The Lion Roars: How Ethiopian became Africa’s largest cargo carrier

For most of the airline’s 70-year existence, Ethiopian Airlines resembled this quiet, inconspicuous lion logo, slowly growing its fleet of propeller-driven and jet aircraft and adding routes across the continent. Today, however, the golden lion is in full-throated roar, growing by an average rate of 20 to 25 percent per year since 2005 – expanding more in the last 10 years than the previous 60 combined.

“We are now the fastest growing, largest and most profitable airline in Africa, by far,” says CEO Tewolde Gebremariam, who has served continuously in various roles at the airline for 30 years. Gebremariam, a soft-spoken, balding man with a wide smile, started at Ethiopian Airlines as a transportation agent in 1985. Since then, the deceptively quiet executive has proven to be a ferocious competitor in the air cargo market, shepherding Ethiopian’s rapid growth into a US$2.3 billion African powerhouse. In 2013-14, the airline reported net income of $228 million, making it the most profitable carrier in Africa.

In a continent that is often racked with economic strife, famine, internecine war and a centuries-long legacy of colonialism, Ethiopian Airlines, the nation’s flag carrier, has managed to not only survive but thrive where so many other cargo carriers have struggled or expired.

Nick Fadugba, CEO of consulting firm African Aviation Services Ltd. and former secretary general of the African Airlines Association, has followed the arcs of many African carriers over the years and has seen some patterns emerge among those that did not survive. “The main reason why few cargo airlines have been successful in the past in Africa is that they lacked the critical combination of an efficient fleet, viable route network, strong customer base, strategic partners and adequate financial resources.”

Ethiopian, he added, has been cognizant of all of the above.

The Addis Ababa-based carrier was one of the first in Africa to understand the benefits of generating revenue from both cargo and passenger operations. “From day one,” Fadugba said, Ethiopian has been driven by its “Pan-African vision and unswerving commitment to bring Africa together by developing comprehensive air links throughout the continent. It now has the best route network in Africa.”

Eyes on the horizon

In 2010, just before Gebremariam made the leap from COO to CEO, and just after the airline started a massive fleet modernization plan involving the orders for 35 new aircraft, Ethiopian embarked on an ambitious 15-year development strategy, called “Vision 2025.” The ultimate goal of the airline’s strategy was clear: “To become the most competitive and leading aviation group in Africa by providing safe, market driven and customer focused passenger and cargo transport, aviation training, flight catering, MRO and ground services by 2025.”

Since crafting that statement, every decision at Ethiopian has been based on the Vision 2025 principles. “Unlike many in the industry, [Ethiopian is] an airline that plans long term,” Gebremariam said. The Vision 2025 roadmap has enabled the carrier “to tap into the market opportunities by leveraging our internal strengths and external opportunities.”

Gebremariam is also well versed in the cautionary tales from other failed African airlines that grew too fast or failed to keep up with the market. “Aviation is a capital-intensive industry with no or little return on investment,” he said. “If you look at the last 40 years of return on investment of the global airline industry, it is actually destroying wealth. In such a low-margin industry, high performance and stringent cost management are critical.”

Being progressive in its growth strategy has been one of the keys to the carrier’s success, Fadugba says. “Over the years [Ethiopian] has invested heavily in modern aircraft, aviation maintenance and training facilities, and human resource development.”

Armed with this knowledge, the Vision 2025 goals under the Ethiopian CEO include the following:

• Increasing its overall fleet to 120 aircraft and the number of destinations to 90 worldwide hub in Lomé, Togo.
• Carrying more than 18 million passengers and 720,000 tonnes of cargo per year
• Operating 20 freighter aircraft and serving 37 freighter destinations globally
• Creating multiple hubs in Africa

Now a full five years into the 15-year plan, Ethiopian is either approaching or has surpassed most of its cargo benchmarks. Besides its main hub at Bole International Airport in Addis Ababa, it now has a European hub in Liège, Belgium, and a West African hub in Lomé, Togo. There are plans to eventually establish a Southern Africa hub in Malawi and a Central Africa hub in the Democratic Republic of the Congo (DRC).

The airline now has 76 aircraft, including eight dedicated freighters: four 777Fs, two MD-11Fs and two 757-200Fs. (Ethiopian recently lost its only narrow-body freighter, a 737-400F operated by subsidiary ASKY Airlines, when it slid off the runway last month at Accra, Ghana, in a nonfatal accident). The freight division, Ethiopian Cargo, serves 24 global freight destinations (15 in Africa, seven in the Middle East and Asia, and two in Europe), with a current annual uplift of around 200,000 tonnes. The airline also has four more 777Fs on order from Boeing.

