One of the most devastating impacts of the pandemic besides health risks was the massive loss of jobs and sources of livelihood for families.
Given the policies to prevent the spread of COVID-19, including business lockdowns and restricted face-to-face interactions, commerce has been the most affected sector followed by services throughout all countries. As an expected outcome of the lockdown and travel restrictions, the aviation industry suffered huge losses worldwide.
It is however interesting and worthy of mention that no Ethiopian Airlines staff was laid off amidst all these. Even more interesting is that the staff still received their full pays and allowances. How were they able to manage the crisis and still keep afloat? The CEO of the airline, Mr. Tewolde Gebremariam, gave some insight in this interview with the Chairman of the editorial board of African Leadership Magazine, Mr. Peter Burdin, and The Executive editor, Mr. Kingsley Okeke.
Excerpts (Part 1)
ALM PETER: Just going back to the beginning of this pandemic, I think last year, you posted a 260-million-dollar profit. How much has this changed in this pandemic and how much has the pandemic caused you disruption?
TEWOLDE: I saw that in your writing, but I’m not sure about the 260 million. I think there’s a difference between gross profit and net profit. I saw also 696 million, but I think these numbers are a little bit different from the actual amount we have. But I think the most important thing is where we are now and what we’re doing now. Our fiscal year has ended June 30, 2020, because our fiscal year runs from July to June. By June 30, we have been affected by COVID, especially for the last four months, March, April, May, and June.
Nevertheless, we were profitable. I don’t have the exact numbers because we have not released the audited financial statement. But we are profitable.
By June 2020 we have completed the fiscal year as profitable because as you can imagine, at least the first seven months — July to January was good. As you remember, COVID started in China in late January and then was confined in China in February, and in March it started spreading to the rest of the World. Then, around the 20th of March, we suspended almost all passenger operations.
The unique situation with us which has helped was the quick change we made to cargo. Although we have always been the largest cargo operators in Africa with 10777 dedicated freighters and 2737 freighters in addition to our belly hold capacity on a passenger aircraft. But when we, unfortunately, found our passenger service was completely suspended at the end of March, then management made a quick decision to convert some of the passengers’ airplanes to cargo by removing seats and doing some engineering work with Airbus and Boeing. If I’m not mistaken, we were the first to do that. And then, it was the right time also to support PPE air transport to Europe, to Africa, North America, South America and we have done well at that time by also doing good to save lives with the COVID-19 spread. Everybody in the World didn’t know what to do with COVID and how severe it was. There were no preparations, even the most developed countries in Europe and America were also not prepared with the right PPE— mask, Google, and other closing medical equipment. At that time, using all our dedicated freighter airplanes and other 25 wide-body passenger aircraft converted to cargo, we were almost one of the largest cargo operators from China to Africa, China–Europe, China–North America, and China–North America. From April to June, we have done very well in terms of cargo, while the passenger was completely suspended but we have to put that into perspective because 85 percent of revenue or 84 percent of our revenue comes from passenger flights. So, when you compare passenger revenue and cargo revenue, cargo revenue is small but somehow it enabled us to sustain and continue with the business. Perhaps, I’m not so sure as I’ve not done the research, we should be the only airline in the world that has managed the crisis without bailout money from any source. We have not even borrowed money for working capital and again without laying off any employee and without reducing any employee’s salary. So, it is quite a historical milestone. Now we’re gradually starting the passenger operation as mentioned at the beginning of our discussion that we are starting Lagos, we started Abuja yesterday. So, this is where we are.
ALM_PETER: I think, very much as you said, you’re coming out of the crisis intact. I wonder if you could paint a picture of the aviation industry as we come out of the pandemic. I think you mentioned something like globally the air industry lost over 300 billion pounds in ticket sales. You seem to have come out fairly decent or although you’ve absorbed that hit. How do you quantify the state, particularly of Africa’s aviation industry now?
