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Ethiopian Airlines plans further growth in Asia and US, starting with Chengdu and New York

Ethiopian Airlines is planning further long-haul network expansion in 2016 with new destinations in Asia and North America. The expansion is made possible by the delivery of Ethiopian’s first batch of 343-seat A350-900s along with additional 270-seat Boeing 787-8s.

New York is in line to become Ethiopian’s fourth destination in North America in Jun-2016, joining Toronto, Washington Dulles and recently launched Los Angeles. Ethiopian is also looking at Chicago and Houston, which could be launched in 2017.

In Asia Ethiopian is planning to launch services to Chengdu, Ho Chi Minh, Jakarta and Singapore. East Asia has been the main driver of Ethiopian’s rapid expansion in recent years – with two destinations added in 2015 for a total of nine – and will continue to be a focus as Africa’s largest airline doubles its fleet over the next decade.

Ethiopian has doubled long-haul fleet and network in just four years

Ethiopian currently serves 13 long-haul destinations using a fleet of 30 widebody passenger aircraft. Four years ago Ethiopian operated only 15 widebody aircraft, 10 767s and five 777-200LRs, and had only six long-haul destinations including one in North America and five in East Asia.

Since the beginning of 2012 Ethiopian has added 18 widebody aircraft including 13 270-seat 787-8s, four 399-seat 777-300ERs and one more 321-seat 777-200LR. It has so far phased out only three of its 767s, which Ethiopian configures with 223 seats. (Ethiopian has a two class configuration across its widebody fleet with 24 business class seats on all its 767s and 787s and 34 business class seats on all its 777s but only the 787-8 currently features a lie-flat product.)

The doubling of the widebody fleet has enabled the launch of services to Kuala Lumpur, Los Angeles, Manila, Sao Paulo, Seoul Incheon, Tokyo Narita and Toronto. Hangzhou was also replaced with new service to Shanghai.

Los Angeles, Manila and Tokyo were all added in 1H2015 as three 787-8s and two 777-300ERs were delivered. Los Angeles is served thrice weekly via Dublin, Manila thrice weekly via Bangkok and Tokyo thrice weekly via Hong Kong. All three new destinations are currently served with 787-8s.

See related report: Ethiopian Airlines 2015 outlook: more rapid expansion as it becomes Africa’s largest airline

Bangkok, Beijing, Guangzhou, Hong Kong, Sao Paulo and Shanghai are Ethiopian’s only long-haul destinations served non-stop in both directions. Kuala Lumpur is currently served via Bangkok while services to Toronto and Washington Dulles stop in Dublin but return non-stop on the eastbound sectors. (The new Los Angeles service stops in Dublin in both directions.)

Five years ago only Bangkok was non-stop while Guangzhou, Hangzhou and Hong Kong were served via Bangkok or Delhi. Ethiopian began serving in 2011 Beijing, which was launched as a non-stop. Sao Paulo was launched in 2013 with a stopover in Lome but was upgraded to non-stop in May-2015, improving connection times in the fast growing China-Brazil market.

Ethiopian also uses some of its widebodies to supplement its narrowbody fleet on medium-haul routes to Europe and India as well as on some of its routes to the Middle East and within Africa. (Europe is six to seven hours from Addis Ababa while India is five to seven hours. Ethiopian’s longest African routes are also about five to six hours.)

Ethiopian plans more widebody orders

Ethiopian plans to again double its widebody fleet over the next 10 years – as well as its total fleet – under its Vision 2025 long-term business plan. Ethiopian currently has commitments for six additional 787-8s, two 787-9s and 14 A350-900s. The six 787-8s and 12 of the A350-900s have been ordered directly from the manufacturers while two of the A350-900s and the two 787-9s have been sourced from leasing companies.