State owned, not state run

If there’s a red flag to be found concerning the management of the carrier, it comes from a pay grade above and beyond that of the CEO. Ethiopian Airlines is a state-owned carrier, originally established nearly 70 years ago, in December 1945, at the request of Emperor Haile Selassie I. Students of aviation history know that government interference in Africa does not always breed success (read: South African Airways, Air Namibia, Air Zimbabwe), especially in countries like Ethiopia, with a recent history of military junta governments and Soviet influence in the 1970s and ’80s.

“Yes, Ethiopian is a 100 percent government-owned airline,” Gebremariam admitted. “But there is a clear separation between the function of ownership and management.”

“To their credit, successive governments of Ethiopia have allowed the national airline to be run by competent management and dedicated staff,” Fadugba agreed. Like a well-run sports franchise, Ethiopian Airlines has an owner that provides funding when needed, but stays out of the way on business decisions, leaving management to be run by professionals. “The government is of great support to the airline, with its general oversight role, but fully respects the sacrosanct principle of the independence of the airline,” Gebremariam said.

What’s good for Ethiopian is not always great for the freight forwarding community, which naturally wants to find the best cargo handler at the best price. At Ethiopian’s Addis Ababa hub, Ethiopian is pretty much the only game in town.

“They have sort of a monopoly at the Bole cargo terminal,” said Brook Befekadu, general manager of Addis Ababa-based freight forwarder Green International Logistics Services. “No one else is allowed to do cargo handling there.”

Despite this lack of unfettered choice, Befekadu said the carrier does provide excellent services at competitive rates. “Ethiopian has a very good connection with the rest of Africa,” he said. “We like to use them because if you have a shipment going to the States, there is a direct flight to Dulles Airport. With all the other carriers, you have to first go through Frankfurt or some other hub first before going to the U.S.”

Kidist Berhanu, owner of Kidist Berhanu Custom Clearing, agreed that Ethiopian “charges a fair price” and makes it easy for her to arrange shipments of spare parts or perishable goods to most regions of the world.

Right place, right time

Befekadu also said he and other forwarders at Green International said they would like to see larger warehouse space at Bole. Although the airport underwent an expansion in 2006, boosting its annual capacity to 350,000 tonnes and enough room for 180 pallet positions, cargo containers often still get left outside, exposing them to potential damage.

Although Befekadu said he did not see any evidence of change yet at Bole, Ethiopian is already responding to the need. Gebremariam signed a deal with the French Development Agency last year to construct a new air cargo terminal at Bole with an annual capacity of 1.2 million tonnes of both dry and perishable freight. Construction has recently started and is scheduled to be completed in two phases, Gebremariam said. The first phase, which will be completed in 2017, is being built with an outlay of US$150 million he said.

This is yet another example of Ethiopian’s “ability to accurately read the changing market and implement business plans successfully,” Fadugba said.

With a B.A. in economics from Addis Ababa University and an MBA from the Open University in the U.K., Gebremariam is well equipped to master the intricacies of global commerce. Yet he attributes a significant amount of his success to simple geography. “Addis Ababa puts us in the middle of the major East-West trade lane, giving us a natural edge on the competition,” he said. “We are located right in the middle of the fastest-growing trade lane in the world between China, India, Africa and Brazil, and are tapping into this opportunity.”

The timing of the airline’s recent growth spurt also coincides with a surge in Africa’s overall economy, which has averaged continent-wide GDP growth of 5 to 6 percent over the last decade. “The African air cargo market represents just 1.6 percent of the world’s total freight traffic, but encouragingly grew at a faster rate than the global average in 2014,” Fadugba said. “Barring political unrest or economic setbacks in major African markets, the region’s air cargo market should see steady growth in 2015.”

These rosy forecasts have attracted much attention from large European, Middle Eastern and Asian carriers seeking to capitalize on Africa’s rise to prominence. As more competitors sought routes to Africa, Gebremariam seized the opportunity to join the Star Alliance in 2011, paving the way for Ethiopian to sign code-sharing agreements among a network of 26 other carriers that serve more than 1,300 destinations in nearly 200 countries.

Africa first

Based on this phenomenal growth, Ethiopian is a carrier with clearly global ambitions, but it has never forgotten where it comes from.

“We know the African continent, our home market, better than anyone else,” Gebremariam said. “We have been in Africa for the last 70 years, in good and bad times, and believe that Africa should not just be a consumer base for the global economy, but should also have its own indigenous and globally competitive industries that reap the benefits of Africa’s growth.”

