Quantitative and Qualitative Analysis of EasyJet's Annual Report 2013

Including a Comprehensive Analysis of Financial Ratios and Industry Standards Benchmarked against Main Competitors


Term Paper, 2015

38 Pages, Grade: 1,0


Excerpt

Analysis of EasyJet's Business Performance
Part A: Financial Performance
Part B: Corporate Communication
submitted on January 05, 2015
by w14031612

Table of Contents
Part A: Financial Performance
1.
Introduction
2
1.1.
Internal Analysis
2
1.2.
External Analysis
4
2.
Financial Analysis
5
2.1.
Operational Performance
5
2.2.
Profitability
5
2.3.
Short-Term Liquidity
7
2.4.
Long-Term Solvency
8
2.5.
Stock Market
9
2.6.
Conclusion
12
2.7.
Recommendation
13
Appendix
14
Appendix A: Initial Situation
14
Appendix B: Copy of F13's Financial Statements
17
Appendix D: Calculations
23
Appendix E: FCF Scenario
25
List of References
30
Part B: Corporate Communication
1.
Introduction
31
2.
Evaluating the Use of Graphs
32
3.
Conclusion
34
List of References
35

List of Abbreviations
EasyJet
EasyJet PLC
FY 2013
Financial Year 2013
LCC
Low Cost Carrier
ROCE
Return on Capital Employed
ROI
Return on Investment
P/E Ratio
Price Earnings Ratio
FCF
Free Cash Flow
YoY
Year over Year
27 |
P a g e
A p p e n d i x E : F C F S c e n a r i o

Analysis of EasyJet's Financial Performance
Word Count: 1299 words
Including the following tables and figures
Table 1
EasyJet's low-cost business model, adapted from Southwest Airlines' original model (Alamadari & Fagan, 2005)
2
Table 2
Strategic Highlights during EasyJet's FY13
3
Figure 1
Main competitors in the short-haul market and their overall strategy (Appendix A)
4
Figure 2
Revenue Development 2009 - 2013 EasyJet and Ryanair
5
Figure 3
Net Profit Development 2009-2013 EasyJet and Ryanair
5
Figure 4
EasyJet's proposed actions to improve profitability during FY13 (EasyJet, 2013b)
6
Figure 5
Operating and EBITDAR Margin Development 2009-2013 EasyJet and selected competitors
6
Figure 6
ROCE Development 2010-2013 EasyJet and selected competitors
6
Figure 7
Cash position as a percentage of total assets 2009-2013 EasyJet and Ryanair
7
Figure 8
Ability to overcome short-term liquidity shortages 2009-2013 EasyJet and selected competitors
7
Figure 9
Proportion of Debt and Equity in the company 2009-2013 EasyJet and Ryanair
8
Figure 10
Debt over Equity Ratio 2009-2013 EasyJet and selected competitors
8
Figure 11
Interest Coverage 2009-2013 EasyJet and selected competitors
8
Figure 12
Earnings per Share Development 2009-2013 EasyJet and Ryanair
9
Figure 13
Dividend Distribution 2011-2013 EasyJet and Ryanair
9
Figure 14
Dividend-related Ratios 2011-2013 EasyJet and Ryanair
10
Figure 15
Normalised Share Price Development 2005-2014 EasyJet, selected competitors and FTSE350 Leisure & Travel Index 10
Figure 16
Price Earnings Ratio 2009-2013 EasyJet and selected competitors
11
Figure 17
Summary of EasyJet's Financial Performance in FY13
12
Figure 18
Share price scenario analysis EasyJet 2014 ­ 2017 (see Appendix E)
13

2 |
P a g e
I n t r o d u c t i o n
1. Introduction
1.1. Internal Analysis
Luton-based EasyJet is UK's largest low-cost airline (Jones, 2005), employing 8,945 people
and carrying 61m passengers annually.
EasyJet follows Porter's low-cost strategy (1980), effectively distinguishing itself from other
LCCs by competing against established flag-carriers at primary European airports. As
brought out in Table1 the company streamlines its operations to cost-reduction, facilitated
by a strong capital structure.
Table 1 EasyJet's low-cost business model, adapted from Southwest Airlines' original model (Alamadari & Fagan, 2005)
Product Features
Fares
Competitive and affordable fares
Network
Point-to-point, primary airports with focus on established routes in key
markets in Western Europe
Distribution
Principally by website, point of sale fee for partnerships with global
distribution system
In-Flight
Single-class, no-frills, in-flight sales
Operating Features
Fleet
Single type Airbus A320 or A319, high utilization (11h/day), young fleet
with low cost ownership (EasyJet, 2013a)
Airports
Leading market share in 45% of airports served with key positions in slot
constrained airports and short turnaround times
Staff
Lower than average employee cost and streamlined operations with
efficient staff deployment (MarketLine, 2014c)
Yield Management & Pricing Model
Revenue management strategy that attract passengers to book earlier
Others
Ancillary Revenue Sources
Integration of insurance, hotel & car rental services into the booking
process
Robust Capital Structure
Amongst the strongest and liquid balance sheets in European aviation
market (MarketLine, 2014b)

