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VRIJE UNIVERSITEIT AMSTERDAMAFDELING ACCOUNTINGFINANCIAL STATEMENT ANALYSIS2E SEMESTER 2015/CASE 2: EASYJETCase 2: EasyJetStelios Haji-Ionanou, founder of EasyJet airlines, achieved profitability for the first time in 1999, almost four years after launching his London based low-cost carrier. The con...

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VRIJE UNIVERSITEIT AMSTERDAM AFDELING ACCOUNTING FINANCIAL STATEMENT ANALYSIS 2E SEMESTER 2015/2016 CASE 2: EASYJET

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Case 2: EasyJet Stelios Haji-Ionanou, founder of EasyJet airlines, achieved profitability for the first time in 1999, almost four years after launching his London based low-cost carrier. The concept behind EasyJet was to offer low-cost airline service to the masses in Europe. The airline accomplished this by adopting an efficiency-driven operating model, creating brand awareness and maintaining high levels of customer satisfaction. A key issue in the case is whether the airline will continue to grow and survive in the highly competitive low-cost segment of the market. In this context the Porter model is very relevant. EasyJet is Europe's leading airline, operating on over 600 routes across more than 30 countries with a fleet of over 200 Airbus aircraft. This company employs over 8,000 people including 2,000 pilots and 4,500+ cabin crew. Last year EasyJet flew over 60 million passengers. EasyJet has strong positions in key markets: No. 1 at London Gatwick, London Luton, London Southend, Bristol, Edinburgh, Milan Malpensa, Naples, Venice, Nice, Basel and Geneva; No. 2 at London Stansted, Paris Orly, Paris Charles De Gaulle, Lisbon, Lyon, and Rome Fiumicino. Over 300 million people are within a one hour drive of an EasyJet airport Hierna volgt belangrijke informatie uit het Annual Report 2014, p. 1, 4, 5:

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Annual Report 2014, p. 9:

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FINANCIAL PERFORMANCE EasyJet delivered record profit before tax of £581 million, an increase of £103 million from 2013 with a profit before tax margin of 12.8%. Profit before tax per seat rose by £1.09 year-on-year to £8.12. Return on capital employed grew by 3.1 percentage points to 20.5%(1). In light of the continued strong financial performance and confidence in the future, the Board has decided to increase the ordinary dividend pay-out ratio from one third of profit after tax to 40% of profit after tax, which has resulted in a 35.5% increase in the ordinary dividend from 33.5 pence per share to 45.4 pence per share. The performance in the year was driven by:  continued revenue per seat growth in a higher capacity environment;  a 1.3 percentage point improvement in the load factor;  continued digital and data initiatives;  better than expected cost performance driven by the easyJet lean programme, one-off benefits of the CFM engine selection and the continued scale advantages of increasing the proportion of A320 aircraft in the fleet; and  rigorous focus on capital allocation and returns with continued strategy of allocating aircraft to highest returning parts of the network.

Annual Report 2014, p. 20:

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In the 2014 financial year, easyJet flew 64.8 million passengers (2013: 60.8 million) and grew revenue by 6.3% from £4,258 million to £4,527 million, compared with 5.1% growth in seats flown.

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The Annual report 2014 of EasyJet is published on the website: http://corporate.easyjet.com/investors/reports-and-accounts.aspx?sc_lang=en

Zie voor meer informatie over EasyJet de volgende video’s: https://www.youtube.com/watch?v=vVwl8rL7p2Q https://www.youtube.com/watch?v=jqqoXBREUiY http://nos.nl/video/705728-extra-miljoenen-voor-easyjet-door-staking.html https://www.youtube.com/watch?v=qNtsUeZAmtU https://www.youtube.com/watch?v=wMXXY09p5SA

In de Reader FSA is een artikel opgenomen over strategieformulering en strategische planning. In dit artikel wordt aandacht besteed aan het model van Porter. Questions: 1. Evaluate the profitability of the relevant industry of Easyjet, using Porter’s five forces industry analysis tool. Which force is strongest? Weakest? 2. What strategy is EasyJet pursuing? Explain. 3. Why are the ticket prices of EasyJet so low? Explain. 4. What are the key success factors of EasyJet for having a sustainable business model? Explain. 5. Is the company’s competitive advantage sustainable? Explain.

