Airline Economics Growth Frontiers Dubai 2017 (ME and Africa) - - PowerPoint PPT Presentation

Airline Economics

Growth Frontiers Dubai 2017 (ME and Africa)

Tewolde Gebremariam Ethiopian Airlines Group CEO

Ethiopian Airlines

Past, Present, Future

The Leading Airline Group in Africa

Ethiopian History

1946 1st scheduled flight to Cairo with DC-47

1960

1st East-West Africa flights

1962

1st jet service in Africa

1973

Bringing Africa Together for More Than 70 years

1st Flight to China 2010 1st African B777-200LR

1998

Transatlantic flight to NYC, IAD 2011 Star Alliance Member 2012 Africa’s 1st B787 Africa’s 1st A350 Major new infrastructures.

• Biggest Catering facility
• Biggest MRO facility
• Biggest Cargo Terminal

The Leading Airline Group in Africa 2009

Vision 2025

2016 2017

Africa’s Largest Aviation Academy

Over 100 international destinations 2017

Formation of the Ethiopian Airlines Group including the EAE

The Largest Airline Group in Africa

Global Alliance Star Alliance Member

Passengers Cargo (Tons)

• 8.8 mil. Passengers (2016/17)
• 338,846 tones (2016/17)

Revenue USD 2.71 Billion (2016/17) unaudited Current Fleet 92 in service & 60 in order(less than 5.0 years av. Fleet age) Hubs: Addis Ababa, Lomé, Lilongwe Management Team

Young but highly experienced team with combined aviation experience of 425 years; average services of 25 years.

Current Destinations (Passenger & Freighter)

• Over 100 international destinations.
• 39 Freighter and 19 domestic destinations

Employees

• More than 12,000

Ownership

• 100% Ethiopian Government

Weekly Flights + 1681 – Weekly flights + 240 – Daily departures Major Accreditation/ Certifications

In Service: 19 - B787-8 4 - B777-300 ER 6 - B777-200LR 5 - A350-900 6 - B767-300 9 - B737-700NG* 16 - B737-800W* 19 - Q400* 6 - B777-200LRF 2 - B757-200F * in total with partner airlines On order: 30 - B737 MAX 8 19 - A350 4 - 787 – 9 5 - Q400 2 – B777F

Growing, Modern & Young Fleet

92 in service 60

• n order

Average fleet age of less than 5.0 years

Record Success Vision 2025

Ethiopian is the Fastest Growing African Airline

1219% revenue growth in 10 years time in an industry which lost billions of Dollars

Ethiopian ranked 57th of the top 100 airlines group by revenue in 2016; up by 6 points (63rd in 2015)

• South Africa Airways…60th
• Egypt Airways……………76th
• Kenya Airways…………..100th

Record Success Vision 2025

21st Century is African Century

• 1 billion young population
• Large land mass
• 6% GDP growth next Decade
• GDP of $ 2.6 trillion by 2020
• 60% of world’s uncultivated arable land;

destination for food security

• Fast growing middle income society
• Untapped natural resources: 42% of world’s

gold; 12% oil; 90% diamond, etc…

• Major FDI destination

China

Growth & Transformation Plan (GTP)

• GDP: +11%
• Infrastructure development:
• Road: 64,500 km
• Rail: 2395 km
• Energy: 10,000 MW
• Telecom: 50 million mobile users
• Addis: 1st city rail in Sub-Saharan Africa to have city

train service built by Shenzhen Metro

• Significant improvement in human development

index

• Broad based & all inclusive economic development

ETHIOPIA, One of the PINEs

(Philippines, Indonesia, Nigeria & Ethiopia) fastest growing economies

The Largest International Passenger Network in Africa

5 Continents, More than 100 International Destinations of which 55 are in Africa

New york Windhoek Victoria Falls Antananarivo

Oslo

6 Billion people living with in 10 hrs flight radius of ADD

Largest Cargo Operator in Africa

39 Freighter destinations in 4 continents, 6 wide-body freighters and 2 Cargo Terminals 6 - B777F

Upcoming Cargo Terminal No 2.

• Automated Cargo Terminal for 600.000 tons per year;

expandable to 1.2 mil.

• Pallet racks for 8500 positions.
• Meat Hanger System
• X-Ray, CCTV, Forklift trucks, etc.
• Half of the terminal capacity for perishables
• ULD Handling System:
• 4 15ft Elevating transfer vehicles
• 990 10ft storage positions
• 30 Workstations, elevating, with integrated scales

Largest Cargo Operator in Africa

Terminal 2

Gender Equality

All Women Functioned Flight

Won the Passenger Choice Awards for "Best Airline in Africa" for the third time in a row at the Oregon Convention Center in Portland, USA Received ‘Airline of the Year’ Award by the African Airlines Association (AFRAA) for the fourth year in a row. Voted the Best Cargo Airline of the Year from Africa at the 2016 Cargo Airline of the Year awards

Recent Major Industry Awards

Recognition Of Our Success

Ethiopian Airlines has won Airline

• f the Year Award for the fifth

year in a row, at the 48th AFRAA Annual General Assembly held in Victoria Falls, Zimbabwe.

