This African Airline Wants to Be the New Emirates - Wall Street Journal

March 16, 2018

 

A new global air hub is developing in an unlikely place: this highland capital in East Africa. Over the past decade, state-owned Ethiopian Airlines has become Africa's largest carrier and bought stakes in continental rivals while quadrupling its passenger count to nearly 10 million. It has built one of the world's youngest fleets, including dozens of Airbus SE and Boeing Co.planes. For the first time, an African airline is challenging European and Middle Eastern airlines' commercial dominance of the continent's skies.

And now, Ethiopian Airlines is also pushing into North America, adding a fifth destination—Chicago—this year. Ethiopia is one of just seven African countries cleared for direct flights to the U. S.—a connection that harkens back to the airline's founding in 1945 as a joint venture with the now-defunct Trans World Airlines, or TWA. "We need to educate the American public," the airline's Chief Executive Tewolde Gebremariam said in an interview. The airline this year launched its first digital marketing strategy, targeting potential fliers via Facebook , Google, Twitter and travel websites like Expedia.

Mairéad O'Grady, a 30-year-old educator from Washington DC who flew on Ethiopian recently to Uganda, is one of the new converts. "It was a combination of the cost and the flight time; it seemed like the best of both options," she said. This year, Ethiopian will unveil two new monuments to its ambition: a $363 million overhaul of its shabby and overcrowded terminal that will more than double annual passenger capacity to 22 million—about the annual traffic at Washington DC's Dulles International Airport—and a $65 million airport hotel. Inside a nearby $100 million aviation academy, recruits drill mock-evacuations in a purpose-built swimming pool, while executives plot the company's expansion. "Even though [Ethiopian] is 100% state-owned it's run like a business: The board runs it as if it's British Airways or United Airlines," said Zemedeneh Negatu, chairman of Fairfax Africa Fund LLC, a U.S.-based investment firm that consults on aviation. "Many other African airlines are run like the personal fiefdom of the government of the time."

Airline analysts say Ethiopian, which joined the Star Alliance group of elite carriers in 2011, has capitalized on rivals' departures. Richard Branson's Virgin Atlantic Airways launched Virgin Nigeria Airways in 2005, but left in 2009. In 2016, United Airlines stopped its only flight to Africa—from Houston to Lagos, Nigeria—citing weakness in the energy sector and difficulty repatriating funds. Ethiopian is now the largest international carrier in Nigeria, Africa's largest economy.  With the exception of a handful of Delta Air Lines routes to West and Southern Africa, American carriers are nowhere to be seen on the continent. Ethiopian's revenue has outpaced that of continental competitors—including Egypt Air, Royal Air Maroc and Kenya Airways—helped in part by autonomous management, in-house crew training and strategic planning, analysts say.

Still, civil unrest and political volatility in Ethiopia pose risks to the company's growth. The country's one-party government has violently cracked down on protesters calling for economic and political reform. Prime Minister Hailemariam Desalegn resigned last month and hasn't been replaced. Given that backdrop, it's unclear is whether Ethiopian Airlines can catch up to other bigger state-backed carriers including Emirates, Qatar Airways and Turkish Airlines . South African Airways offers a cautionary tale. Once Africa's top carrier, it is now plagued by corruption and had to seek government bailouts. "A good airline can have a very good economic impact on a host country: it doesn't follow from that that the government knows how to run the airline," said Craig Jenks, president of Airline/Aircraft Projects Inc., a New York-based industry consulting firm. "Ethiopian is a shining beacon of the right way to do it."

For now, Ethiopian is continuing its rapid growth, positioning Addis Ababa as the major transit hub for a continent whose population is expected to double to 2.5 billion consumers by 2050. On the tarmac at Bole International Airport, a fleet that includes 21 Boeing 787 Dreamliners waits to ferry passengers to destinations from London to Los Angeles and Beijing.  The company's rise has been aided by Africa's biggest investor: China. Beijing has financed airport and general infrastructure upgrades, including Addis Ababa's light rail system. The relationship goes both ways. This year, Ethiopian plans to begin flying to Shenzhen, its sixth Chinese destination, including Hong Kong.

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