Why Ethiopian Airlines Becomes Successful and What are the Lessons for other Public Companies? Selamawit G/egziabher A Thesis Submitted to the Department of Economics Presented in Partial Fulfillment of the Requirements for the Degree of Master of Science in Economics (Economic Policy Analysis) Addis Ababa University Addis Ababa, Ethiopia June 2012 Addis Ababa University School of Graduate Studies This is to certify that the thesis prepared by Selamawit G/egziabher, entitled: Why Ethiopian Airlines Becomes Successful and What are the Lessons for other Public Companies? and submitted in partial fulfillment of the requirements for the Degree of Master of Science (Economic Policy Analysis) compiles with the regulations of the University and meets the accepted standards with respect to originality and quality. Signed by the Examining Committee: Examiner_____________________________Signituer_____________Date___________ Examiner_____________________________Signituer_____________Date___________ Advisor______________________________Signituer_____________Date___________ ____________________________________________________________________ Chair of Department or Graduate Program Coordinator ABSTRACT Why Ethiopian Airlines Becomes successful and what are the Lessons for Other Public Companies? Selamawit G/egziabher Addis Ababa University, 2012 This research has been done to solve the relatively poor performance problem of different public companies and enhance economic growth of Ethiopian economy through public sector capacity building. Accordingly, this study examined the success of Ethiopian Airlines, its determinant factors as well as lessons that can be taken by other public companies from its experience. In doing that, descriptive as well as econometric analysis based on performance indicators and endogenous growth model are respectively used. The results of descriptive analysis indicate that Ethiopian Airlines is a successful enterprise. This is mainly because the airline is a profitable, with a culture of continuous improvement, paramount productivity growth, higher market share etc. In this regard, several factors have contributed for the success of the airline: its working standard, overall system, dedication of workforce, safety trend, best practice, current and recurrent trainings, formation history, state art technology, autonomous management, its market strategy, visionary leadership style etc. Similarly, the results of econometric analysis reveal that the major determinants for the growth/success of Ethiopian Airlines are physical capital accumulation and human capital creation. Therefore, it is the combination of the earlier qualitative determinants with both physical and human capital that has played a significant role for its success. Finally, based on the findings, government and different public enterprises can take the aforementioned success leading factors as a lesson. Provided that different public enterprises have different character of their own that they should apply everything based on the type of their business. iii Acknowledgements First of all, I would like to thank God and St. Marry. Then, I would like to really thank and appreciate my advisor Dr. Tadele Ferede for his remarkable comments, suggestions and over all advice without which this thesis would not be completed in this form. I also like to thank Dr. Alemayhu Geda who has played a vital role in doing this research and even in shaping me how to do a good research. My great thanks also go to the two staff members of Ethiopian Airlines Mr. Henok and Mr. Antenhe, for giving me their valuable assistance in providing the necessary data to do the thesis. I am also very grateful to all people who directly and indirectly helped me in doing this thesis; especially I am very grateful to my husband Mr. Nebyu Alemkere, who always gives me his encouragement and invaluable moral support. I would also like to appreciate Mr. Berhan Fiseha, for his help in arranging to meet strategic peoples in colleting my data. I am also thankful to all staff members of Ethiopian Airlines specially Wegayehu, Yaynabeba (Fifi), Biniyam, Rediet, Ato Adamu, Ato Melke, and all public relation staff members, for their helpful support ever since I have started to do this thesis up to its final draft. Besides, I would like to be grateful to Ato Fekadu (Ministry of Transport), Tewodros (EDRI), Amin, Tewodros, Kassahun, Selomon and all economic association staff members. Last but not least, my special gratitude goes to my family, especially to my mother, brothers and my beloved baby boy Henok, who all gave me their valuable love, care and moral support. iv List of Figures -------------------------------------------------------------------------------------viii List of Tables ----------------------------------------------------------------------------------ix List of Appendices -----------------------------------------------------------------------------------x Acronyms---------------------------------------------------------------------------------------------xi TABLE OF CONTENTS CHAPTER ONE: INTRODUCTION.............................................................................................. 1 1.1 Background of the Study .......................................................................................................1 1.2. Statement of the Problem......................................................................................................3 1.3 Objective of the Study ...........................................................................................................4 1.4. Research Questions...............................................................................................................4 1.5. Method of Analysis...............................................................................................................5 1.6. Scope of the Study ................................................................................................................5 1.7 Significance of the Study .......................................................................................................6 1.8 Limitation of the Study ..........................................................................................................6 1.9 Organization of the Study ......................................................................................................7 CHAPTER TWO: BACKGROUND OF ETHIOPIAN AIRLINES ...............................................8 2.1 Brief History of World, Africa and Ethiopia’s Air Transportation........................................8 2.2 Historical Background of Ethiopian Airlines.......................................................................10 2.2.1 The Pre- foundation and Beginning of Ethiopian Airlines ...........................................11 2.2.2 Destinations and Fleet...................................................................................................14 2.3 Ethiopian Airlines at Different Regimes..............................................................................15 2.3.1 During the Emperor Regime ......................................................................................... 15 2.3.2 During the Derg Regime............................................................................................... 16 2.3.3 The Transitional Government Period and EPDRF Period ............................................17 2.4 Contribution of Ethiopian Airlines to Economic Growth of Ethiopia .................................18 v 2.4.1 The Airline and Transport Sector..................................................................................18 2.4.2 Tourism Sector..............................................................................................................20 2.4.3 Employment..................................................................................................................21 2.4.4 Other Sectors.................................................................................................................22 CHAPTER THREE: LITERATURE REVIEW ............................................................................23 3.1Theoretical Literature............................................................................................................23 3.1.1 Theoretical Background of Endogenous Growth Theory .............................................23 3.2 Empirical Literature.............................................................................................................31 3.2.1 Empirical Findings on the Determinants of Long run Growth. ....................................31 3.2.2 Empirical Findings on the Success Determinants of Different Airways ......................33 3.2.3 Critical Evaluation of the Empirical Findings .............................................................. 36 CHAPTER FOUR: METHODOLOGY OF THE STUDY ........................................................... 38 4.1 Data Type and Source..........................................................................................................38 4.2. Measuring Standards for Success of a Company Business (Part I) ....................................40 4.3 Econometric Model Specification (Part II) ..........................................................................43 4.3.1 Data Type, Source and Variable Definition..................................................................45 4.3.2 Estimation Procedure ....................................................................................................46