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Ryanair is a low-cost, low-fare airline headquarted in Dublin, Ireland, operating over 1,600 routes in 30 countries. CEO Michael O’Leary describes the airline as follows: “Ryanair is doing in the airline industry in Europe what Ikea has done. We pile it high and sell it cheap. …For years flying has been the preserve of rich (people). Now everyone can afford to fly.” See for more information the case Ryanair in Palepu, pages 357-378.

Het Annual Report 2014 van Ryanair geeft o.a. de volgende informatie (pag 2 + 3): 8

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Company Ryanair Ryanair is Europe’s favourite low fares airline, operating more than 1,600 daily flights (over 500,000 per year) from 69 bases, across 1,600 low fare routes, connecting 186 destinations in 30 countries and operating a fleet of 300 new Boeing 737-800 aircraft. Ryanair has recently announced firm orders for a further 180 new Boeing aircraft, which will be delivered between 2014 and 2018. Ryanair currently has a team of more than 9,500 highly skilled professionals, will carry 84.6 million customers this year and has an outstanding 30-year safety record.

Chairman’s Report Dear Shareholders, This year we delivered a net profit after tax of €523m which was a disappointing €46m decline compared to last year‘s profit of €569m. However, this decline was entirely due to a 4% fall in fares, weaker sterling, and significantly higher fuel costs which rose by €128m. During the year Ryanair delivered a number of significant milestones: Our traffic grew by 3% to 81.7m passengers. • • • •

We ordered 180 new aircraft from Boeing for delivery from 2014 to 2018.We opened 8 new bases and 121 new routes. We completed a €482m share buyback. We successfully improved customer service via the launch of a new website and introduced allocated seating. We achieved a BBB+ (stable) rating from Standard & Poor‘s (―S&P ‖) and Fitch and became the highest rated airline in the world.

During fiscal 2014 we suffered a €128m increase in our fuel bill, which accounts for 46% of our total operating costs. Looking forward we are 90% hedged for fiscal 2015 at approximately $96 per barrel, significantly below current fuel prices, which will deliver approximately €50m cost savings this year. We have also extended our hedging into H1 FY16 and are already 55% hedged at prices which are just under 4% lower per passenger than fiscal 2015. We lead the airline industry by having the lowest fares, the most on- time flights, and the youngest fleet. This year we have focused on significantly improving our customer experience by launching a new website, a user friendly mobile app, the My Ryanair registration service which makes it simpler, and easier for customers to book Ryanair flights. We have recently introduced allocated seating, reduced certain fees and charges, launched a family product with discounts for children, and enabled passengers to take a 2nd small carry-on bag on-board. These improvements have been warmly welcomed by our customers, and we will launch further enhancements as part of our ―always getng better ‖ customer experience programme. The earlier release of our seasonal schedules and selling these seats at lower fares will deliver a 3% increase in load factors to 86% this year. This stronger forward booking strategy is helping us 11

to better manage our close-in fares. We have also made significant changes in the way we market and distribute our flights. In the spring we launched an extensive TV and outdoor advertising campaign in key EU markets and will initiate a series of campaigns this winter to promote our new website, mobile app and the ongoing improvements to customer service. In April we commenced distributing Ryanair flights on the GDS‘s (Global Distribution Systems) used by business customers and on Google flight search. In September we will launch our new business service which will include a same day flight change and other attractive features for business customers such as fast track through security at many Ryanair airports. We will continue to expand our distribution to enable more business customers to book Ryanair flights.

