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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)
Time Series Analysis
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Cross Sectional Analysis
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
Time Series Analysis
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Different capital
structure
Cross Sectional Analysis
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high emission-based tax
new regulationsfor SMEs since
2008
volcanic ashdisruption in
2009
Time Series Analysis
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EPSs trend is consistent with profit margins
Time Series Analysis
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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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