easyjet financial analysis 2007-2011

7/29/2019 EasyJet Financial Analysis 2007-2011

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1949

First LCC1990

Aviation Deregulation

First LCC in Europe

1995

EasyJet

Present

LCC covers around

30% of total flights

http://www.oagaviation.com/OAG-FACTS/2012/August-Executive-Summary


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Full-Service Carriers

Low-Cost Carriers


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Key Partners Key Activities

Key Resources

Value Proposition Cust. Segments

Dist. Channels

Cust. Relationship

Cost Structure Revenue Streams

AGENT

Paperless ticket

and operation


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2007 2008 2009 2010 2011 Growth

Passenger 1626 1995.7 2150.5 2402 2733 13.86%

Ancillary 171.2 367.1 516.3 571 719 43.15%

Passenger revenue arises from the sale of flight seats

Ancillary revenue primarily arises from the provision of checked baggage andspeedy (priority) boarding services, booking, credit card and change fees, and

commissions earned from services sold on behalf of partners

EasyJets main ancillary partners are: Gate Gourmet, who provide our in-flight food and

merchandise Europcar, who provide car rental

Hotelopia and Laterooms who broker hotels

Alvia who, through the Mondial brand, provide insurance.


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Region 2010 (in million) 2011 (in million)United Kingdom 1423 1594

Southern Europe 1022 1190

Northern Europe 504 629

Other 24 39

Total 2973 3452

Passengers by Country


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Strengths Weaknesses

Eliminate unnecessary costs across service

processes

Lower maintenance and distribution costs, non-

provision of meal

Has a strong contingent of business travelers

Paperless airline saves money on ticket printing

and increase environmental image

Fierce competition: Undifferentiated services

against other providers, such as Ryanair and

Norwegian. Consumers have low switching costs

Does not serve the main central airports

Vulnerable to macroeconomic conditions: Increase

in fuel prices, tax regulations,

Opportunities Threats

In Spain more than 60% of air travel is purchased

in offline channels and consequently easyJet is

implementing measures to improve its presence in

these areas.

Opportunity to tackle other EU markets as many

airlines struggle

The UK Governments proposal to increase the tax

on short-haul travel and reduce it for long-haul

travel

Lack of Government commitment to expanding

runway capacity in the South East.

Inconsistent application of consumer rules across

Europe


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Finance Lease Operating Lease

Depreciated under straight line basis

over the shorter of lease term and their

expected useful lives

Recognized at the inception of the lease

at the fair value of the leased asset, or, if

lower, at the present value of the

minimum lease payments

Expected useful life

Aircraft 23 years

Aircraft spares 14 years

Aircraft improvements 37 years

Aircraft prepaid maintenance 310 years

Leasehold improvements 510 years or the length of lease if shorter

Sale and leaseback transactions whereby it

sells to a third-party rights to acquire aircraft.

Benefit from low interest rate since 20 aircraft

subject to floating rate agreements

Operating lease rentals are a mix of fixed andfloating rates (in 2011 was 60%/40%)

Non-contingent opt. lease are charged to I/S

on a straight-line basis, while contingent rental

payments based on variable interest rates

2007 2008 2009 2010 2011

Operating Lease 55% 51% 38% 32% 31%

Owned and Finance Lease 45% 49% 62% 68% 69%

Medium term financing target:

70% owned, 30% leased


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LCC inEurope


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EasyJet RyanAir Norwegian Airlines

Reporting Standards IFRS IFRS IFRS

HTM held at cost plus interest using the effective interest method, less any

impairments

AFS measured at the lower of their carrying value less costs to sell. Depreciation

ceases at the point of their reclassification from non-current assets.Depreciation straight-line basis at percentages of cost based on the expected average

useful lives of the assets and their residual values which are reviewed at least

annually.

revaluation historical cost convention as modified by the revaluation

Goodwill subject to review for impairment in accordance with United Kingdom Financial

Reporting Standard 11 Impairment of Fixed Assets and Goodwill

Unearned Revenue Unearned revenue represents flight seats sold but not yet flown and a

provision for government tax refund claims attributable to unused tickets, and

is included in accrued expenses and other liabilities.


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Easyjet expandsits network

Successfullyattracted 11.8%

more passengersin 2011

Leads to revenuegrowth by

13.20% in 2011

Panel Data


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Ratio 2007 2008 2009 2010 2011

stock turnover period - - - - -

debtors's collection period 39.28 28.92 25.02 14.44 12.58

creditors' payment period - - - - -

The stock turnover periodand creditors payment

period is nil

Airline industry is aservice industry and

easyJet has builtspecialized partnerships

no inventory

no cost of sales


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Time Series Analysis

renegotiating contractterms with key card

acquirers

receivable turnover daysin 2008 is 30 days and

decreased to 15 days in2010


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Cross Sectional Analysis


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EasyJet borrowed money to buy the airplane in 2008 (the borrowing

IR is based on the LIBOR and LIBOR in 2008 experiencing a sharp

decrease, all borrowing are at floating interest rates repricing every

3-6 months)



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Leasebuyback

policy

Increasingcash

Might be asignal of

manipulation


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As a result of the purchase of new planes and

acquisition of GB in 2009 with debts



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Different capital

structure



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high emission-based tax

new regulationsfor SMEs since

2008

volcanic ashdisruption in

2009



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EPSs trend is consistent with profit margins



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The ratio indicates thatthere is a positive

trend in profitability,liquidity and solvency

Targetting widermarket segment than

competitors (Low Cost+ Business Travelers

= Not seasonal)

Be different with themajor airports strategy

Actively doing routeoptimization: close theroute if its below the

expected margin

Still generating profitduring economic

turmoil (Europe crisis,increasing fuel cost,

etc)

Still in the growthstage in LCC Industry

Exploit the benefits ofpartnerships or

outsourcing


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Single fleet risk

IT system risk do not have they own, rely on theairport. No backup.

Ground operation cost is double than the Ryanair,while operating in fewer airports (Ryanair operatesin 150 airports, while easyJet in 108 airports)


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easyjet financial analysis 2007-2011

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