Ethiopian carrier flies high, doubling profits

Wednesday September 6 2017



An Ethiopian Airlines plane. PHOTO | FILE 

An Ethiopian Airlines plane. PHOTO | FILE  

By ALLAN OLINGO
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Ethiopian Airlines almost doubled its profit for 2016, buoyed by an 18 per cent jump in passenger numbers.

The Ethiopian carrier summed up a great year for the continent’s largest and only profitable airline, with revenues of $261.9 million in 2016, from $150.9 million the previous year, despite the challenging operating environment caused by slower global economic growth and weaker performance of Africa’s major economies.

Its revenues increased by 8.6 per cent to $2.3 billion, a development attributed to an increase in flight frequency and opening up of new routes.

But the airline group chief executive officer Tewolde Gebremariam says that it was exposed to high currency fluctuations, leaving more than $220 million of its funds stuck in several African countries that had forex challenges.

Ethiopian booked a currency loss of $18.1 million as a result of continuous currency devaluation in many African countries and the associated problems of repatriation.

Mr Tewolde said the airline had difficulties repatriating funds in some oil-producing African countries.

“Repatriating funds held up in Nigeria, Egypt, Angola and Sudan as a result of the oil price declines was a problem. We have more than $220 million stuck in these countries. This has hit our liquidity,” Mr Gebremariam said.

Natural hedge

The airline was forced to resort to a natural hedge; making payments in the currency of sales and maintaining a higher cash reserve in the stable currencies such as US dollar, the euro and the British pound.

“Due to the fluctuation of most currencies against the US dollar, as well as critical shortages of forex in some of the major markers in Africa, we are closely working with International Air Transport Association (IATA) for possible ways of hedging of selected currency risks in major financial markets with selected banks,” Mr Gebremariam said.

Data from the IATA shows that last year, 20 African governments owed African and foreign airlines $1.4 billion in stuck funds.

Nigeria, which devalued its currency twice, held the highest amount, $339 million, followed by Egypt with $310 million, then Angola with $190 million, Sudan $250 million and Algeria $125 million.

In 2016, Ethiopian Airlines saw its operating expenses increase by 6 per cent, which was lower than the rate of revenue growth.

It spent $631.9 million on fuel — equivalent to 32 per cent of its total costs during the period — down from $739.4 million the previous year.

Its overflying and navigation, foreign overhaul and landing charges also increased by $54.7 million to $147.4 million because of the increased operations, and exchange rate impact.

The airline saved $81.73 million through the implementation of various structural and strategic cost-saving initiatives.

Facing stiff competition from Gulf carriers, Ethiopia Airlines transported 270,000 tonnes of cargo and 7.6 million passengers in 2016, 75 per cent of whom were in transit.
Its finance costs jumped to $1.97 billion, $1.8 billion being loans from foreign lending institutions, secured on aircraft, bearing interest at rates of up to 4.84 per cent annually, and repayable in quarterly instalments.

It also owes $121.3 million in secured and unsecured loans from local and foreign lenders and development agencies, bearing interest at rates of up to 6.9 per cent annually.
The airline spent $61.6 million on landing and parking, up from $48.23 million, as a result of the new routes.