Airline interview: Ethiopian Airlines

(all photos: ????)

(photo: Ian Harbison)

African queen
Ethiopian Airlines is growing quickly, with cargo a key part of its offering. And
despite the many challenges facing freight carriers in African countries, the Addis
Ababa-hubbed carrier plans to keep adding to its fleet. Fitsum Abady, managing
director of Ethiopian Cargo Services, talks to Martin Rivers

he International Air Transport Association (IATA)

put a smile on the faces of airline executives
around the world this summer, by forecasting
a record-breaking net profit of $29.3 billion for the
industry in 2015.
A combination of robust economic growth,
rising business confidence and falling fuel prices
has delivered a bumper year for airlines although
uncertainty in cargo markets has dampened the mood.
Yet when IATAs tally is broken down by region, the
disparities are stark. African airlines, it says, will scrape
by with a collective net profit of just $100 million this
year. Indeed, simply staying in the black may prove
to be an achievement, with four of the continents

42 Airline Cargo Management

largest carriers Kenya Airways, South African

Airways, EgyptAir and Tunisair losing money at an
alarming rate, leaving almost all the profit in just one
airlines hands.
These losses make it all the more remarkable, then,
that Ethiopian Airlines, Africas single biggest carrier by
traffic and fleet size, managed to achieve a net profit of
$175 million for the 2014/15 fiscal year.
Though by no means immune to the continents
struggles terrorism and civil war loom large just across
the borders with Somalia and South Sudan Ethiopia
has transformed its flag-carrier from a mid-sized
company at the turn of the century to an industry
goliath today, serving 91 international destinations
with an operational fleet of 71 aircraft.
www.airlinecargomanagement.com December 2015

Airline interview: Ethiopian Airlines

The airlines long-term growth plan, Vision 2025,

was laid out by illustrious former chief executive
Girma Wake in 2010, shortly before he handed over
the reins to incumbent Tewolde GebreMariam.
Success in the strategy will see Ethiopian Airlines
more than quadruple its annual revenue to $10
billion over the next decade, deploying about 150
aircraft to 120 overseas destinations. Expansion will
centre on the two largest strands of the business,
with passenger numbers rising to 22 million
per year (up from 6.2 million) and cargo uplift
projected to reach 820,000 tonnes (up from 329,000
tonnes). Parallel growth of the training, catering,
maintenance and ground handling profit centres
as GebreMariam calls them will accelerate
these gains.
Equity stakes in Malawian Airlines, Togos ASKY
Airlines and perhaps others to come, are meanwhile
fostering growth outside of Ethiopias borders,
transforming the company into a truly pan-African
success story.
There is no doubt that benign government
policies have opened doors for the state-owned
carrier, side-stepping the bureaucracy and
protectionism that has handicapped operators
elsewhere on the continent. But geography is also a
key ingredient. Though not quite as centrally located
as the Persian Gulf, Addis Ababa is nonetheless
a good springboard for intercontinental flights
between Africa and many parts of the world.

Abady: flexibility is crucial for a perishables carrier

(photo: Ethiopian)

December 2015 www.airlinecargomanagement.com

When oil prices are high, the high operational

costs in Africa where fuel costs are 21% above
the rest of the world affect Africa-heavy
operators like Ethiopian

Fitsum Abady, Ethiopian Airlines Cargo Services

This sixth-freedom potential not to mention

the weak state of most neighbouring markets has
created strong opportunities for the flag carriers
freight division.
Our strategy covers global growth, but our focus
is comparatively more to and from Asia both in
frequency and in the number of cargo-potential
origins to Africa, explains Fitsum Abady, managing
director of Ethiopian Cargo Services.
For exports out of Ethiopia we carry mainly
perishable products such as flowers, vegetables,
fruits, meat, and live animals, as well as general
cargo items like textiles and leather products. We
import mainly personal effects, pharmaceuticals,
electronics, spare parts, vehicles, machineries and so
on. Of course, sixth-freedom cargo is mainly general
cargo composed of electronics, textiles, garments,
machineries, car parts and pharmaceuticals.

