Ethiopian’s Windy Road Ahead




On so many occasions, Ethiopian Airlines has been lauded for its actions to promote growth. Its success is partly due to its constant production and deployment of a disciplined, well-trained and patriotic workforce, ensuring the reliability of services and improvement of efficiency. Ethiopian is virtually self-sufficient in all aviation training systems. The Ethiopian Aviation Academy (EAA) offers training for pilots, aircraft technicians, cabin crew, marketing, management and finance, giving the best workforce a stronger grounding in the skills necessary for a leading professional aviation force.

The airline was forced to create its own academy since there are no other institutions that can supply it with trained human resources. But it has changed this challenge into an opportunity.

Just as Ethiopian has worked tirelessly to increase the prestige of the Aviation Academy, it has also provided basic aviation maintenance training to trainees from many other African countries. Rooted in the African spirit, the training is also leavened by advanced aircraft maintenance. In recognition of its application of international standards, EAA has so far been certified by the US Federal Aviation Administration (FAA), European Aviation Safety Agency (EASA) and IATA Safety Audit (IOSA). As part of this robust strategy, Ethiopian signed the On-point Solution Agreement with GE Aviation for maintenance, repair and overhaul of its GE90 engines. This is certainly a recipe for a guaranteed success.

In 2015 alone, about 750 students from Ethiopia and other parts of Africa graduated from the Academy with certification in different aviation skills. This is a clear indication that the Academy is fast maturing into continental respectability and is walking the walk towards becoming one of the seven profit axes of the Ethiopian Airlines Group. Even more impressive, EAA aims to expand its acceptance capacity to 4,000 trainees yearly, and this will be an important income stream.

Some view the aviation industry as an economic bellwether; hence, it manifests that the health of the industry serves as a barometer for wider economic conditions. Most airlines are currently enjoying relatively higher operating margins due to cost reduction led by the decline in oil prices and skilled airline management.

There is no question that aviation fuel accounts for a major portion of operating costs. A few years ago, to the dismay of many airlines across the world, political instabilities that prevailed in oil-producing countries played a big role in the rise of fuel prices. This represented increased costs to the aviation industry.

Ethiopian pursues the policy of managing fuel price volatility risk using various hedging strategies and instruments based on careful examination of the trends. It has also been introducing fuel-efficient aircraft. For it to be a guaranteed frontrunner in the industry in the years to come, there are also other strategies that must be adopted to minimize fuel costs.

One example is venturing into joint domestic production of sustainable and advanced-generation bio-fuels or their utilization, as they are affordable and environmentally friendly. This serves the purpose of saving from rampaging, volatile and potentially rising fossil fuel prices that represent the lion’s share of airlines costs for national carriers of oil importing countries. I presume that this sounds much more germane to an airline whose country is not an oil producing one.

Besides, the joint jet fuel purchase scheme devised by African Airlines Association (AFRAA), of which Ethiopian is a part, is a strategic move that can help to collectively lower fuel costs. For optimists, efforts for a scientific breakthrough to create electrically powered commercial aircraft, may ultimately relieve Ethiopian from a fuel predicament in the long-run and help crack the carbon code.

Needless to say, the contribution of the airline industry to economic development is enormous. There can be no iota of doubt that Ethiopian is the much needed hard currency generating machine to its country. As we reflect on an ideal network dispensation of economic advantages other than these airfare receipts, we can also realise that better transport links expand market opportunities. This further allows greater scope for economies of scale, increased specialization in areas of comparative advantage, and stiffer competitive pressures on companies, encouraging them to become more efficient.

It is evident that air transport facilitates world trade and, this, in turn, means aviation supports foreign direct investment (FDI), which is often accompanied by improved technology. Given the growing international economic importance of Ethiopia in the global business sphere, the airline has consistently provided seamless movement of business people into and out of the country. Moreover, based on the correct reading of global economic trends, the airline has shifted its business focus on linking Africa with global growth hotspots like China and India. Borrowing the words of one commentator, airlines are the physical Internet, connecting people, products and the world driving the global economy and creating millions of jobs.

There is no doubt that greater transport links speed up African economic integration with the rest of the world and expands its market. Aviation can allow effective networking and collaboration over longer distances and improve the profitability of investment in other sectors as well. In Ethiopia, for instance, the building of freight capacity by acquiring more freighter aircraft has helped the floriculture sector. This sector increasingly depends on just-in-time deliveries of a perishable export commodity to Europe and other destinations. To meet this growing need, Ethiopian put in place a perishable cargo cold storage facility to serve the growing exports of perishable items.

Industries that produce low-volume-high-value commodities, such as pharmaceuticals, rely on air transport for delivery of time sensitive supplies. This, in turn, means aviation supports FDI both into and out of Africa. That is why many countries promote aviation as the lifeblood of their economies.

Yet, in a world in which employment generation is becoming a main concern, those activities that are directly or indirectly dependent on transporting people and goods by air, including airline and airport operations, are of paramount importance. Let us relate this prospect with the Ethiopian tourism sector. Given the recognition Ethiopia got from the European Council on Tourism and Trade as “Best Destination for Tourists” in 2015, employment in the tourism industry is expected to benefit quite a bit. This is clearly reliant on the aviation industry as most foreign visitors arrive by air. By the same token, the aviation industry depends on tourism to generate demand for its products and services.

