Ethiopian Airlines nearly doubles its profit in the last budget year

(EBC; October 24, 2016)- Ethiopian is Africa's largest and most profitable airline, earning more than its rivals on the continent combined.

Its expansion has been rapid: by 2015 it served 82 international destinations, with 13 more added this year. It nearly doubled its profits in the last financial year.

It helps that its regional rivals are competing only feebly on routes in Africa. According to the International Air Transport Association, African carriers are likely collectively to record a net loss of $500m this year. Kenya Airways, which has been in the red for four years on the trot, is flogging some of its aircraft and last month announced it would raise more equity. South Africa's national carrier, which Ethiopian overtook in size, last year, has been unprofitable since 2011, and could be insolvent without government guarantees.

Ethiopian's lead also comes from its own strengths. It took advantage of its plum location in the Horn of Africa. Mr Tewelde Gebremariam, CEO of Ethiopian circles Addis Ababa on a line connecting China with Brazil via India and the Gulf. It beat rivals who were still fixated on the former colonial routes to and from Europe, and captured Asian traffic. In particular it took an early punt on Chinese demand.

In 1973 it was the first African carrier to fly to China. Today a bustling Chinese transit counter at Addis Ababa's Bole airport testifies to the importance the company attaches to the market. And Ethiopian has reduced flights to small African capitals like Brazzaville, in the Republic of Congo, which offers little business, in favor of more flights to the country's booming oil port of Point Noire.

The fact that it is state owned helps keep costs low, but it behaves like an international firm, not a national flag carrier, says Rob Prophet, an aviation consultant. It takes no state subsidies.

Now it wants to be the continent's first pan-African airline. It is opening hubs in Togo and Malawi, and teaming up with smaller rivals. But it is unlikely to be all smooth cruising. Middle Eastern rivals, including Qatar Airways, are expanding across the continent. Poor infrastructure is problematic. A new four-runway airport outside Addis Ababa may improve matters, but few expect it to open on time. Ethiopian was founded in 1945, but it was not until the country's long peace from 1991 that it took off.

Source: The Economist