VZCZCXRO1503
RR RUEHROV
DE RUEHDS #1267/01 1330819
ZNR UUUUU ZZH
R 120819Z MAY 08
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 0535
INFO RUCNIAD/IGAD COLLECTIVE
UNCLAS SECTION 01 OF 02 ADDIS ABABA 001267
DEPT FOR EEB/TRA/AN AND AF/EPS
DEPT PLEASE PASS TO USTDA ALUPO AND PMARIN
SIPDIS
E.O. 12958: N/A
TAGS: ETRD EAIR ECON ET
SUBJECT: ETHIOPIAN AIRLINES DETAILS AMBITIOUS EXPANSION PLANS
1. SUMMARY: In recent meetings, the management of Ethiopian Airlines
detailed expansion plans both to their core business and into
associated areas. The airline's plans mesh well with the Government
of Ethiopia's (GoE) poverty reduction efforts, but overexpansion or
poor investments could risk Ethiopian's status as one of the premier
airlines in Africa. END SUMMARY.
CARGO AND COLD STORAGE
----------------------
2. As the GoE encourages export-oriented agriculture and
manufacturing, Ethiopia's national carrier has responded by
increasing cargo capacity. The airline owns two Boeing 757s and has
leased two Boeing 747s which are used exclusively for cargo,
delivering up to 600 tons of fresh flowers per week to European
markets along with other cargo. Ethiopian has also examined loads
on its passenger flights to Europe and the U.S. and found excess
capacity that is being used now to export textiles and garments.
With the anticipated December 2009 delivery of Africa's first Boeing
787, Ethiopian plans to expand further its cargo processing and cold
storage areas at Bole International Airport.
3. The current cold storage facility was designed with one room for
holding both meat and flowers/produce, which poses sanitary and
phytosanitary issues. To address this in the near term, the airline
is treating meat as immediate air freight and loading it directly
onto the planes. The entire working area of 1,200 square meters is
currently used for flower storage and processing. Because
floriculture is a boom industry, forecasts are that the current
facility will be inadequate to meet needs in the near future. The
airline is consulting with Dutch and German companies on a re-design
of the existing facility. Additionally, Ethiopian would like to
construct additional cold-storage and have sought preliminary advice
from the same German and Dutch companies. However, Ethiopian
Airlines Chief Operating Officer Tewolde Gebremariam related to
EconOff and visiting U.S. Trade and Development Agency (USTDA)
Country Manager Andrea Lupo that the airline is very much interested
in U.S. expertise in the design and equipment of the future
facility, including a detailed feasibility study done by a U.S. firm
if USTDA funding were available.
CATERING
---------
4. In partnership with Lufthansa, Ethiopian is upgrading and
expanding its catering facilities. Many airlines currently cater
out of their European hubs for segments outbound from Addis (i.e.
Lufthansa loads catering for its Addis-Frankfurt route in
Frankfurt). Ethiopian hopes that this upgrade will attract airlines
to cater out of Addis. There is competition in this area from a new
facility built and operated by Ethiopian-Saudi tycoon Sheik Mohammed
Al Amoudi. Ethiopian COO Tewolde expressed skepticism on the
ability of the Sheik to compete, stating that the 14,000 meals per
day the facility will produce is far too much for the current or
projected market at Bole. Tewolde has confidence that Ethiopian's
track record in other services (cargo, pilot training, etc.) and
Lufthansa's reputation for catering will give them the edge in this
competition.
A FOUR STAR HOTEL
-----------------
5. The airline recently broke ground for construction of a four star
hotel immediately outside of Bole Airport. The hotel will have 300
rooms and is estimated to cost $30 million to build. When
completed, the hotel should compete with the city's two existing
four star hotels, the Sheraton and the Hilton, with the advantage of
being conveniently located for transit passengers. However, it is
unclear whether the airline will contract with an established
hotel-management company or attempt to run the hotel on its own.
A SECOND HUB IN WEST AFRICA
---------------------------
6. In addition to expanding its route network with
recently-announced service to Riyadh and Kuwait and plans for other
relations, the COO related plans to establish a second hub in West
Africa to facilitate European-African travel as well as
intra-African service. Tewolde declined to reveal the eventual
location of the hub, but press reports from 2007 indicate that Lome,
Togo is a contender.
7. COMMENT: Ethiopian Airlines has a proud history of good
operations, safety and profitability. Many of their expansion plans
(cargo, second hub) fit well in their core business. However,
expansion into the hotel business and outsourced catering may be a
stretch. Ethiopian's profile should continue to rise with the
addition of the Boeing 787 in late 2009. Whether its expansion
plans fly high or fall flat will depend on decisions regarding
management as well as global factors including market demand for
Ethiopian exports and fuel costs. END COMMENT.
ADDIS ABAB 00001267 002 OF 002
YAMAMOTO