3 |
P a g e
I n t r o d u c t i o n
Table2 below provides EasyJet's three key strategic highlights in the FY13. Whilst the
allocated-seating system and business-travel initiative are set to maintain the company's
future sales proceeds (S2), the Madrid-base closure and the ongoing "Lean Program" aim to
protect the company's low cost base (S1) (EasyJet, 2012).
Table 2 Strategic Highlights during EasyJet's FY13 (EasyJet, 2013a)
Strategic Highlight
Introduced
in
Expected Impact
S1
: C
os
t-C
ut
ter
Lean program
January
2012
reductions in ground handling and engineering
costs
Significant Changes to Route
Network
(e.g. closure of Madrid base and
acquisition of Gatwick slots)
June 2012
and May
2013
increase profitability by focussing on mature
routes outside Spain (Webb, 2012)
increase frequency on popular existing routes
from Gatwick (Strydom, 2013)
S2
: R
ev
en
ue
-
Boos
te
r
Business Travel Initiative
ongoing
improved service of higher-yield business
travel market (Gill, 2013)
Allocated Seating System
November
2012
increase customer satisfaction and open new
sales opportunities
S3
:F
ut
ur
e
R
et
ur
ns
Framework Agreement with
Airbus
July 2013
Adjustments to fleet size in-between 171 and
298 aircrafts by 2020, depending on the
external environment (EasyJet, 2013a).
contribution to 5% cost savings in the future
The framework agreement (S3) enables EasyJet to rely on its cost advantage in the future
and is ought to be financed through internal resources and sale and leaseback transactions
(EasyJet, 2013a).

4 |
P a g e
I n t r o d u c t i o n
1.2. External Analysis
As set out in Figure1 EasyJet competes not only against other LCC, which typically serve
remote airports with small capacity, but also with high-capacity serving, established flag-
carrier at primary airports.
Figure 1 Main competitors in the short-haul market and their overall strategy (created by the author, for data see Appendix A)
Europe's airline industry has experienced a structural change since the recession in 2009
(Root, 2013), with major legacy-carrier continuously reducing their short-haul-capacity
(Glynn, Ramskill, & Pennington, 2013). Simultaneously, a KPMG study (2013) revealed that
the cost gap between traditional and budget airlines has recently shrunk by 30%.
EasyJet's business model distinctly differs from LCC-pioneer Ryanair as the Irish have
strategically built a route network focused on serving secondary airports and thereby
managed to keep the cost per seat 50% below EasyJet (CAPA, 2013a). However the Britons
cost-control strategy resulted in a 48% favourable cost base compared to competing legacy-
carrier such as IAG (EasyJet, 2013a).
Size of bubbles represents revenue in FY13 in Euros

5 |
P a g e
F i n a n c i a l A n a l y s i s
2. Financial Analysis
2.1. Operational Performance
Figure 2 Revenue Development 2009 - 2013 EasyJet and Ryanair (created by the author, for data see Appendix B)
Increased capacity due to a benign competitor environment enabled EasyJet to increase its
revenue to GBP 4.26bn. Further sales were generated through demand-enhancing marketing
campaigns and S1. The company states that their allocated seating system in particular has
contributed to 0.9 percentage points of the 10.5 % revenue increase overall.
This trend is in line with the industry level, as Ryanair also benefited from the recovering
demand and legacy-carriers' withdrawal from short-haul flights.
2.2. Profitability
Figure 3 Net Profit Development 2009-2013 EasyJet and Ryanair (created by the author, for data see Appendix B)
A 56% net profit spike (Figure3) and 3% increase in EasyJet's operating- and EBITDAR margin
(Figure5) were achieved by S1, with prevailing influence of the actions outlined in Figure4.
The "EasyJet Lean" program and a new, fuel-efficient fleet-mix have itself contributed to a
0.95% decrease in costs per seat.
Excerpt out of 38 pages

Details

Title
Quantitative and Qualitative Analysis of EasyJet's Annual Report 2013
Subtitle
Including a Comprehensive Analysis of Financial Ratios and Industry Standards Benchmarked against Main Competitors
College
University of Newcastle
Grade
1,0
Author
Year
2015
Pages
38
Catalog Number
V288365
ISBN (eBook)
9783656892229
ISBN (Book)
9783656892236
File size
4973 KB
Language
English
Tags
easyjet, annual report analysis, impression management, ryanair, corporate communication
Quote paper
Markus Bäder (Author), 2015, Quantitative and Qualitative Analysis of EasyJet's Annual Report 2013, Munich, GRIN Verlag, https://www.grin.com/document/288365

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