African airlines were grounded for the period from Mar- to Sep-2020, and with no aid forthcoming it has been difficult for many airlines. As a result “the African airline industry has been severely damaged”.
Ethiopian Airlines could see that there was an opportunity with cargo demand and made a quick decision to build up capacity. That has helped the airline manage its cash flow without any bailout money or borrowing, and without any lay-offs or any salary reduction.
Talking at the CAPA Live on 10-Feb-2021, Ethiopian Airlines’ Group CEO Tewolde GebreMariam spoke with CAPA’s chairman emeritus Peter Harbison.
Some of the verbatim highlights can be found below.
All countries closed their borders, so that African airlines were grounded from Mar- to Sep-2020. There is no funding available, so the African airline industry has been severely damaged
“The industry in Africa was not in good shape – even before COVID. This is an industry which has been losing money, especially the airline industry, losing money for I would say six, seven years in a row. So airlines were not in their best position when they caught this global pandemic crisis. It was caught in an already very bad shape. Then the COVID has affected African airline industry much more and much worse than the rest of the airline industry and the rest of the world. For a few reasons.”
“Number one, I would say that African countries have taken extreme measures in terms of closing borders. So almost every African country has closed its borders, and that has stayed also for too long. I would say between Mar- and Sep-2020. So that has affected African airlines because almost all African airlines were grounded for that long period.”
“So especially the fact that we missed the summer peak means a lot in terms of not being able to support the airlines’ operations in the continent.
“The other reason is, on the other hand, the amount of coronavirus in Africa is not that bad. But the fear is of Africa having very low and substandard health services, so African countries were very concerned that they will not be able to do support in case health services were to be overwhelmed by the pandemic patients. So because of this fear, they took extreme measures of blocking and closing borders. So that’s one reason, and they did it for too long as compared to the rest of the world. Especially Europe and America, which were a little bit more moderate.”
“The second one is African airlines did not have the opportunity to look for support from their governments in terms of bailout money, because the African governments and African economies were badly hit by the pandemic. So for almost all African countries, airlines like… very unfortunate that we lost a very big airline, a very good airline, and Air Mauritius and so on. And Kenya Airways has also downsized significantly.”
“The third reason is there is no capital market in Africa, so airlines cannot sell bonds. They cannot borrow money from banks or from financial institutions like in Europe and America. I would say it has hit Africa badly, very badly. The industry has been severely damaged.
“We made a quick decision to build as much capacity on our cargo business. Demand was high so we took advantage at the right time. We have a very strong cash flow. We are still managing our cash flow within our internal resources – without any bailout money or without any borrowing, and without any lay-offs or any salary reduction.”
“We have been doing very well in the last decade in our vision 2025. So the decade between 2010 and 2020 has been very good for Ethiopian Airlines both in terms of profitability, in terms of reinvesting our profits for growth and expansion, not only on fleet, but also on the prospector and on human resource development.”
“So that has given us a better foundation, a better position to face this challenge. At least in a better position than the rest of our peers. But secondly, I think back in Mar-2020 when everybody was panicking about the pandemic and when the entire industry was grounded, I think we have done very well. A very creative idea was that the cargo business was booming, for two reasons. One, the belly hold capacity was pulled out because passenger airplanes were grounded. On the other hand, PPE and other medical supplies transport was a booming business to support and to save lives in Europe, America, Africa, South America and so on.”
“So realising this, we made a very good decision, a quick decision to build as much capacity as possible on our cargo business. We already had 12 airplanes, 10 777 dedicated freighters and two 737 freighters. But we have also makeshift converted our passenger airplanes to cargo by removing the seats. We did about 25 airplanes like that, so that was a significant capacity increase on our cargo capacity at the right time. So the yields were very good. Demand was very high.”
“We took advantage of that opportunity at the right time. We’ve shown agility, speed of decision-making, resilience that has helped us. And still helping us thus far. So we have a very strong cash flow. So we are still managing our cash flow within our internal resources, without any bailout money or without any borrowing for liquidity purposes, and without any layoff or any salary reduction.
“So it is an amazing performance, I would say, but this is because we have developed an internal capacity suitable for any kind of challenge in the last 10 years. So we have done an amazing job. We remain cash positive.”