Ethiopian Airlines has won SKYTRAX World Airline Award for Best Airline Staff in Africa, for the second time, on July 12, 2016. Ethiopian Airlines has won the CAPA Airline of the Year Award at the 2015 CAPA Aviation Awards for Excellence, Helsinki, Finland.

ET received “Best Airline to Africa”, for a second year in a row, and “Best Airline in Africa” by US Premier Traveler magazine

Ethiopian has won SKYTRAX World Airline Award for The Best Airlines in Africa on June 20, 2017 at the Paris Air Show.

ET Hub (ADD Bole International Airport) Expansion & Modernization

ET Hub (ADD Bole International Airport) Expansion & Modernization

The Airline Operating Environment

• Unpredictable
• Turbulent
• Highly dynamic
• Too sensitive to

economic cycles

15.4 B 7.4 B

• 0.1B

0.8 B 7.4 B 0.4 B American Airlines European Airlines Middle East Airlines Asian-Pacific Airlines African Airlines Latin American Airlines

Airline Profitability in 2017

• Persistently high; about

50% of operating cost

Oil

• Governments milking

aviation

Taxes & Charges

• Limited & unable to

keep pace

Infrastructure

1 2 3

Africa : Airline Industry Major Challenges

• Too little inter-Africa traffic
• Too little trade & investment

among African countries

Lack of Integration

• Poor ICT infrastructure

ICT

Immigration No visa waiver among African countries Blacklisting Tarnishes image of entire African aviation

1 2 4 3

Africa : Airline Industry Major Challenges

Key Success Factors In Airline Business

THREAT OF NEW ENTRANTS

• LOW ENTRY BARRIER
• Liberalization, Aircraft lease options,
• utsourcing

BARGAINING POWER OF SUPPLIERS

• MONOPOLISTIC SUPPLIERS
• OEM’s, Fuelers, GDS, Caterers,

Airports

BARGAINING POWER OF BUYERS

• INDIVIDUAL POWER
• Internet, Travel Agencies,

Concentration, Excess capacity

Five Forces Affecting Airline Industry Profitability

THREAT OF SUBSTITUTES

• High speed Train
• ICT products

RIVALRY AMONG EXISTING AIRLINES

• Competing for growth, market

share, etc…

Fleet

• Fleet is the most expensive strategic asset of an

airline and hence important focus areas are;

• Fleet Planning
• Fleet selection, commonality
• Fleet management and maintenance
• Marketing Plan ------> Network plan ------> Fleet

Plan ------> Business Plan.

• Financing fleet should be part of the fleet plan and

business plan.

• Finance lease
• Various forms of operating lease
• Fleet Deployment; The right aircraft for the right

mission.

Key Success Factors In Airline Business

Cost Management

• Focus on cost management is a necessary but

not sufficient condition for any type of airline (Full service network, LCC, ULCC or hybrid etc…).

• Need for continuous pursuit to achieve the least

possible unit cost is necessary in all types of airlines.

• Cost Management should not be the domain of

LCC, ULCC or hybrid airlines.

• Full Service Network Airlines management should

also give equal attention to cost management in all product types.

Key Success Factors In Airline Business

Key Success Factors In Airline Business

Leadership/Management

• The late Peter Ducker said Management is the single most important part of

any organization.

• Determines success or failure of any organization.
• The commitment, dedication, passion, energy and experience and skill of

Airline management is the single largest success factor for the airline.

Corporate Governance

• Another maker and breaker of any airline.
• State ownership, private ownership, mix structure of ownership are all

possible practices but in the end what matters most is the operating environment created as a result of the ownership.

• A healthy involvement of governments is unavoidable and necessary in the

airline business.

• Depending on the economic development stage of the country, Airlines are

strategic assets for any country and long term view of the business is critically important.

• Airline business not an easy money making business; it is an extremely low

margin business.

Key Success Factors In Airline Business

Product Differentiation

• Airline product being commoditized long time ago need product differentiation.
• Commodity product is getting increasingly challenging in the industry and thus

customer service has been attracting management attention. Managing Difficult Business

• The airline business is one of the most difficult businesses in the world.
• Surrounded by monopolistic suppliers but on the other end of the value chain (the

demand side) dominated by almost perfect completion driven by excess capacity in the market.

• Paradoxical situation: manifested by exponentially rising costs to produce the product

(ASK) but continuously declining price of air travel to the customer.

• The law of inflation is not applying on air ticket prices since they are continuously

declining.

Key Success Factors In Airline Business

Managing Profitability

• Some airlines are making money consistently like South

West, Ryan Air, Easy Jet, Ethiopian Airlines etc… while most airlines continuously loss billions of dollars specially when measured by Economics Profit (EVA) and not an accounting profit.

• How are continuously loss making airlines getting many

airplanes every year ?

• who is investing in these continuously loss making airlines ?

This the question to the audience ?

Diversity of Financing

• Options ( ECA Guarantees, Structured Finance, the bond

market etc….).

• Overestimation of risk and disequilibrium in the risk and

return equation.

Key Success Factors In Airline Business

Airline Economics

Key Success Factors In Airline Business

Airline Economics

Thank You

The Winning Team