Ethiopian Airlines fleet summary: as of 19-Oct-2015

Aircraft In Service In Storage On Order*
Total: 73 4 43
Airbus A350-900XWB 0 0 14
Boeing 737-700 4 0 0
Boeing 737-8 0 0 20
Boeing 737-800 14 0 0
Boeing 757-200 3 3 0
Boeing 757-200(ETOPS) 1 0 0
Boeing 757-200(F)(ETOPS) 1 0 0
Boeing 757-200PF 1 0 0
Boeing 767-200 0 1 0
Boeing 767-300ER 7 0 0
Boeing 777-200LR 6 0 0
Boeing 777-300ER 4 0 0
Boeing 777F 5 0 1
Boeing 787-8 13 0 6
Boeing 787-9 0 0 2
Bombardier DHC-8Q-402(NG) 11 0 0
de Havilland of Canada DHC-6-300 3 0 0

Ethiopian plans to place orders in the near future for about 10 more 787s and 15 to 20 777-8Xs, raising its passenger widebody commitments to almost 40 aircraft. The widebody passenger fleet will roughly double to 60 aircraft by 2025 once factoring in the retirement of the remaining 767s and some of its existing 777s, which will be replaced by 777-8Xs.

Ethiopian is not planning to expand its relatively small 777-300ER fleet, which it generally uses on high density routes to China and during peak periods to North America. Ethiopian CEO Tewolde GebreMariam told CAPA on the sidelines of CAPA’s World Aviation Summit in Helsinki on 07-Oct-2015 that the airline does not have a need for more 777-300ERs as the A350-900s are suitable for its denser long-haul routes.

Ethiopian to operate A350s in high density configuration

Mr GebreMariam said Ethiopian plans to configure its A350-900s with 343 seats, giving it a significantly higher density option with 27% more seats than its 270-seat 787-8s. The 777-300ERs will still have 55 or 16% more seats but Ethiopian does not see its routes generally requiring 400-seat aircraft, particularly when factoring in opportunities to add frequencies.

With 343 seats, Ethiopian is now in line to have the highest density configuration among initial A350 operators. The five A350 operators – Qatar Airways, Vietnam Airlines, Finnair, Singapore Airlines and Cathay Pacific – have all configured their A350s with about 300 seats or slightly less. Qatar, Vietnam and Finnair are now operating the new type while Cathay and SIA plan to place into service their first A350s in 1Q2016.

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Ethiopian expects to receive its first A350 in May-2016. Deliveries of an additional batch of six early model 787-8s is slated also to begin in Jun-2016 while Ethiopian’s two 787-9s will be delivered in 2017.

The six additional 787-8s have already been manufactured but are heavier aircraft which Boeing had issues placing before announcing a deal with Ethiopian in Jun-2015. Ethiopian struggled with initial reliability issues with its 787-8 fleet but Mr GebreMariam told CAPA that dispatch reliability has improved and is now close to 99% with an average daily utilisation rate of about 13hrs. “Overall we are very satisfied with the airplane,” he said.

The 787-8 now accounts for about 27% of Ethiopian’s international seat capacity, more than any aircraft type in the carrier’s fleet.

Ethiopian Airlines international weekly frequencies and seat capacity by aircraft type: 19-Oct-2015 to 25-Oct-2015

Ethiopian plans to use the A350-900s on similar routes as the 787-8s. Mr GebreMariam expects the A350-900 will have similar or slightly more range than the 787-8 from Addis Ababa. Ethiopian is now able to operate its 787-8s non-stop from Addis Ababa to Beijing and Sao Paulo but the high altitude of the Ethiopian capital precludes operating non-stops to North America.

Ethiopian plans to initially deploy the A350-900 to China and North America. Ethiopian is planning to add capacity to both China and North America in 2016 as the additional 787-8s and first batch of A350-900s are delivered. Mr GebreMariam said New York is now in the 2016 plan with services likely to begin in Jun-2016.

Ethiopian to launch New York, followed potentially by Chicago and Houston

Ethiopian currently operates only 13 weekly services to North America, including seven to Washington Dulles, three to Toronto and three to Los Angeles. Mr GebreMariam said Ethiopian is now looking at launching services to Chicago, Houston and New York with New York or Newark first in line.

Chicago and Houston are both hubs for its alliance and codeshare partner United as is Newark. While Ethiopian already has more destinations in North America than any African carrier it sees opportunities for further growth. New routes, particularly if supported by United, should enable Ethiopian to increase its share of the North America-Africa market.

