The concept of value creation is central to the success of any business, but it is often misunderstood or overlooked. As Albert Einstein once said, "Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted." This quote highlights the importance of looking beyond mere numbers and financial metrics to understand the true value of a business. In the context of business, value creation refers to the process of identifying unmet needs, solving problems, innovating, and improving customers' lives.
Two contrasting business mindsets can be identified: value creators and value consumers. Value creators focus on creating new value by innovating, solving problems, and improving customers' lives. They identify unmet needs and develop solutions to address them. On the other hand, value consumers, or extractors, focus primarily on taking a larger share of existing economic value without contributing proportionately more. This distinction raises important questions about the long-term sustainability of businesses that focus on extracting value rather than creating it.
The airline industry is a prime example of a sector where companies create enormous value for customers and society but struggle to capture a significant portion of that value as profit. Despite creating value by enabling business opportunities, family connections, education, and tourism, many airlines operate on thin profit margins, typically around 3.5 to 3.9 percent, with an average profit of $7.90 per passenger. The industry's struggles to capture value can be attributed to intense price competition, high fixed costs, and perishable inventory.
Several factors contribute to the airline industry's challenges in capturing value. Intense price competition, driven by online booking platforms, forces airlines to discount fares. Additionally, high fixed costs, including aircraft leases, financing, staff, and maintenance, must be paid regardless of occupancy rates. Powerful suppliers, such as aircraft manufacturers and fuel providers, also capture a significant portion of the value. Furthermore, customers can easily switch between airlines, perceiving little difference between them.
However, some airlines have succeeded by redefining how value is delivered and how much it costs to deliver it. Low-cost carriers like Ryanair and Southwest Airlines have achieved stronger returns than traditional network airlines by redesigning their business models. They have focused on standardizing aircraft, simplifying operations, and reducing costs. Other innovative airlines, such as Singapore, Emirates, Etihad, and Qatar, have created premium brands around hospitality, consistency, and attention to detail.
Ethiopian Airlines, founded in 1945 by Emperor Haile Selassie, is a notable example of a successful airline that has mastered both creating and capturing value. With a 2024/25 net profit before tax of $1.16 billion, up 35 percent, and a record revenue of $9.1 billion in 2025/26, Ethiopian Airlines is consistently Africa's most profitable airline. Its success can be attributed to its hub-based business model, which has created a network effect, and its diversified aviation business ecosystem, including passenger services, cargo, aircraft maintenance, and more.
Ethiopian Airlines' business model is a key factor in its success. By operating as a system rather than just an airline, the company has created a self-reinforcing ecosystem where each business unit supports the others. This approach has allowed Ethiopian Airlines to profit from a network effect, turning its geography into a competitive advantage. As a result, the airline has become one of Africa's most commercially successful carriers.
Key points
- Businesses can be either value creators or value consumers, with distinct implications for profitability and sustainability.
- The airline industry is a prime example of a sector where companies create enormous value but struggle to capture it as profit.
- Ethiopian Airlines is a notable example of a successful airline that has mastered both creating and capturing value through its hub-based business model and diversified aviation business ecosystem.
