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Tasew: No conducive environment for African airlines to flourish

Mesfin Tasew is the Group Managing Director of Africa’s most successful airline, Ethiopian Airlines. He has continued the tradition of past MDs of the airline to maintain a strong financial position with over 148 aircraft. In this interview with WOLE SHADARE in Addis Ababa, Ethiopia at the recently concluded MRO Africa speaks about the carrier’s giant strides, its partnership with other African carriers, its investment in airport infrastructure and how Nigerian airlines can get out of the woods

What do you think are the problems of many African airlines, especially Nigerian carriers?

There is no conducive environment for airlines to flourish in Africa. That is the biggest problem. What I mean is that the cost of operation is very high. There are also taxes to pay. There is a very low level of infrastructure. They can’t buy spare parts and that is one of the issues faced by Nigerian airlines.  There are several reasons. The business environment is not conducive.  It’s very hard to be there. It’s a good opportunity for airlines to expand. They have to wait and the fuel price has been on the rise. The second issue is the issue of storage. They need storage to succeed. I don’t see that at all. It means they need disciplined leadership and they have to have strong strategic and in general great leadership among African airlines. I don’t have all of them. We have to address these. When it comes to the industry there is always something. We need to have outlines.

Ethiopian Airlines has been accused severally of venturing into other country’s airlines in terms of partnership. You have been accused of proliferation.

We have established our airlines in partnership. We have to trust each other and cooperate. I am glad that they are here in Addis Ababa for this seminar. It was established by EWA an airline in the US. When they came here they were given full freedom to establish and they have done that. During that time back to our predecessors they were establishing and training and channelling Ethiopians to become pilots, and cabin crew and now we face it. We never complained that the Americans came to dominate us and so on but here we Africans don’t cooperate. Instead of co-operating we are fighting. We don’t work together. We are brother and sister African airlines. We can if we are ready to help each other. Be ready. Don’t think that we are here to exploit people. We are all African airlines. If we work together we will beat the big ones. We need the right people, the right policies and so far we are rallying them and now we have reached a point to establish a partnership between airlines in Africa.  Do you know what they are planning? They want to do something. We want to establish a level playing ground. They are training 77 pilots that are going to start and they will train their pilots. Look how capacity is being developed. It can’t be done overnight. We have our training academy. So far they are professionals and now we are doing it. After a few years, we can do a lot. There are pilots and technicians and they will support the flights. There are pilots and technicians, they have the means to be self-sufficient and the maintenance is good.  They will support the airline. For African airlines, we have to work and the transportation system needs economic support.  We need to sustain the airplanes. This is my advice to you. We have a bright future and we can grow economically and faster than the rest of the world because the growth will be faster. There will be opportunities for us. It will enable Africans to work with other nations and they will work amongst themselves. It will require a lot of empowerment.  It is another opportunity for airlines. We will be able to fly people between Africa.

What steps are you taking so that you don’t overdo it?

This is the largest oil field. People may assume but after careful consideration and in line with this we have stipulated in our vision 2025 that several issues are listed out of the 100 in the Sovereignty Act to make it a global industry. It’s a global transport industry that will help society. So crude oil is good for the environment.  On the other hand, you would note that all these aircraft’s some of them parked for a long so the hazard and risk of rusting are high. On the other hand, it shows that we will always remain the industry that is here. After a few years, we will do another exercise between 2017 to  2025. Our mission is that by 2025 it should be operating at 100 percent. With this arrangement, we will keep on working. In history even when most airlines were in that situation we continued and we never downsized. The financial institutions are convinced and that is why they still give us the funds to finance our operations. I am telling you this boldly because unlike others we manage our financial resources as best as we can. When we borrow money, we make sure that money is invested in a sound way and into other investments. Secondly, we always control our costs and that gives us some confidence because we are careful. Our priority is to settle our debtors instead of investing more. These are very important.

Supply chain problem

It’s very clear. Today I have to admit that there are some shortages of all equipment. We have some local manufacturers and now we want to apply to work with them and get solutions and improve their output.  The oil for repair is hard to find. If it finishes we can’t get it and because of that the price has skyrocketed. They like to take advantage of what is going on in the market. The prices have increased so that supply is not enough. We use the cheapest globally so it is a problem.