Ethiopian is now the sixth largest airline in the North America-Africa market based on non-stop seat capacity. But the biggest opportunities for growth will likely come from carrying passengers that are now flying to East and Central Africa on European or Middle Eastern carriers rather than passengers that are now flying on the existing non-stop options. Ethiopian is one of seven African airlines serving the US but it is the only East African carrier. 

North America to Africa non-stop capacity by carrier: 19-Oct-2015 to 25-Oct-2015

Rank Airline Total Seats Percentage Capacity Share
1 DL Delta Air Lines 8,796 24%
2 SA South African Airways 8,116 22%
3 AT Royal Air Maroc 5,822 16%
4 MS EgyptAir 4,448 12%
5 UA United Airlines 3,066 8%
6 ET Ethiopian Airlines 2,700 7%
7 AH Air Algerie 1,920 5%
8 W3 Arik Air 1,406 4%
9 VR TACV 402 1%

For the North American market Addis Ababa is not well positioned as a hub for all of Africa as it is for the Asian market. But it is well positioned to offer connections throughout East Africa and Central Africa.

Connections to other parts of Africa also are still viable in some cases despite significant backtracking as most African markets are not well served generally. For South America Addis Ababa is also well positioned for connections to Asia.

Ethiopian could expand Dublin hub as expansion in US continues

Ethiopian has not yet decided if it will serve its three planned new US destinations non-stop eastbound or with a stopover in both directions, which would enable it to take advantage of fifth freedom traffic. “We are now measuring the size of the traffic whether it makes sense to fly direct from or need to stop in Europe,” Mr GebreMariam said. “If the market is not big enough to begin with then we can stop both ways in Dublin.”

The new Addis Ababa-Dublin-Los Angeles flight has performed well since it was launched in Jun-2015, giving Ethiopian confidence it can succeed in other Dublin-US markets. Ethiopian achieved an average load factor on the Addis Ababa-Dublin-Los Angeles route of 75% to 80% in the summer 2015 season with a significant number of passengers embarking or disembarking in Dublin.

Ethiopian at the same time also changed the westbound stop of its Toronto and Washington flights to Dublin. There are now three Ethiopian departures from Dublin within a span of less than 30m on some mornings, a time Dublin Airport affectionately refers to as Ethiopian hour. “Dublin is becoming a very popular hub for us,” Mr GebreMariam said.

Dublin is keen for Ethiopian to further expand the hub with stopovers in both directions for its future US routes. Toronto and Washington are purely technical stops – although still good business for Dublin – and are unlikely to have eastbound stops in future as they are large enough local markets to support non-stops.

Dublin-New York would represent a different and perhaps more challenging market than Dublin-Los Angeles, which is not served non-stop by any other carrier. Aer Lingus, American, Delta and United all serve the Dublin-New York market and Ethiopian will likely not be able to partner with United on the route due to restrictions with United’s trans-Atlantic joint venture with the Lufthansa Group and Air Canada. But Dublin-New York is a much bigger local market and Ethiopian will have one year of building its brand in the Irish market by the time it launches New York.

Dublin-Chicago is served by American and Aer Lingus while Dublin-Houston currently does not have any non-stop service.

Ethiopian plans further expansion to China with new Chengdu service

In Asia expansion to China is a high priority for Ethiopian with additional capacity to Guangzhou and new services to Chengdu.

Ethiopian currently operates daily flights to Beijing, Guangzhou and Shanghai. Guangzhou is served with 777-300ERs and Shanghai with 777-200LRs while Beijing will also be served with 777-300ERs from late Oct-2015.

Mainland China is already Ethiopian’s largest market by seat capacity and will account for about 8% of its international seats in its northern winter 2015 schedule. When including Hong Kong, greater China will account for almost 10% of Ethiopian’s international seat capacity this winter.

Ethiopian is not planning to add capacity to Beijing as its partner Air China is launching three weekly flights from Beijing to Addis Abba in early Nov-2015. Ethiopian will codeshare on the new Air China-operated service and is keen to eventually expand its partnership with Air China to a joint venture.

