"Be thankful for a few problems. They make a job interesting," declares a poster outside the public relations office at Ethiopian Airlines' Addis Ababa headquarters. This neatly sums up the determined spirit of the African airline, which, owing to political unrest, has been forced to move its operation to Nairobi in Kenya on multiple occasions. More recently, its product and network plans have been heavily challenged by delays to the Boeing 787 programme.
"When things are difficult, we just work harder," says Ethiopian Airlines chief executive Girma Wake. "We are used to going through storms. We have been through three governments and there was a time when no tourists were allowed in the country, and we survived that."
Driving around Ethiopia's vibrant capital, billboards herald the arrival of the 787 with slogans such as "The first African Dreamliner" and "More reasons to be proud of the African Sky Boeing 787 Dreamliner coming soon". Ethiopian has 10 of the type on order but the first aircraft has been delayed from last September until July 2010, dealing a painful blow to rapidly expanding Ethiopian's prestige and strategy. Wake, who comes across as being warm and approachable, admits to being "mad" at Boeing.
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"By mid-2009 to early 2010 we were expecting the 787 to become our core fleet. That's not going to happen now. To fill that gap we've had to lease aircraft and, when you lease aircraft, you don't get exactly what you want. That has somehow spoilt our brand," says Wake. The delay has impacted Ethiopian's on-board product and has effectively frozen its long-haul expansion plans for 2009-10, which included new routes to the Far East and North America.
Wake says: "Even in 2010 it will be difficult with only two 787s. Our long-range expansion will now be in 2011 and beyond." But in keeping with the poster's missive, the proud carrier's spirit has not been broken.
In 1996, during Ethiopian's 60th birthday celebrations, the airline's management laid out a bold strategy with promises of doubling revenues, traffic and aircraft numbers by 2010. Wake smiles and says: "That's almost reached. We've achieved it early. Now we are already working on a strategy for the next five years." Last year Ethiopian handled 2.5 million passengers and delivered $970 million in revenue, only $30 million shy of its 2010 target. Its jet fleet rose to 26 aircraft and net profit stood at $53.7 million, giving a profit ratio which Wake labels as "good" with potential to grow further. Ethiopian is re-capitalised every year as dividends are re-invested and while privatisation is not immediately on the cards, Wake says government ownership is no disadvantage.
"Over the next seven or eight years we are planning to double what we have today, in terms of revenue, passengers, fleet and profit," he says. "When we set ourselves the 2010 target everyone said it was too ambitious. Now they've realised it can be achieved." Within three months Ethiopian's five- and 10-year strategic plans, starting from 2010, will be finalised. Wake wants to grow Ethiopian's network from 53 to around 80 destinations by 2015, increasing its mainline jet fleet from 26 to 40 over the same timeframe. With characteristic understatement and a playful glint in his eyes, he says: "I believe that will do."
Wake shares an anecdote about his one and only skiing trip: "It was terrible. I am lucky I'm still in one piece. Every few metres I was falling down. I started too late, it didn't work." Similarly, he is under no delusions about the dangers of growth for growth's sake. "Bigger does not necessarily mean more profitable. By African standards we are big, but by global standards we believe we are very, very small today. Eighty destinations is still manageable, we can still make a bigger profit." He adds that this comparatively low base means "it will not take a miracle" to achieve the growth targets.
The rationale behind Wake's expansion plan is that size will lead to lower unit costs and minimise the risk of market downturns, but his one concern for the growth plan is uncertainty over the likely duration of the economic crisis. "If it goes on for a long time, it may affect us. Otherwise I believe we will be able to achieve it," he says. Africa has no credit system, adds Wake, effectively sheltering Ethiopia from the direct fallout of the credit crunch. "In a credit crunch, if credit doesn't exist, you don't have a problem," he says nonchalantly, taking another sip of tea.
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Wake is a realist and he believes the economic downturn will inevitably kick in as consumption of Ethiopia's major exports - coffee and flowers - begins to slow down. "People buy flowers if they are happy, when they have money. When they are out of jobs, people don't buy flowers," he says. "It will come. It will affect us. Nobody is immune to this sort of thing. The impact may not be as drastic, but my fear is that it may take longer [to recover] here when it gets in."
