Date: Friday, 14 September 2018
The continent’s most successful airline wants to expand abroad
IN 1989 The Economist praised Ethiopian Airlines’ “unqualified success”, despite operating in a “disastrous economy” suffering from civil war, famine and Marxist inefficiency. Since then the airline has grown its yearly passenger numbers by over 1600%. Ethiopian is now the envy of all African governments. Most are saddled with loss-making flag-carriers or none at all. Tewolde Gebremariam, Ethiopian’s boss, wants to change this by helping some of his neighbours set up new companies and others overhaul existing ones. Though his intentions are good, too much foreign expansion could hurt the airline as much as it helps it.
The hostile environment for airlines that Africa poses is well known in the industry. Poor infrastructure, restrictive flying rights and overpriced jet fuel make flying planes profitably much trickier than elsewhere in the world. Worst of all is political meddling at flag carriers, most of which have succumbed to corruption, cronyism and public-sector protectionism. The result is that most of Ethiopian’s larger rivals—notably South African Airways, Kenya Airways and EgyptAir—are perennially lossmaking, surviving not because of their commercial ability but their government owners’ endless generosity. In a world of fat subsidies for flag carriers, privately owned airlines have little chance of prospering.
Ethiopian is also a state-owned flag carrier. Yet the airline has mostly avoided the cronyism trap. Government officials use their political and financial clout to secure landing slots overseas and build world-class infrastructure at home. But they have little involvement in the day-to-day management of the company, which is left to seasoned experts hired from the private sector. And when the airline wants to buy aircraft, it deals with international aircraft lessors who demand financial transparency and accountability from management.
Emboldened by its success, Ethiopian started exporting the model at the turn of the decade when it set up two overseas ventures: ASKY Airlines (which is based in Togo) and Malawian Airlines. At the time Mr Gebremariam said he wanted to add a third, central African airline—probably in the Congo—thereby gaining a foothold in the west, south and centre of Africa. His ambitions have grown ever greater. In the past two years Ethiopian has held talks with at least ten countries about either assisting incumbent airlines (in Djibouti, Congo, Eritrea and Equatorial Guinea) or setting up new ones (in Chad, Ghana, Guinea, Mozambique, Nigeria and Zambia). Cementing the pan-African mood, Ethiopia has also offered to sell shares in its flag-carrier to neighbouring governments.
But the structural problems that have so confounded African carriers—poor infrastructure, endemic graft and political interference—will not magically disappear when executives from Addis Ababa fly in. If Mr Gebremariam spreads his resources too thinly, he risks repeating the mistakes of James Hogan, the former boss of Etihad Airways, a Gulf carrier. Mr Hogan embarked on a programme of international expansion by buying minority stakes in several airlines around the world. That landed the airline in a sea of red ink. The bankruptcy of Alitalia and Air Berlin last year, two airlines in which Etihad had bought stakes, is estimated to have cost the Gulf carrier billions of dollars.
A slower rate of expansion would not be a bad flight path for Ethiopian. Nor would a focus on point-to-point flying. Using Alitalia and Air Berlin’s operations to funnel traffic through its hub in Abu Dhabi hurt Etihad as much as it helped it. With the launch of Africa’s single aviation market earlier this year, which should allow airlines in 23 countries to fly between any of their airports, Mr Gebremariam is right to think that now is a good time to expand abroad. But he would be wise to avoid Mr Hogan’s overzealousness when doing so.