Guangzhou has always been Ethiopian’s largest market in China as Guangzhou attracts more African traders than any other Chinese city. Ethiopian carries a large volume of passengers from Guangzhou to destinations throughout Africa as well as to Brazil.

Guangzhou is currently Ethiopian’s largest long-haul route with 5,586 weekly return seats (based on capacity data for the week commencing 19-Oct-2015). Ethiopian is confident the market is large enough to support a second frequency and is seeking additional slots at Guangzhou to support the additional flight, which could be added in 2016 along with Chengdu.

Chengdu will be Ethiopian’s gateway in central and western China and will be served non-stop from Addis Ababa. Ethiopian will be able to plug into Air China’s hub in Chengdu, where Air China accounts for about 29% of domestic seat capacity, according to CAPA and OAG data.

Air China currently links Chengdu with over 50 domestic destinations. Chengdu is geographically well positioned for connections throughout China. Air China does not have a hub in Guangzhou or Shanghai and Beijing connections for most domestic destinations requires backtracking.

Ethiopian expects China to continue to be a huge growth market over the next 10 years as economic ties between China and Africa continue to expand rapidly. Services to more secondary destinations are likely, particularly if the new Chengdu route proves successful.

Ethiopian has emerged as the largest African carrier in China. The local Ethiopia-China market is relatively small but Ethiopian has successfully positioned Addis Ababa as one of the main hub in the broader fast-growing China-Africa market despite intense competition from hubs in the Middle East.

Africa-China non-stop seat capacity by carrier: 26-Oct-2015 to 1-Nov-2015

Rank Airline Total Seats
1 ET Ethiopian Airlines 16,758
2 MS EgyptAir 5,140
3 CZ China Southern Airlines 2,520
4 MK Air Mauritius 2,392
5 AH Air Algerie 1,440
6 DT TAAG 1,020
7 CA Air China 933

Ethiopian plans SE Asia growth with Singapore, Ho Chi Minh and Jakarta services

Ethiopian is also by far the largest African carrier in the broader Asian market with 11 destinations including two medium-haul destinations in India and nine long-haul destinations in East Asia. Mr Tewolde said Ethiopian is planning to resume service to Singapore and launch Ho Chi Minh and Jakarta.

These three new Southeast Asian destinations would grow Ethiopian’s network to 13 in East Asia, including six in Southeast Asia (Bangkok, Kuala Lumpur and Manila are already served) and seven in Northeast Asia (Beijing, Guangzhou, Hong Kong, Seoul, Shanghai, Tokyo and in future Chengdu). Ethiopian’s network plan envisions serving Singapore non-stop while Jakarta and Ho Chi Minh will be launched via Singapore or Bangkok.

Kuala Lumpur and Manila are currently served via Bangkok with four of Ethiopian’s seven weekly Bangkok flights continuing onto Kuala Lumpur and the other three to Manila. Opening Jakarta or Ho Chi Minh via Bangkok would therefore require additional Addis Ababa-Bangkok flights, which Ethiopian previously operated, or upgrading Kuala Lumpur and/or Manila to non-stop. But a more logical option would be to support Singapore with a behind destination, particularly as Singapore is usually liberal at providing fifth freedom rights.

Ethiopian initially planned to launch Ho Chi Minh via Bangkok in Sep-2013 but dropped the route prior to the launch. Singapore was initially planned as a non-stop route from 2013 but ended up launching in late 2013 as a tag with Bangkok.

As CAPA previously outlined, Singapore did not perform well as a one-stop destination, resulting in Ethiopian cutting Singapore from an initial four weekly frequencies to three and subsequently two. The Bangkok-Singapore tag was then dropped entirely in late 2014.  But Ethiopian believes Singapore can work as a non-stop destination, particularly with connections to Australasia from Star Alliance partner Singapore Airlines.

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Ethiopian even started to sell in early 2015 thrice weekly non-stops from Addis Ababa to Singapore launching 02-Apr-2015. But the service was quietly pulled before it was launched.

Singapore is still a priority for Ethiopian as it sees Singapore as a key hub for Australasia as well as secondary destinations in Southeast Asia. A one-stop via Bangkok did not enable Ethiopian to access Singapore as a hub. But as CAPA has previously analysed it will be hard for Singapore to work without a stronger partnership with Singapore Airlines (SIA).

