Ethiopian Airlines' acquisition spree unsettles Kenya Airways

Ethiopian Airlines appears set to crush other carriers on the continent. And the national carrier Kenya Airways (KQ) appears among those that will feel the impact of Ethiopian’s accelerated expansion.

Ethiopia’s State-owned airline has since 2010 been implementing an expansion strategy to grow its fleet to 120 aircraft and grow to become the largest airline in Africa by 2025.

However, the airline has already achieved the targets. It has also been increasing stakes in other airlines.

It owns stakes in Malawian and Togolese carriers and is currently on an acquisition spree, with plans to buy into airlines operating in Zambia, Chad, Mozambique and Guinea.

It is now revising the targets set in the 2010 strategy and plans to add frequencies to Kenya. The airline last week secured additional frequency to Mombasa, which will now see it fly twice a day between Addis Ababa and the coastal city, following discussion between the two countries during Prime Minister Abiy Ahmed Ali’s visit to Nairobi.

“We have expanded more than we planned,” said Chief Executive Tewolde Gebremariam. “We had to revise the objective to make it 150 airplanes or more by 2025.”

Loss-making territory

The additional flight might be unsettling for KQ, which late last year concluded a restructuring programme, with new structures expected to see it fly out of its loss-making territory.

To facilitate its return to profitability, KQ has been lobbying the Government for protectionist policies to secure its survival. This would include careful approach in allowing more carriers to fly to Kenya.

The other formidable competitor to Ethiopian in the region could be South African Airways, which is experiencing equally turbulent times as KQ.

RwandAir has also been growing but is yet to grow in fleet and number of destinations. Other than KQ which is partly owned by Government, the other airlines are wholly owned by their respective governments.

Ethiopian will take equity stakes in new operators in Zambia, Chad, Mozambique and Guinea while helping to manage existing carriers in Equatorial Guinea and the Democratic Republic of Congo, GebreMariam said in an interview with Bloomberg.

Tewolde said Ethiopian Airlines agreed in January to take a 45 percent stake in the new Zambia Airways, with flights likely to start in October. It has also signed an outline accord to establish new national carrier Chad Airlines with a 49 percent holding. The company will own all of the planned Ethiopia Mozambique Airlines and 49 percent of Guinea Airlines.

Ethiopian Airlines is growing its reach and influence in Africa at a time the region is implementing an open sky policy. In January this year, 22 countries with a combined population of more than 670 million people signed an agreement to open up their skies, which would mean less restrictions and taxation when an airline from one country wants to fly to a member country.

Profits

With subsidiaries and hubs across Sub Saharan Africa, the airline is set to reap from the new policy that has been backed by the African Union.

Last year, Ethiopian Airlines defied the trend among other major and global carriers, reporting Sh2.3 billion ($233 million) profits in the year to June 2017. Revenues stood at $2.7 billion, representing 11 percent increase from the previous year.

[Additional reporting by Agencies]

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