One of the fruits of this philosophy is the airline’s Ethiopian Aviation Academy, a training institute launched by the carrier in 1956 as an example of self-sufficiency and professionalism on a continent that was finally beginning to break the chains of colonial rule. The academy provides intensive training for cabin crews, marketing, ground operations, pilots, aviation maintenance technicians and leadership.

The academy “has been the bedrock of our success,” Gebremariam said, by providing a steady supply of skilled manpower. Over the last five years, Ethiopian has invested about US$80 million in expanding both the scope and scale of its training facility. “Today, thanks to this investment, its annual intake capacity of trainees has increased from 250 to around 1,000,” he said. Following the Vision 2025 strategy, the carrier plans to quadruple the annual capacity yet again to 4,000 students, “half of whom will come from other African countries.”

Another goal of Gebremariam’s tenure is the development of a strong intra-African air network, like the one pioneered by pan-African airline Air Afrique, which went bankrupt in 2002 (see sidebar). In an effort to recapture the spirit of Air Afrique, Ethiopian Airlines has purchased a 40 percent stake in ASKY Airlines, a private regional carrier launched in 2010 and based at Lomé-Tokoin Airport in Togo.

Filling in where Air Afrique left off, ASKY is “providing critically essential air connectivity for West Africa,” Gebremariam said. ASKY operates three 737-700s and four Dash-8-400s, serving 22 scheduled destinations across West and Central Africa. The regional carrier plans to gradually add nonWest African stations in Europe and the Middle East.

Ripe market for perishables

Today, much Ethiopian’s cargo growth is being driven by the country’s booming perishables export market, including such time- and temperature-sensitive goods as flowers, fruits, meat and vegetables. As the country prepares to scale up its perishable exports, Gebremariam is ready to grab the lion’s share of this lucrative market.

“We are responding by expanding our capacity to handle such cargo by investing in a perishable cargo cold room” at the new cargo terminal now under construction, he said. The airline also plans on heavy use of its 777Fs, “which have the ability to maintain cold temperatures of up to 4 degrees centigrade.”

On the import side, Ethiopian is benefiting from the booming oil sector in other parts of Africa, as an increasing amount of oil drilling and exploration equipment flow through the hub at Bole. The petroleum business is also creating a larger middle class, which is developing a taste for high-value goods, such as medical equipment and electronics.

“The increased volume of trade resulting from huge investments [in Africa] by China and India is causing the cargo traffic between these regions to thrive and has increased our market share in the cargo business,” Gebremariam said.

So far, 2015 is looking at least as bright as 2014 at Ethiopian Airlines. Last month, with the help of Keuhne + Nagle and DHL Global Forwarding’s Starbroker subsidiary, Ethiopian Cargo launched four-times-a- week 777F service between Bole and Brussels Airport, bringing mostly flower shipments to Europe and carrying back general freight to Ethiopia. Later this month, Ethiopian will begin service to Goma, DRC, which will be the carrier’s 50th destination in Africa.

“We have managed to successfully tap into the opportunities of Africa, which is now the second-fastest-growing region in the world” Gebremariam said. “The employees and management of Ethiopian have a strong sense of ownership towards the airline and work tirelessly to ensure that it shines high in the sky.”

Africa’s Fractrured Skies

Ethiopian Airlines may be doing well compared to most others on the continent, but because it is an African carrier, it is always fighting an uphill battle, even on its home turf.

While many other airlines around the world have been able to set up various types of “open skies” agreements, allowing cross-border traffic to take place with certain regions, this route liberalization has never taken root in Africa. In 1999, the continent came close, when 44 countries signed what is known as the Yamoussoukro Decision (after the Côte d’Ivoire city in which it was drafted), pledging to remove their restrictions and allow open access to carriers from other African nations. The treaty, however, has never been ratified after 16 years.

As a result, “gaining market access within Africa can often be more difficult for African airlines than foreign carriers,” noted aviation consultant Nick Fadugba. This failure to cooperate is “the major obstacle for the growth of the African aviation industry,” said Ethiopian Airlines CEO, Tewolde Gebremariam. “Generally speaking, aviation is not treated as a strategic sector – as an enabler of investment, trade and tourism growth.”

In addition, aviation in Africa “is being taxed like tobacco and alcohol,” he said. The price of jet fuel is twice the global average, and other fees for overflying, aircraft landing and parking are exorbitant. “We are facing unfair competition from Gulf-based airlines, which have access to government subsidies and to cheap fuel,” he added.

Gebremariam said he hoped to see a renewed political commitment to liberalization of the skies from the continent’s leaders, in accordance with the African Union Agenda 2063. “We are lobbying for the creation of a single African air space and for aviation to be treated as a strategic sector by mobilizing the African Union Commission, industry actors and governments.”