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| Ethiopian profit up by 290 percent during grey days |
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| Saturday, 01 November 2008 | |
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Many national carries are on the brink or have ceased operation. Some are being liquidated and the future of major airlines such as Alitalia are hanging by a thread. On May 15 the Italian oil company ENI refused to provide fuel to Alitalia without first receiving payment from the airline. Despite all odds Ethiopian airlines generated 9.2 billion birr in operating revenue during the budget year, a 34 percent increase over that of the previous year. At a press conference held on Monday, the management of Ethiopian declared a record high net profit of 570 million, a sharp increase of 290 percent. The airline transported 2.5 million passengers, up by 20 percent, and generated seven billion birr. The 63 year old national flag carrier hauled 73,625 tons of cargo and collected 1.3 billion from the cargo business which grew by 13 percent compared to that of the previous year.  The airline earned 400 million birr from excess luggage and mailing service. According to the annual financial report, the airline made 70 million birr from the charter service and 143 million from maintenance and training foreign pilots and maintenance technicians. The substantial growth in revenues and the resultant operating profit are directly attributed to the apparent growth of traffic following the increase of many flight frequencies and the introduction of additional new destinations on the international sector. Revenues from cargo sales and other auxiliary services contributed to the overall financial performance of the company.During the fiscal year under review, the total operating expenses increased by 31 percent to 8.8 billion birr in contrast to that of the previous year. Fuel cost represented the lion’s share followed by the cost of aircraft\engine leases and payroll expenses. The escalating fuel price costs the airline dearly. As the price of fuel was hovering around 140 dollars in the 2007/2008 fiscal year, the airline spent 3.1 billion birr on fuel. Ethiopian registered this remarkable achievement at a time when the world economy is battered by global market turmoil. The world economy registered slow economic growth, 5.4 percent, and some developed nations are in recession. This directly or indirectly affects airliners. Hired by Ethiopian, Earnest and Young conducted a study on the future strategy of the airlines. The study focuses on maximizing the revenue of the airlines and making it competitive in the years to come. Based on the study, the airlines envisioned itself with becoming a market leader by 2010 as a world class airlines. The airlines projected its revenue to reach one billion dollars, number of destination to 60 from the current 53 and the number of jetliners to 30 from 20. Ethiopian's CEO, Girma Wake, said the airline revenue had already reached 980 million dollars and the number of fleet has increased to 26. The airlines launched operation with five Douglas C47 Skytrain purchased from the US air force. Ethiopian made its maiden flight to Cairo in April 1946. At that time, passengers sat in folding canvas seats along the sides of the fuselage and luxury was defined by the introduction of forwarding-facing seats. Today, Ethiopian operates 22 modern jetliners (nine Boeing 767-300 ER, six 757-200 ER, five 737-700, one 757-260 and one 757-200 freighters) and five Fokker 50s. Ethiopian, which styles itself as a world class African airline, serves 53 destinations spread around the globe. The national flag carrier wholly owned by the Ethiopian government uses the Boeing fleet for international flights and the five propeller aircraft for domestic services. As part of a fleet modernization programme launched in 2003, Ethiopian acquired six B767-300 and six 737-700 from Boeing in the past three years. In February 2005, it placed firm orders for ten 787-8 Dreamliner aircraft with a total value of 1.3 billion USD at least prices. In August 2005, the airline signed an agreement with GE for the purchase of twenty GEnx engines to power the Dreamliners. Ethiopian is the first African carrier to order Dreamliner. Ex-Im bank has agreed to guarantee the loan to fund the purchase of the aircraft. The management of Ethiopian has secured a loan for the purchase of the Dreamliners from ING and DVB banks. Before placing orders for the 787 in 2005, the management of Ethiopian evaluated 787 and A350. “We opted to buy B787. It was a right decision,” says Girma Wake, Ethiopian CEO. “We found out that it was easier to introduce this aircraft into our system. But this does not mean that A350 is a bad aircraft. The price of the aircraft, the performance of the aircraft and the cost that it takes to introduce the aircraft into the existing system are the main factors that we consider when we make decisions on which aircraft to buy,” Wake commented. According to the original schedule, deliveries of the ten Dreamliners are due in 2008-2011. The first two aircraft delivery was slated for September 2008. However, this was postponed to December 2009 as Boeing delayed deliveries of Dreamliners. The management of Ethiopian is holding talks with executives of Boeing. “This will entail additional cost and we are discussing the issue with Boeing,” said Wake. With the original schedule, Ethiopian was expecting the delivery of the first two B787 Dreamliners in 2008, three Dreamliners in 2009, three Dreamliners in 2010 and the last two Dreamliners in 2011. “The delay will affect our planned growth because our planned strategy for that growth took into consideration the Dreamliner jets as a core fleet for Ethiopian operation to major international destinations. The delay will pose a lot of challenge to us. Because of the delay, we have recently leased one B767, two B757, which, according to our schedule, will take us until the next summer. If the market continues the way it has been growing and if the fuel price decreases, we may be required to lease one or two more aircraft. If the fuel price remains high we will not lease any more. But these aircraft are not as customer appealing and fuel efficient as the B787 Dreamliners are, and fly less range. That means we had to resort to something we had not bargained for,” says Wake. In the agreement Ethiopian had made with Boeing there is a compensation provision for delay. We will be compensated. But I am not going tell you the amount, Girma said. In a bid to replace the ageing Fokker 50 aircraft that are used for domestic service, Ethiopian has been evaluating those submitted by seven aircraft manufacturers. The management finally selected Bombardier and ATR. The management has submitted the proposal to the board of directors for endorsement. “ATR offered us two aircraft: ATR 42, 48 seater and ATR 72 68 seater. If we opted to buy ATR we will buy ten aircraft seven ATR 72 and three ATR 42. If we buy Bombardier we will buy seven aircraft and it is a 78 seater. Ethiopian will build a four star hotel near the Bole International Airport and a new maintenance hangar. The airlines has also embarked on an IT development program with an outlay of 30 million dollars. Girma told The Reporter that the company will pay bonuses to its employees. “We will negotiate with our employees,” the CEO said. |
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