We have around 50 frequencies a week to China and also we carry cargo from Addis Ababa to Europe with some going on to North and South America, and some continue to China with European exports, and then back to Addis
“We have been in China since 1973, so close to half a century. We’re among the very senior operators in China. We have also gained position ourselves in the right strategic position, when China started to invest in Africa heavily, especially in infrastructure. So that has created a very significant passenger air cargo traffic between China and Africa. So we have been right in that middle, and we have the largest market share between China and Africa.”
“Unfortunately, the COVID situation has devastated the passenger business. So I would say we have almost lost our entire passenger business between China and Africa. Because right now we are operating a once weekly flight to Shanghai with a lot of restrictions. So I would say the passenger business is gone. So we will see when it recovers.”
“But on the cargo side, we are still very big, and it is a very, very significant market for us. We have daily dedicated freighters from Shanghai, and 10 dedicated freighter flights a week from Guangzhou, and more than daily from Hong Kong. Then Chengdu and we’ve started freighters to Wuhan now, and Shenzhen. So we are still a very, very large operator in China.
“Between China and Africa, China and South America, and China and Europe. So it is a very strong market for us in cargo, close to 50 frequencies a week.”
“We are carrying many industrial products, industrial goods, machineries, medical supplies, medical equipment, mobile phones, batteries for mobile phones, and electronic goods of course. IT equipment and so on.
“Also from Europe, European exports with China, and from China to Europe also, Chinese exports. So it’s a triangular operation, Africa, Europe, China, then Africa.”
“We have about 14 flights a week from Addis to Brussels, Liège and Maastricht, three hubs. Then from Liège, Brussels and Maastricht the planes continue either to South America and North America, because we do also business for Inditex, you know the parent company of Zara.
So we have dedicated freighters for them operating to North America, Mexico, Columbia and so on. Some of the flights also continue to China with European exports and then some back to Europe, some back to Addis. So it’s a triangular operation.”
We are one of the drivers of the AfCFTA (Africa Continental Free Trade Agreement). We have partnered with the African Union to start the first free trade goods moving from eSwatini to the rest of Africa. Hopefully it will improve the inter-Africa trade
“We are one of the drivers of the AfCFTA. On 01-Jan-2021 we partnered with the African Union to start the first free trade goods moving from Swaziland, now it is called eSwatini, to the rest of Africa as a show of commencement. So it is a very huge, significant milestone, and it has been ratified by most African countries. It has been officially launched, and we are very optimistic about it. So hopefully it will improve the inter-Africa trade, because right now the inter-Africa trade is in very, very low volume. Because out of the total trade between Africa and the rest of the world, only 16% is within Africa. So 84% is with the rest of the world, with China, Europe, and so on.”
“When you compare that with Europe, and I always compare the African Union with the European Union because they are the same aged institutions. They were started in the late 1950s, early sixties. So the European Union has achieved a lot as compared to the African Union, which is lagging behind. So in Europe now, 60% of trade is within Europe. But here it’s only 16%. So you can compare how much we are lagging behind. But African countries have a lot to trade among themselves. Some of them are agricultural exporters. Some of them have slightly better industrial exports like South Africa, Nigeria, Egypt and so on. But then inter-Africa trade is very low. The AfCFTA is going to change that. But there are huge and daunting challenges ahead of us because tax barriers are challenging.”
“So I hope African countries will face those challenges and make progress. That is the hope of everybody in the continent. And Ethiopian Airlines, as I said, we are one of the drivers, and we are actively participating there. And we think that trade will generate traffic, both in cargo and passenger, within Africa. We are still the largest network within Africa. I think right now we have about 23% market share within Africa. So we see quite a bright future, especially after the coronavirus recovery.”
“The free trade agreement will be accelerated for two reasons. Number one, post COVID the African countries will be searching for opportunities of trade, not only with their traditional trading partners in Europe and China, mainly, but also among themselves and among their peers in Africa. So that is a big incentive.”
“The second incentive is that now the US administration has changed; we’ll see, but before, globalisation was having a big setback, and a lot of barriers, a lot of nationalism, a lot of protectionism. So in the midst of that situation, maybe African countries will fall back to their continent. So that’s also another incentive for the success of the FTA. And also the currency issue. So African countries will have to find means of exchanging trade between and among themselves with their own currencies, because pegging with the Dollar, pegging with the Euro, has also been a challenge.
Tewolde GebreMariam Group CEO Ethiopian Airlines speaking at CAPA Live, 10-Feb-2021