Flower exports
Ethiopias blooming flower exports have contributed
much of the growth. The country sent 1.27 billion
roses to the EU in 2012, challenging Kenyas
dominance in the lucrative if highly seasonal
floriculture trade. The wider horticulture sector is
now aiming to grow by 51% in 2015.
Liege Airport in Belgium has been the airlines main
European hub since 2008, with up to three daily flights
during peak periods. Coupled with a new four-times
per week service to Brussels, Belgium accounts for
more than one third of the flag carriers cargo business.
Abady credits the operational flexibilities at Liege
Airport, noting the lack of a night-time curfew as well
as advanced customs, phyto-processing and ground
handling facilities. Such flexibility is crucial for a major
perishable cargo operator like us, he says.
In Asia, the cargo network is more liberally spread
across five main hubs: Shanghai, Hong Kong,
Chennai, Mumbai and New Delhi. Among these,
only Shanghai features in the airlines top 10 cargo
destinations, commanding a 3.33% market share. Far
from consolidating around one or two bases on the
continent, Abady says the freight division is looking
to broaden its footprint further by potentially adding
new hubs in Hanoi, Seoul, Singapore and Bengaluru.
Although directional imbalance is a key problem
for African cargo operators outbound flows exceed
inbound traffic at all but two of Ethiopian Airlines
main cargo bases, Lagos and Frankfurt Abady has
several cards up his sleeve. f

Airline Cargo Management 43

Airline interview: Ethiopian Airlines

Ethiopian has more than tripled its presence

in China since 2007, for example, capitalising on
a surge in Sino-African trade. On top of its twice
weekly freighter service to Shanghai, it presently
serves Beijing, Guangzhou and Shanghai with daily
passenger flights. Freighters also fly to Hong Kong
up to five times a week.

Ethiopian has six more 787s on order, but has signalled to Boeing that it may switch to Airbus if ExIm
bank finance is not available (photo: Konstantin von Wedelstaedt)

Combined with cargo stopovers in the Indian

hubs and passenger flights from Addis Ababa to
So Paolo, Ethiopian Airlines has placed itself at the
centre of the crucial China-India-Africa-Brazil trade
lane. In turn, this makes its services highly appealing
to low-cost Chinese exporters, guaranteeing
buoyant inbound flows on the westward network.
Energy-related imports also present an
opportunity for rebalancing, particularly oil-drilling
and exploration equipment destined for Africas
many petro-economies.
On that front, however, Abady admits that
exposure to the oil industry can be a double-edged
sword. When oil prices are low, this [negatively]
affects investment in oil-dependent countries,
he notes. And when prices are high, the high
operational costs in Africa where fuel costs are
21% above the rest of the world affect Africa-heavy
operators like Ethiopian.
The Europe-Asia trade lane offers another
potential hedge for low inbound traffic, though
yields have come under pressure from intense Gulfcarrier competition and a sharp downturn in Chinese
demand for luxury goods blamed by analysts on
stock-exchange volatility and Augusts devaluation
of the Yuan.
Notwithstanding the shifting fortunes of
individual markets, Ethiopian Airlines remains
overwhelmingly bullish on cargo. The flag-carrier
presently serves 26 overseas destinations with
freighters, including the aforementioned five points
in Asia, two in Europe, and four in the Middle East
(Dubai, Jeddah, Riyadh and Kuwait). All other cargoonly points are in sub-Saharan Africa. GebreMariams
aim under Vision 2025 is to reach 37 freighter
destinations on five continents.

Network expansion

Ethiopian grew its cargo business with a mix of long, medium and shorthaul freighters
(photo: Peter Bakema)

The carrier is 70 years old this year, but has expanded more in the past decade than the previous six
combined (photo: Ian Harbison)

44 Airline Cargo Management

While Abady gave no indication of his targets

for North America, evaluations elsewhere have
reached an advanced stage. In Asia, Tokyo Narita
and Guangzhou are being considered for freighters
alongside all four of the aforementioned prospective
hubs. In South America, So Paulo may soon be
upgraded. In the Middle East, Beirut and Tel Aviv are
on the wish-list. And in Africa, the airlines sights are
set on Cotonou, Douala, Lilongwe and Luanda.
Expansion of freighter services will also be
accompanied by continued growth of the passenger
network. At the time of writing, eight new passenger
destinations had been added in 2015 Los Angeles,
Dublin, Manila, Tokyo, Cape Town, Yaounde, Gaborone
and Goma with Durban due to launch in December.
Targeted route launches for 2016 include New York,
Chengdu, Ho Chi Minh City, Jakarta and Singapore.
Plans to reach 150 aircraft are meanwhile gaining
momentum, with commitments for another 38
passenger jets in place (12 Airbus A350-900s, six 7878s and 20 737 MAX 8s) and there is speculation about
a 20-unit 777X order by the end of the year. f