Thus, it is possible that increased demand for tourism would augment the frequency of air travel. Being cognizant of the need to fundamentally change the magnitude of tourist flow to Ethiopia, Ethiopian has forged a partnership with the newly established Ethiopian Tourism Organisation (ETO). They jointly market Ethiopia as a global tourist destination for mutually reinforcing benefits.

In my very limited foray into public sector economics, I can say that Ethiopian can provide practical insight that a well-managed public enterprise can be a success, and the public sector can be somehow a viable alternative to wholesale privatisation. It is not common to find a public sector success story in Africa; a business that is fully-owned by its government that is actually blossoming. One fundamental factor for its success is the fact that successive Ethiopian governments have ensured that the management of the airline is autonomous and professional with very limited but effective strategic support and guidance from political leaders.

A lesson that can be drawn from the success of the airline is that public enterprises can be very successful if and when they are run with visionary and strategic leadership and professional management. Political leadership is expected to provide judicious oversight and strategic support rather than unduly interfering with the day-to-day operation and management of the enterprise. Other African countries can draw an important lesson from this Ethiopian experience. As a matter of fact, the Ethiopian government itself can learn from its success in nurturing, supporting and leading Ethiopian Airlines Group into spectacular success and try to replicate the success with other public enterprises in the country.

In general, Ethiopian‘s investment in performance-enhancing activities and its membership to Star Alliance not only change its connectivity but also accelerate changes that have been long underway. It illuminates them to a degree that will make continued advancement (that engender high brand loyalty and customer satisfaction), more tenable. When the centre of gravity is on aviation infrastructure development, increasing operational efficiency and service improvement, the economic payoff will be large and immediate; in fact, many will celebrate it.

Ethiopian‘s entry into strategic partnerships with smaller African airlines definitely brings market enhancement and scale up of operational efficiency to all. This was demonstrated when Ethiopian partnered with Lome-based ASKY Airlines, in which it has a stake. Ethiopian is responsible for aircraft maintenance and operational management. In this highly competitive sector and with economic hardship being a global reality, regional cooperation and alliances ensure employment. The Government of Ethiopia also believes in this move and has been fortifying strategic partnerships with other countries to create favourable external conditions in the diplomatic arena.

Economic reasoning has taken prominence in state affairs, and modern demands and processes are oriented towards the promotion of domestic business abroad and the attraction of foreign investors. It is, therefore, incumbent upon the regional players to come to a consensus and seize the opportunities that regional cooperation offers. Such cooperation, as well as enhanced diplomatic machinery, would excellently complement this endeavour.

For the airline to incessantly attract more customers, it is essential that long-term and intensive marketing campaigns are unleashed based on the evolving characteristics of passengers and other partners. As Ethiopian builds its public relations apparatus equal to the overwhelming task at hand, it should acknowledge the need for an additional robust corps of public relations specialists, to play well in the presence of respected rivals. While that is certainly true, the emphasis on promotion in the making of a successful airline should be central to the articulation of Ethiopian‘s eminence as well.

There is a widespread perception that many public enterprises in Africa have not delivered what was expected from them in economic development. Most of the challenges are related to rising corruption, management inefficiencies, the poor performance of staff, and technological shortcomings. All things considered, it can be concluded that Ethiopian Airlines is a case of a successful public enterprise. Many African public enterprises therefore can draw important lessons and successfully emulate the success factors that have made Ethiopian a shining star.

Little change is likely to come about in poorly performing public enterprises unless the recruitment of professional and competent management and well-trained and productive workforce are ensured. In doing so, it is necessary to pay greater attention to strengthening capacity building of their workforce and to creating a new culture in which competence, efficiency and the public good are dominant.

Maintaining the firm’s operational autonomy and a cordial and cooperative relationship with the government is important to achieve the goals of the public enterprise. Public enterprises should also be committed to transforming themselves into dynamic entities which are cost-effective in serving their customers through the application of financial discipline with proper cost management mechanisms. To do so would be to enhance their abilities to systematically adapt and change, focusing on the need to maintain, rehabilitate, and modernize their physical assets. And it is essential to champion commitments to demonstrate creative patterns of collaboration and alliances with other enterprises, building networks at reasonably little extra cost and attaining economies of scale through resource pooling across operational areas.

For Ethiopian Airlines, continued implementation of its Vision 2025 Roadmap and the generation of new workable strategies will enhance its dynamic competitive advantage in the years to come. These will help maintain current levels of attainment. They will also conjure up a better image of an efficient African corporate entity which is robustly positioned to continue riding from success to success, with its vitality of cherished tradition. Ethiopian‘s predilection for creating sustained distinction is an assertion that keeps “The New Spirit of Africa” thriving more in leading 21st aviation development in Africa.

 

 



By Negus Kebede
Negus Kebede is Director of Business Promotion at the Ministry of Foreign Affairs (MoFA). He has a Master's Degree in Economic Policy & Planning from Makerere University, Uganda. Opinions expressed in this commentary, the second part of a two-part series, do not reflect the view of the organisation with which he works.

Published on May 17,2016 [ Vol 17 ,No 837]


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