Future growth

Despite the numerous challenges, Ethiopian Airlines is intent on pursuing its growth strategy. The “Vision 2035” strategic plan, presented at the end of 2022, plans to quadruple the number of passengers – to more than 60 million – by increasing the number of international destinations from the current 130 to 207 and by increasing the fleet from the current 140 to 271 aircraft. At a time the airline industry has set itself the target of reducing its carbon emissions to zero by 2050.  The company is currently developing a sustainable development strategy. To do so, will require sustainable aviation fuels (SAF). Studies show that more than 60% of the reduction in these emissions will come from the use of sustainable aviation fuel (SAF). However, all the airlines are coming up against two problems: its availability and its price, which is two to four times more expensive than paraffin. Today, there are a few producers [of SAF] in Europe and the United States, but none in Africa. The 2022-2023 financial year – which ended on 30 June – was very prosperous. We carried 13.7 million passengers, 57% more than the previous year and 10% more than before Covid [as well as] 740,000 tonnes of freight, twice as much as before Covid. Ethiopia’s state-owned airline, which boasts of being the only profitable airline in Africa, generated 6.1 billion dollars in turnover, an increase of 20% on the previous financial year and almost 50% on the pre-Covid period. We have fully recovered from the impact of Covid.

The pandemic’s effects still felt

The effects of the pandemic are still being felt. With high inflation worldwide that translates into high operating costs, high fuel prices and many countries still recovering from Covid and whose economic growth remains weak. Like other airlines, Ethiopian Airlines is also facing a shortage of spare parts. The supply chain was disrupted by the pandemic and has not yet fully recovered, according to the CEO. This has forced aircraft to be grounded at times while waiting for parts. The problem should be solved within two or three years (…) but today it’s a real challenge. Another problem relates to the “increased competition” as post-Covid activity picks up. In recent years, airlines have been struggling to recover from the impact of COVID-19, but now, most are very optimistic and have ordered a large number of aircraft. This will lead to a dumping of seats on offer which will lower yields and toughen competition on ticket prices. Ethiopian Airlines will have to re-evaluate its cost structure and work hard on its cost reduction plan to remain competitive.

 

The future of fifth freedom routes

Unusually for a carrier of its stature, Ethiopian Airlines operates several what are called ‘fifth freedom’ routes. These are routes with intermediate stops where passengers can choose to begin or end their journey.

Ethiopian Airline’s flights from Manchester are a prime example, as these operate with a stop in Geneva where you can choose to get off. Typically, fifth freedom flying rights are hard to get as you need the approval of a third-party country to be able to sell tickets between the two destinations. However, it does allow airlines to fill larger aircraft with feeder traffic from a wider network of destinations. On several routes, we fly point to point …. But there are others where we see opportunities for fifth freedom traffic. And whenever we see that, we take the opportunity to do so. So today, we operate both and in the future, we’ll continue both, depending on the market.

New aeroplanes and new airport

Of course, you can’t launch new routes without more aircraft. Ethiopian Airlines is growing, continuously growing. We are expanding our network, which implies that we need more airplanes. Today we have 143 aircraft, but we also have twenty-seven aircraft on order which we are going to receive in the coming three years. We have a fleet plan for the next twelve years and that shows how many airplanes of each size we need. We are evaluating the options available and as soon as we finalise our plan will place orders for new aircraft. That will include narrow-bodies and wide-bodies. When we say wide-body we have 300-seaters as well as 350-400-seaters which will depend upon our assessment of the market and the service we want to deploy. So that is currently going on and we hope to finalise that before the end of this year. The airline’s growth plans require it to almost double its fleet to 271. There are opportunities to fly long-range narrow-body aircraft where there is a smaller capacity. The Boeing 757 aircraft was in that category and we were happy with that aircraft. We have been telling the aircraft manufacturers to come up with a replacement for the Boeing 757 aircraft, but unfortunately, that hasn’t happened. Ethiopian Airlines won’t just need more planes to fulfil its growth plans. It will also require a bigger airport. Currently, Addis Ababa Bole Airport has a maximum capacity of 25 million passengers per year, which Ethiopia expects to hit in around five years. Work has already begun on developing a new, bigger airport. We have established the need to build a new airport, and we have identified a location. Now we’re in the process of securing the land. As soon as we complete that, we’ll select a contractor and financing and we’ll start the construction work. The new airport will have a capacity of 100 million passengers per year. So that’s a huge increase and will support our aspirational target to carry 60 million passengers by 2035.

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