www.airlinecargomanagement.com December 2015

Airline interview: Ethiopian Airlines

On the freighter side, however, the existing sevenstrong fleet (five 777-200LRFs and two 757-200Fs)
lags well behind GebreMariams goal of around 20
cargo jets.
The only outstanding freighter commitment for
one more 777-200LRF should have been fulfilled
by the time Airline Cargo Management goes to print,
raising expectations of imminent orders if Ethiopian
Airlines is to preserve its current 2:1 ratio for
freighter-to-belly-space tonnage.
Abady declines to say when the deals will be
finalised, but he leaves little doubt about the types
being sought. As well as growing the 777F fleet
to 11 aircraft, the cargo boss says he expects to
deploy four 767-300Fs and four converted 737-800s.
Passenger-to-freighter conversions of the 737NG are
a new phenomenon, with Miami-based AEI unveiling
the first such programme in March 2014, followed
by Tampa-based Pemco World Air Services and Tel
Aviv-based IAI. Boeing has also signalled interest in
running its own in-house conversion programme.
The launch customer for AEIs converted 737NGs
is GECAS, the leasing and financing arm of General
Electric, which signed for up to 20 aircraft in June.
Certification of the first of these is scheduled
for 2016.
Despite the obvious appeal of the 12-pallet
conversion, Abady would be forgiven for wincing
at talk of 737Fs. In January 2015, the only 737-400F
operated by Ethiopian Airlines (MSN 28493) suffered
a runway excursion in Accra. The aircraft, which was
being wet-leased to ASKY, was damaged beyond
repair in the incident though fortunately its three
crew members survived.
Undeterred by the crash, the cargo boss insists
that a combination of narrowbody and widebody
freighters is needed to optimise market penetration.

Mixed fleet
The advantage Ethiopian had [historically] in
growing its cargo business was having a mix of longrange (777F or 747F), medium-range (MD-11) and
short-range (757F) aircraft, he says, referring to some
types that are no longer deployed by the carrier.
This helps for efficient and effective demand versus
capacity management Narrowbody aircraft give a
competitive advantage for point-to-point operations
and regional cargo distribution.
Asked how the airline has compensated for the
loss of its converted 737 Classic, Abady says the
757Fs are currently meeting the shortfall. As well as
plying most of the African network (excluding Accra
and Johannesburg), the narrowbodies also serve the
Gulf destinations and Mumbai. We will replace them
when the 737-800Fs are phased in, which would
be the beginning of 2017, he adds. Or even earlier
based on market situations.
While the stars seem aligned for continued growth
and profitability at Ethiopian Cargo Services, Abady
takes nothing for granted. He rattles off a long list
December 2015 www.airlinecargomanagement.com

of challenges in the continent: low intra-African

traffic; poor airport and multi-modal infrastructure;
deepening security concerns due to terrorism and
political unrest; widespread corruption; restrictive
traffic rights; high operating charges; rising efficiency
among sea freight competitors; and what he deems
a significant talent gap in the local aviation sector.
Africa is home to 12% of the worlds population,
but it accounts for less than 1% of the global air
service market, he says, summing up the regions
handicap from a developmental perspective.
Challenges are always there, though we keep
changing them into opportunities.
Headwinds have also emerged from unexpected
quarters. In July, the closure of the US Export-Import
Bank threw into doubt the favourable financing
terms that Ethiopian Airlines had been expecting for
its upcoming Boeing deliveries.
GebreMariam responded forcefully to the crisis,
warning the US manufacturer that it is now at a
competitive disadvantage to overseas rivals. Failure
to re-authorise the banks charter, he said, might
prompt the flag-carrier to switch some orders to
Airbus. A congressional vote on the future of the
bank was expected as Airline Cargo Management
went to press. Other hurdles will inevitably
materialise along the path to Vision 2025, but
for Abady the roadmap is clear.
The biggest leap forward was taken last year,
when Ethiopian Airlines secured funding from the
French Development Agency to build its new air
cargo terminal in Addis Ababa. Upon completion
the facility will have an annual capacity of 1.2 million
tonnes. The first phase of the project is now 40%
done, Abady says, adding: The next 60% will require
less time, as the difficult work was building the
concrete foundation.
Could future steps involve building cargo
facilities for equity partners such as ASKY? In the
short-term, we have no plans to invest in [other]
terminals, he insists. But we dont know what the
future will bring.
Having expanded more in the past decade than
the previous six decades combined, nothing seems
too ambitious for Africas leading airline.

Africa is home to 12% of the

worlds population, but it
accounts for less than 1% of
the global air service market.
Challenges are always there,
though we keep changing
them into opportunities
Fitsum Abady, Ethiopian Airlines
Cargo Services

Airline Cargo Management 45