Mr GebreMariam said during a panel discussion CAPA’s 07-Oct-2015 World Aviation Summit that Star’s bigger members “lack an interest in Africa”. He said Ethiopian is trying to convince its alliance partners to expand in Africa, particularly in the Asia-Africa market.

SIA now places its code on Ethiopian flights from Bangkok and Dubai to Addis Ababa and beyond Addis Ababa to seven destinations within Africa. But SIA often is not receptive of partners expanding in its home market, particularly if the partner operates regional routes with fifth freedom rights.

It will be difficult to sustain a non-stop service to Singapore without a tag flight to a market such as Jakarta, which would provide additional traffic and improve utilisation of a 787-8 that would otherwise sit several hours in Singapore. But Ethiopian will also need SIA’s support to make Singapore work as it will need feed from offline destinations including Australia. As Ethiopian discovered in 2014, serving Singapore one-stop is not sufficient for providing convenient connections beyond Singapore.

Ethiopian’s rapid expansion in Asia has continued in 2015 with Manila and Tokyo

While Ethiopian pushed back resumption of Singapore from 2015 to at least 2016 it continued to expand its Asian network with the launch of Tokyo Narita in Apr-2015 and Manila in Jul-2015.

Tokyo has performed below expectations in the first six months but Ethiopian is confident the route will start to perform better. “It’s a bit of a challenge,” Mr GebreMariam told CAPA. “It’s in the route development stage and it will take us some time to develop a recent load factor.”

Ethiopian was able to secure in Aug-2015 local traffic rights to pick up passengers on the Hong Kong-Tokyo sector, which should aid efforts to improve the load factor. Ethiopian also hopes to expand its partnership with All Nippon Airways (ANA) and the two Star carriers told the World Aviation Summit that they would consider a joint venture in future.

Asia now accounts for about 30% of Ethiopian’s international ASKs, more than any other region. Ethiopian’s rapid and successful expansion in Asia was cited by CAPA’s panel of independent judges in selecting Ethiopian as the 2015 Airline of the Year.

See related report: Ethiopian Airlines, IndiGo, Qantas, Athens, Budapest, Vancouver, IBS receive awards at CAPA dinner

In handing the award to Mr GebreMariam on 07-Oct-2015 in Helsinki CAPA also cited Ethiopian’s ability to establish a Pan-African operation and thrive in an increasingly important emerging market where most airlines have struggled.

Ethiopian CEO Tewolde GebreMariam receives CAPA’s 2015 Airline of the Year award and discusses the carrier’s remarkable growth and emergence as a leader in the African aviation sector

Ethiopian has bright outlook as network expansion continues

Ethiopian has been consistently profitable over the last several years, including a net profit of about USD170 million in the fiscal year ending 30-Jun-2015 (FY2015). Ethiopian generated about USD2.4 billion in revenues in FY2015, compared to only about USD300 million in FY2009, and aims to grow its revenue base to USD10 billion by 2025.

Ethiopian has already emerged as the largest airline group in Africa with an active fleet of almost 80 aircraft and a network of more than 100 destinations (includes airline subsidiaries). Ethiopian plans to expand the overall fleet to 150 aircraft by 2025 and has been on a shopping spree for more turboprops and narrowbodies along with new widebody models.

The long-haul growth achieved and planned is impressive but would not be possible without the establishment of the largest regional network within Africa. Ethiopian is continuing to expand regionally with more capacity and new destinations such as Yaounde in Cameroon (launching 25-Oct-2015) Duban in South Africa (launching 16-Dec-2015). Ethiopian also continues to look at investment opportunities to complement its stake in Togo-based ASKY and Malawian. It is particularly keen to establish or invest in an airline in Central Africa, which Ethiopian sees as an underserved region with huge potential. 

New routes such as Chengdu, New York and Singapore would not be possible without the strength of the Addis Ababa hub. Ethiopian has had a remarkable run over the last several years but it is just starting to scratch the surface when it comes to network opportunities.

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