Ethiopian's passenger yields were improving until a couple of months ago, but the decline in global traffic is making high yields difficult to maintain. Cargo, which represents about 15% of the airline's turnover, has been harder hit, but Wake says there is potential for improvement. To counter the decline he is striving to increase its premium traffic by lowering fares slightly and improving its network to attract business passengers. Another two international routes will join Ethiopian's network in 2009.
The 787 delays have forced Ethiopian to take out interim leases and Wake accepts that, on these aircraft, Ethiopian's "Cloud Nine" business product is "not good enough", although he is reasonably satisfied with its 60in (152cm) seat pitch. Over the next 12-18 months, Wake is planning to roll out a "much better" seat with a deeper recline, along with improved business class amenities, such as meals on demand. In-flight entertainment systems will also be standardised on any new aircraft additions.
He is unperturbed by the competition posed by rising interest from Middle East carriers, which have flocked to Africa, many of them operating new aircraft. "We have a population of 1 billion people. How many travel by air? Very few. Given the opportunity, at least 20-30% of the population can travel. I think there's enough market for all of us. With us all doing our best, we can still only capture a fraction of the potential. Working together is better because it supports the market."
Wake is confident that Ethiopian can remain relevant through its historic roots, strong network and the warmth of its African hospitality. "We know Africa, we are an African airline and, by giving African treatment, we should be able to provide a service which others are not able to duplicate. I have lived for long enough in Europe and the Middle East to understand their mentality. The majority want to have a different experience and, when they get that, they are happy."
Wake argues that Ethiopian was instrumental in creating trade ties with Dubai, offering free flights and hotel accommodation in the early years to stimulate business. "Now we operate two to three daily flights. We invested in the '60s and '70s and it's paying off today." Ethiopian was also an early entrant into China and now offers 14 weekly flights to three Chinese destinations.
"I believe the last 60 years' investment will help us, but we have to give good service - comparatively better service. We can't expect people to fly with us because we've been flying for a long time." He adds that many non-Ethiopians see the Addis Ababa-based airline as their national carrier. "That type of reality is not something you can buy in the short term. Our Nigerian passengers know every hostess by name, which is not something you can build overnight. Many people know and love Ethiopian."
Ethiopian'sAfrican network is among its key strengths, with a 70% transfer rate, says Wake. "Bankers, United Nations officials and diplomats have told me that, without Ethiopian, connecting in Africa would be very difficult so they might as well fly with us from the beginning. It makes it easy for them." Today Ethiopian serves 33 African destinations and Wake aims to reach at least 45 by 2015, starting with three additions in 2009.
In a bid to strengthen its regional partnerships in Africa, Ethiopian recently signed a five-year management contract with west and central African regional start-up ASKY. Ethiopian is taking a 25% stake in ASKY, a full-service Boeing 737 operation which will be based in Togo's capital Lome. Wake says ASKY is aiming to launch shortly. "April is realistic, but if it is pushed back by a month or two it doesn't matter."
Under the plan, ASKY and Ethiopian will feed one another's networks, with Lome forming a hub for flights in West Africa and beyond. Within five years ASKY is planning to form other West African hubs and branch out into international flights, using Boeing 767s to serve long-haul destinations. Should ASKY struggle to source its own aircraft, Wake would be willing to lease two Boeing 737s to start the venture.
Ethiopian may ultimately duplicate the model by forming a southern African hub. Wake says: "South is probably the next place we will look. We are looking from Zambia to Mozambique, Botswana and Malawi. We don't want to do too many things at once. We want to make sure ASKY is operating profitably first. Starting two carriers at once could cause problems, so we will do it gradually."
Africa is still in need of point-to-point services, with many passengers being forced to travel via Europe. "Whatever we do in the rest of the world depends very much on our African network," says Wake. "If we increase our number of destinations, we increase our chances of carrying more traffic."
This powerful tool has earned Ethiopian strong political favour in Africa. With a glimmer of pride, Wake says: "When I travel to different African states, the heads of state often see me in their offices. That gives me a very loud and clear message that we are welcome everywhere we go. We are talking practical support, not just promises, in areas such as traffic rights and handling. I've lived on it for a long time, somehow."
