Ethiopian Success Strategy

&

Challenges of Air Transport in Africa

June 2013

2

• Airline industry:

- Highly capital intensive

- Hypercompetitive

- Too sensitive to economic cycles: difficult to formulate annual plan

• Need for long term planning:

- Aircraft are high value assets with lead time between order & delivery taking 5 to 10 years

- Fleet financing, a complex process requiring time

- Airport infrastructure development takes time

- Understanding the big trends & outlining general strategic roadmap is critical to ensure survival of airline

• Airline industry:

- Highly capital intensive

- Hypercompetitive

- Too sensitive to economic cycles: difficult to formulate annual plan

• Need for long term planning:

- Aircraft are high value assets with lead time between order & delivery taking 5 to 10 years

- Fleet financing, a complex process requiring time

- Airport infrastructure development takes time

- Understanding the big trends & outlining general strategic roadmap is critical to ensure survival of airline

Why a 15 Year Plan?

Vision 2025: Ethiopian Strategic Roadmap

Vision 2025: Fast, Sustainable & Profitable Growth Strategy

• Revenue: from 1.3 billion $ in 2010 to 10 billion $

• Passenger number: from 3.2 million in 2010 to 18 million

• Cargo uplift: from 135,000 tons in 2010 to 820,000 tons

• Fleet size: from 45 aircraft in 2010 to 112 aircraft

• International passenger destinations: from 59 in 2010 to 90

• Staff size: from 5,600 in 2010 to 17,000

Overarching Strategic Goals

Leading Aviation Group in Africa

Vision 2025: Choice of Diversified Aviation Business Model

• Availability of huge & unsatisfied demand for aviation services in Africa

• Opportunity for cross-subsidy among the business units & cross utilization of common resources

• Risk diversification, when the core airline faces recession, the other business units can serve as risk diversification avenues

• Fast, profitable & sustainable growth with strong synergy among business units

• Cost Leadership- Network- New & modern fleet- Labour cost- Operational excellence

• 4 Star airline with 5 star service delivery- African flavoured Ethiopian hospitality

• Multi-hubbing in Africa- One brand with multiple products (hub-spoke)

Overarching Strategies

Vision 2025: Fast, Sustainable & Profitable Growth Strategy

Betting on Africa!

Vision 2025: Why Fast, Profitable & Sustainable Growth?

• 1 billion pop. - young

• 2nd fastest growing continent

• 6% GDP growth next Decade

• GDP of $ 2.6 trillion by 2020

• 60% of world’s uncultivated arable land

• Untapped resources: 42% of world’s gold; 12% oil; 90% diamond, etc…

China

Vision 2025: Why Fast, Profitable & Sustainable Growth?

6. Reasons for Africa’s Rise

1. Right Demographic Profile (young)

2. Rapid urbanization: By 2030, 50% in cities

3. Quantum leap in ICT

4. Better peace & governance

5. Wealth of natural resources attracting huge flow of FDI

6. Emergence of sizable consumer society

Betting on Africa!

China

Growth & Transformation (2010-2015)• GDP: +11%

• Exports: +25%

• Massive infrastructure development:- Road: 64,500 km- Rail: 2395 km- Energy: 10,000 MW- Telecom: 45 million mobile users

• Rising middle class

* Source: The Economist

Vision 2025: Why Fast, Profitable & Sustainable Growth?

Ethiopia Roaring!

Africa: 8 Mega Cities by 2031

African Air Travel Surging!African Air Travel Surging!

11

Vision 2025: Why Fast, Profitable & Sustainable Growth?

Location, Location, Location!

12

ADD

Vision 2025: Why Fast, Profitable & Sustainable Growth?Ideally located to serve the fastest growing trade

lane: China – India – Africa - Brazil

• African Airlines: Only 18% market share of intercontinental travel

Matter of Survival!

Vision 2025: Why Fast, Profitable & Sustainable Growth?

• Stiff & stiffening competitive pressure:

- More than 40 carriers from North America, Europe, Asia & Mid East maintain regular flights to Africa & number is increasing...

- Need to expand market share & achieve critical mass or certain death

- Long hauls dominated by more & more consolidated mega airlines

(ex.: AF & KLM, Lufthansa Group, IAG, United, MEB3, etc…)

- National & regional routes to be dominated by low costs

• 4 Star airline with 5 Star service: African flavoured Ethiopian hospitality

• Operational excellence & efficiency- On-time performance

- Baggage Irregularity

• Economies of scale, scope & density- Optimal network efficient hub with minimum connecting time &

layover- New & fuel efficient aircraft: B777, A350 & B787- Maximizing equipment utilization- Matching capacity with traffic forecast for each route

• Above average labour productivity

• Investment in IT & best practice process & systems

• Strategic & structural cost reduction programmes

Cost leadership But Differentiated Service Delivery

Vision 2025: Why Cost Leadership?

How is Ethiopian Doing?2011-12 Performance: Fast, Profitable & Sustainable

GrowthCapacity (ASK):Capacity (ASK):

Passenger carried: 5.1 million Passenger carried: 5.1 million

Freight (FTK):Freight (FTK):

Op. Revenue: 34 billion ETB

Op. Revenue: 34 billion ETB

Operating Profit: 1 billion ETBOperating Profit: 1 billion ETB

+22%

+25%

+16%

+37%

+155%

• 8 New destinations:TorontoCotonouBerberaMuscat

DammamKuala Lumpur

BlantyreNdola

• 72 international, 45 African & 17 domestic destinations

Fast Growing Network Fast Growing Network

• Regional Hubs: West, Southern & Central

• Underserved markets

• Hubs: closer to market - MRO services - Academy - Ground Handling - Catering

• Multiple gateways from Africa

Filling the void; availing critical air connectivity

Vision 2025: Multi-Hubbing Successfully Implemented in West

Africa

Connecting the Earth: Leading global network serving 1,329

airports & 194 countries!

Vision 2025: Vision 2025: Expanding Market Reach with Star Expanding Market Reach with Star

AllianceAlliance

No.1 Freight Operator in Africa

24 Cargo destinations & 6 dedicated freighters

Current Performance Vision 2025 Targets (2011/12)

Revenue 2 billion $ 1. 8 billion $

Passenger 5.1 million 5.6 million

Fleet size 58 58

Intl destinatio

ns

72 66

3rd Year of Vision 2025: On Track!

Major Challenges

Europe in recession

1.9%*

5.3%*

-0.3%*

3 Speed Global Economy

Emerging economies: growing but slowing down

US: anemic growth

* Growth in 2013

112 $

Major ChallengesAfrica: High Cost Environment!

1

2

3

Major ChallengesAfrica: Obstacles!

4

5

7

6

1. Fleet: Current Orders of 36 aircraft - B777s; A350s; B787s; B737s; Q-400s

2. Infrastructure- New cargo terminal:1.2 million tons capacity- New MRO hangar & apron

3. HRD- Academy expansion: curriculum & in-take- 4,000 trainees annual in-take capacity

4. Systems (ICT, Policies, Procedures & Processes)

Four Pillars of Our Vision 2025

THANK YOU