TEWOLDE: I think our industry in Africa is in very bad shape. I can say so because most of the airlines are in very deep financial distress and as you know the continent is not as developed as Europe and America in terms of the capital market, in terms of the equity market, loan, debt market, so you cannot sell bonds, you cannot sell shares, so airlines are found in a very difficult situation and governments are not in a position to bail them out also in terms of capital injection. Some are trying their best but it seems to be very difficult for most carriers in the continent. So, as I said in our case, we’re OK. I’m not saying that we are not affected we are affected. Because, you know, if you go to the airport in Addis, you find close to 120 airplanes grounded. So, it is an unprecedented global crisis, the first in the history of aviation. When I compare the aviation industry in Africa with the rest of the world, I think the African aviation industry is in a worse situation because:
- a) There’s no bailout money from the Government
- b) They cannot borrow. It’s very difficult to find loan capital especially when it comes to working capital because they’ll not have also collateral to support the loan. It is very difficult here
ALM_PETER: I think, it is last year that you overtook Dubai, that great logistical mega Centre, as the largest port of destination for flights around Africa. So, you’ve come out of this crisis with a very dominant position, what are your plans to continue with that or develop that dominance?
TEWOLDE: Well, I would not call it dominance because dominance may not be the politically right word but I would say we will continue to serve the continent. We have been serving for the last 74 or 75 years, in good and bad times. We have always been a pan-African carrier. As you can imagine 70% of our traffic are not to Ethiopia or from Ethiopia, but rather transfers through Ethiopia, and so that gives you the volume of our Pan-African network. So, I fully agree with your statement that we’re coming out and emerging stronger. We have now inaugurated the new terminal in Addis with COVID-19 protection procedures and processes designed in the new terminal. So it’s a big terminal which will enable us to carry about 22 million passengers per annum and that has cost us 350 million dollars. All the rest of the infrastructure in Addis that we have seen last year, the aviation Academy, the cargo, the MRO will be a very strong foundation now when we come out of this COVID-19 crisis. Of course, we’re going to develop the routes one by one because passenger traffic is now coming slowly and gradually and we will expand our hub, the regional hubs concept. ASCA is now covering the West and Central Africa. Chad also, although it’s a very small startup. We just started with one airplane two weeks ago. We’re going to restart in Malawi and we have a small airline in Mozambique. We’re also open to other African countries which may be interested to restart their national carriers or support their national carriers because we’re still a Pan-African airline and we wish to develop the aviation sector in the continent. I fully agree with you, that we will continue our leadership in the continent.
ALM_PETER: We hear a lot about Africa’s coming demographic revolution which might see the population of the continent double in the next generation. How optimistic are you that Africa will remain one of the fastest-growing regions, particularly in your sector, for future air travel?
TEWOLDE: I am very optimistic and I have some supporting statistics and facts for being optimistic for Africa. Well, not in the immediate future, because as you know right now, the continent is in very bad shape, macroeconomic, on fiscal, deficits and so on. As you know, the oil-exporting countries are highly affected because of low oil prices, and as a result of that, they’re running very short of foreign exchange. Whether is Angola, Nigeria or Cameroun, Gabon, Equatorial Guinea, and so on. The oil-importing countries are in better shape because they are getting dividends of low oil prices. So, their low foreign exchange position is much better, although their export is still affected. But I would say in few years, this is going to rebalance and then we’ll see the opportunity of the continent as perhaps the largest young population in the world with around 1.3 billion people and around 60% are the young workforce. So, this is a big demographic dividend for the continent and as we all know it’s a very large landmass for food security and natural resource, and so on. Whether it is from Europe, which is the largest trade partner of Africa, or the emerging very large trading partner, China, and India or the United States or Canada, Africa will be the Magnet of foreign direct investment because in the mature markets of Europe and America as you know the return of investments is low, but here the return on investment is very high, of course, it’s a balance of risk and returns. I see that Africa will continue to be the fastest-growing continent.