Another of Ethiopia's greatest assets over the years has been its independence, which paved the way for Ethiopian Airlines' creation in 1946. Wake says Ethiopia went "from mule to aircraft" at a time when African aviation was still very much in its infancy. In the 1960s the Organisation of African Unity, now known as the African Union, was founded and headquartered in Addis. Wake says this body awakened Africa to its own potential, shifting some countries' focus from their colonial parents and spurring intra-African travel which has been a key driver in Ethiopian's success.
"There was a political push from the government to fly to as many countries as possible within Africa. Other countries were just becoming free, they were inward looking at that time and they weren't ready. Ethiopia was independent and had a desire to see other countries independent too. Freedom, without people moving, without trade, would have no meaning at all," says Wake.
Progress towards African liberalisation has been frustratingly slow, butWake is reluctant to criticise. "I would like to see more, but I'm not one to say it did not work. It did work. There are countries which, very reasonably, believe that liberalisation will hurt their national carrier and, because of that, they do not want to rush into it. Today we have liberal bilaterals with the majority of African countries. Ten years ago this would not have been possible." He believes stragglers will ultimately either strengthen their airlines or open their markets, as tourism and exportssuffer.
With Europe striking bilaterals as a united trading block, Wake is keen for the African Union to be a central negotiation body. "It is up to us to get together and establish a negotiating board for the whole of Africa. At the moment we are at a disadvantage because the African Union is not ready to take that role, but the heads of state are working on that."
On a more global scale, Wake is aiming to apply for Star Alliance membership next year. He says: "We need partners because without partners our market reach will be limited. It will give a lot of synergies to an already good network.I believe that joining an alliance will improve our network, increase our market reach and lift our service standards. It will be good for us." But he is reluctant to comment on membership timescales, likening the tie-up to a marriage. "We will not rush when you rush marriage you know what happens," he says. "We should be able to join, I hope, in 2010 or early 2011. To join the alliance every member has to agree and, with 22 members having to agree, it takes some time."
Wake's priorities are supporting profitable expansion, providing good customer service and maintaining staff. "For an airline of Ethiopian's size and an airline in Africa, I believe the limitation is only in the mind. The continent has not been explored. There aren't many airlines which can properly go the distance in Africa. It's still untouched."
Girma Wake fell into aviation more by accident than design. "I did not plan to be an aviation person. By some coincidence I joined the airline in 1965 and worked my way through many departments," he says. In 1993, after 27 years with Ethiopian, Wake left to take up positions with Gulf Air and DHL.
He rejoined Ethiopian as chief executive in 2004, after the board rejected his recommendations to promote a younger executive. "The board insisted. My heart has always been in Ethiopia and there was no way that I'd turn my back on the airline. When you start with an organisation aged 20 and stay for 27 years, the roots are very deep in that organisation. That's exactly what it was with me and Ethiopian. That was my roots and I had to come back to my roots."
Before Wake settles down for a well-earned retirement, he wants to see several key projects through to completion, namely the introduction of the Boeing 787, the renewal of Ethiopian's Fokker 50 domestic fleet with Bombardier Q400s and an upgrade of the airline's training academy. "I should have retired many years ago. Retirement age in Ethiopia is at 60 and I am already above 60 so I am free to retire any time, but I think I will take more time yet. Not because people aren't ready, there are projects that I have to finish."Wake is keen to help Ethiopia and Africa move forward in terms of trade. "It makes me feel good because you can work anywhere, but very few places make you feel like you're changing something. Here, feeling as though I'm a part of the change gives me a very good feeling."
Brain drain
Skills erosion has become commonplace among Africa's carriers with workers being tempted by lucrative overseas contracts.
To counter this, Wake says the carrier has improved its financial packages, stepped up its training activity and is offering support to staff wanting to move out of expensive rentals and build their own houses.
However, although the flow of pilots has been curbed, the technical division is still suffering. "This year probably won't be as bad, but we have to prepare for more," says Wake. "The fact that we established a training department in the early '60s has helped the airline to be self-sufficient. Without that, we wouldn't be able to achieve most of the things which we've achieved."
Ethiopian is planning a $42 million upgrade of its training facilities and, with the arrival of its first Boeing 787, is looking to acquire a simulator for the type. The carrier will invest in up to 10 newtrainingaircraft for its facility.
Source: Airline Business
