competition is changing and the competitive landscape is changing frequently - and with the industry being so dynamic - we believe that one hub is not enough for Africa. It is a very large landmass with a one-billion population and a high rate of economic development.

So we came up with this multi-hub strategy. We have already formed a hub in west Africa with ASKY. We have 40 percent equity, a strategic partnership and a management contract. We fully manage it. They now have seven airplanes in service flying to 22 destinations in west Africa. That region has been under-served since the demise of Air Afrique, Nigeria Airways, Ghana Airways and so on. While serving as a hub there, collecting feeder traffic, ASKY provides regional connectivity. People in west Africa no longer need to travel to Paris to visit their neighboring country anymore. It has been successful for us to collect traffic in Lome for onward traffic through Addis to Asia and the Middle East and even into Europe. And now with our service into Brazil, it is also serving as a connection in west Africa for traffic to Brazil.

Another hub is now under formation in Malawi with equity ownership of about 49 percent, in partnership with the government of Malawi. This new airline - hopefully it will in the air in January 2014 - will serve as a national carrier for Malawi. And, for us, Lilongwe will be a hub for the southern Africa region. We hope to develop another hub for central Africa, probably in the DRC. With peace prevailing, I think the central Africa hub is also feasible. And with these hubs, we will be able to serve the continent with inter-continental traffic, which has been a challenge.

How does service delivery figure into your plans?

We plan to upgrade our status to a four-star airline in terms of Skytrax rating. We are at three now. That may be done next year. Our strategy is to be a four-star airline with five-star service delivery.

What are other strategies you are pursuing to meet the growth targets?

We are focusing on four pillars.

The first is an expanded fleet. It is very important in the airline business to have the right fleet, the right mission for each fleet and the right commonality. Too many types of aircraft can run up the cost of maintenance and of pilot training. Our fleet is well defined. On regional and domestic routes we have the Bombardier LQ 400 - a very economical airplane [with] very good technology. And on the short haul, we have the narrow-body 737 - both 700 and 800 versions. On the mid-capacity, mid-range level, we have the 787, which replaces the 767 and 757. (Unfortunately because of the delay of the 787, we still have the 767, which are relatively older airplanes.) And for long-range, we have the wide-body 777 - the 200 LR and 300 ER, as well as the Airbus 350. From now on, we will be adding numbers according to the demand of the network.

Our second pillar is infrastructure. Here in Addis, airport infrastructure is managed by Ethiopian Airports Enterprises, a sister company that is government-owned like Ethiopian Airlines. They have expansion plans, and the first phrase is for the ramp at the airport in Addis, where today we have parking spaces for about 50 airplanes at a time. The second phase is expanding the terminal building, and that will start next year.

Beyond 2025, we have a general consensus that we need a new airport and that it will be built about 70 km south of the current location. The Addis airport is 7,700 feet above sea level - one of the five highest-altitude airports in the world, which is a significant limitation for take-off performance and engine maintenance. On a 767 or 777 you lose about 10 tons [of fuel] on every flight because of the altitude, and that has been estimated to cost our airline about $84 million per anum. Going south, we will be going down in altitude about 2,000 feet and that is a significant advantage.

We also have an expansion plan for the cargo terminal, which is owned and operated by Ethiopian Airlines. And we have a new maintenance hangar under construction right now. We also have land allocated to a hotel project - a four-star hotel with about 300 rooms, which matches our current hotel room consumption of about 300 rooms per day provided to passengers in transit.

Our third pillar is human resources development. In the last 3 years we invested about $55 million to expand the aviation academy. We want to ensure that pilots, technicians, cabin crew and marketing and sales [personnel] are adequately trained.

The last [pillar] is systems, which brings together human resources, infrastructure, including ICT, policies and procedures. We are also investing there. We just crossed over to a new enterprise planning system and are among the few airlines running SAP for supply chain management, finance and logistics. If we implement these strategies properly, we are assured the airline will meet all the targets in Vision 2025.

The airline sector in Africa is littered with failures. What has Ethiopian Airlines done to defy that record and achieve success?

This is the most tricky question that I get. There are many factors, but I think the main one is unique employee dedication, commitment and loyalty to the airline. Ethiopian Airline employees do not work for just paychecks. They work for the airlines' success. If you ask any employee in this compound about Vision 2025, everybody knows and everybody has committed themselves to achieving that vision. The airline believes that its strongest competitive advantage is its employees, and this is one of the main reasons for success.

The second reason I would say is corporate governance, meaning the government's ability to separate ownership and management. It is 100 percent government owned. Thirty percent of board members are drawn from employees. The other 70 percent of the board are from the government, so there is a collective ownership. It is not shareholder management like you have in the West; it is more of stakeholder management. But ownership and management has always been completely separated. The management is left completely to professionals. We have 18 people - senior management staff - who have been with the airline for more than 20 years. Most of us were hired out of school and stayed here. So that is also an advantage.

And third, this is a very prudent airline in terms of cost management, risk management and strategic vision. We have a 15-year strategic plan. It doesn't mean that it is not going to change, but the roadmap is clearly known and clearly defined. There will be some adjustments according to the dynamism of the operating environment, but we know where we are heading.

The airline has established a very strong brand in Africa over the last 68 years - since the independence of most African countries back in the 1960s. The airline has credit with the public, and that's a very strong asset. The airline also has the belief that it is an African airline and it has to serve - not only for profit, but as a continental duty.

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