ALM_PETER: Of course, you’ve tracked the air and aircraft industry for over 30 years with the Ethiopian airlines and a lot of changes in that time, and in terms of the future you’re very optimistic about the future. What everyone wants to know is if Ethiopian Airlines’ overall success is undoubtedly a source of inspiration for the whole Africans across the whole continent. What do you think is the secret of your success?
TEWOLDE: Well, I get this question from almost all corners of the World. You know, as you said I’ve been in this industry for the last 36 years and all in Ethiopia. So that tells you the volume of one of the successes of Ethiopian airlines. Most of us in leadership have been in the airline for 20–30 years, so we’ve seen a lot of ups and downs in the industry and we’ve managed ups and downs in the industry many times. We have seen hundred and fifty dollars of oil where it has devastated the airline industry. We have seen Ebola, we have seen SARS, we have seen two zero eight zero nine global financial crises, so we’ve gone through these and I think experience, skill, and knowledge base on management and technical expertise that is accumulated in the airline is one of the success factors. So, I would call it management and leadership which is not common in the other parts of the continent because you see a lot of turnovers, a lot of change of leadership, and so on. That is not as healthy for business as you can imagine. The second and most important part of the success factor is corporate governance. The corporate governance is, we are 100% state-owned but the airline is managed by professionals without any interference from Government. I mean it is managed purely on private business and economic principles. So, the balance of being state-owned and also operationally managed for business and business principles, the combination is a competitive advantage because you know many people say that state ownership is a problem. I don’t agree with that because ownership in itself is not a competitive advantage or a competitive disadvantage. You have successful business organizations like Ethiopia airlines owned by the state, you also have successful business organizations in private but you also have failures in private hands. So, ownership is not a big success factor. The success factor is the ability of the corporate governance to separate ownership from management. Whether it is privately owned or government-owned, ownership should remain as owner. The owner should not interfere in the day-to-day management of the business. If you mix management and ownership, then you are calling for trouble.
ALM_PETER: You speak with a great volume of experience, 36 years of experience and you mentioned there the importance of continuity. What about strategic vision?
TEWOLDE: Yeah, that is the success factor which I was to mention. In the airline business, the peculiarity of your airline business is the proportion of the high fixed cost to variable costs because the fixed cost of an airline is proportionately higher because of airplanes. Airplanes are very expensive flying machines. You buy an airplane for 150 million dollars or 200 million dollars. So, how do you raise 200 million dollars to buy an airplane? You borrow money. You’re going to pay this for the next 20 years or 18 years or 12 years. I think the average is 12 years. And then, this airplane is a very high technology machine. It has a design phase, manufacturing phase, a maturity phase, and so on. So, the bulk of the financial and technology issue demands that you have to plan for 12 to 15 years. That’s why Ethiopian airlines have a planning policy that at any point in time, we should have 15 years strategic plan, active, on a running basis. So, we used to have vision 2025. From 2010 to 2025 and now we are preparing vision 2035 for the next 15 years. The reason why we chose fifteen years is number three parts of the first five years, the second five years, and the third five years. Number two, it will allow us to plan for the next generation of airplanes, and also it will allow us to compile structured finance for the next 15 or 12 years. I think people should understand that this is a long-term business. You cannot manage an airline from quarter to quarter like the stock exchange in London or New York, No. That is now a problem as you can see because if I manage an airline from quarter to quarter to please analysis in London or New York, then I will lose my long-term sight of the business. So, this is also a very important element of the peculiarities of the airline business.
ALM_PETER: So, you’re looking at today’s activity and how the activity might look in five, ten, fifteen years?
TEWOLDE: Yes, we have a statement in Ethiopian airlines we call “double visioning”. Double visioning means, you have two eyes, one eye focus on today, the other eye focus on tomorrow.
ALM_PETER: Excellent, thank you very much. Indeed, that was interesting and illuminating as well, I think there are so many business lessons that our African Leadership can get there.