Chief Executive’s Report Dear Shareholders, We are pleased to present the 2014 report from Europe‘s biggest low fares airline and the world‘s favourite international scheduled carrier. Over the past 12 months, Ryanair‘s unique low fares, low cost model, continued to deliver new route and traffic growth, albeit at lower fares, which meant that while we carried a record 81.7m customers, our average fare fell by 4% to €46.40 causing a disappointing 8% decline in profits from last year‘s record €569m, to a slightly more modest €523m this year. While any decline in net profits is disappointing, the fact is that this fall was not caused by a cost problem, but rather by offering our customers even lower fares than last year. Our history has shown that customers who obtain lower air fares and great customer service, will continue to return to Ryanair again and again as we roll out exciting plans to grow our fleet, expand our route network, improve our flight times and frequencies, and continuously improve the customer experience on Ryanair. In the last year traffic rose by 3% to 81.7m customers, average fares fell by 4% (to €46.40), but ancillary revenues grew strongly (up 17%) with the result that revenue per passenger was largely flat. Excluding fuel (which rose by 7%), sector length adjusted unit costs fell by 3% proving again Ryanair‘s disciplined approach to cost containment. The key trend over the last year is that the average fare and unit cost gap between Ryanair and our European competitor airlines widened (as they saw their unit costs and fares rise) and it is this wider price gap which will underpin Ryanair‘s strong traffic and profit growth over the coming years. Over the last 12 months Ryanair opened 121 new routes, announced 8 new bases in Athens, Thessaloniki, Brussels (Zaventem), Lisbon, Rome (Fiumicino), Catania, Lamezia and Palermo. We also obtained shareholder approval for our 180 new aircraft order, deliveries of which will start in September 2014, enabling Ryanair to grow our traffic from 82m to over 110m customers over the next 5 years. 12

Improving our Customer Experience In September 2013, we announced plans to significantly improve our customer experience. For many years, success was defined by having the lowest costs and the lowest fares in every market, which ensured that we grew rapidly establishing enormous price (and cost) leadership over Europe‘s flag carriers, and so called low cost carriers, all of whom charge air fares that are at least 50% higher than Ryanair. As our business matures, and our growth rates slow somewhat, we are committed to improving our customer experience in addition to providing our guests with the lowest fares, the most on-time flights, the fewest lost bags, and the fewest cancellations. To achieve these goals we have spent a lot of the past year listening to our customers, and responding to their advice on improving our customer experience by moving to fully allocated seating on all flights, launching a simpler, easier to use, website with great new features which makes finding our routes, timetables and lowest fares quicker and easier than ever. We have also restructured many long standing policies to allow customers bring a small second carryon bag free of charge, a 24 hour grace period to correct minor booking errors, reduced boarding card and airport bag fees, ―quiet flights ‖ on early morning and late evening services for those customers who wish to chill out or snooze. We have also launched a dedicated groups service, an exciting new family product which allows children to avail of discounted prices for allocated seats, travel insurance and checked bags. In the Autumn we will launch a new business service which will allow business customers avail of exciting new benefits including flexible tickets, fast-track through security at many airports, reserved seating and free checked in bags, all for a small premium on our very low fares. These efforts have been complimented with a brand new Ryanair mobile app which was launched in mid July and will make Ryanair‘s fares and services even more accessible to customers on the go. We have widened the availability and distribution of Ryanair‘s low fares and flights with a return to GDS distribution via new partnerships with Travelport (the operator of the Galileo and Worldspan GDS‘s), with Google Flight Search feature here in Europe, and the brilliant ―fare finder ‖ facility on our website (which allows customers to readily find our lowest fares, our price promotions, or to enter a range of prices and we then produce the range of destinations that they can travel to at these price points).

Our airport partnerships

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Over the past year there has been a noticeable change in our airport strategy. For many years we focused our growth on low cost services to secondary airports at primary cities, or primary airports in regional cities, where low costs and efficient facilities were readily available. Over the last 12 months an increasing number of major city primary airports are offering Ryanair low costs and efficient facilities in return for new route and/or traffic growth on existing routes, in many cases to make up for traffic declines at those primary airports by their incumbent carriers. This has seen Ryanair announce new bases and growth at a number of primary airports last year including long-term incentive schemes at London Stansted and Dublin (where we applaud the Irish Government‘s decision to scrap the damaging travel tax), and we have also welcomed new primary airports to our network including Athens, Brussels Zaventem, Lisbon, Rome Fiumicino, Cologne, Gdansk, Warsaw Modlin and Glasgow Intl. among others. While many of these airports are slightly more expensive than our 186 existing airports, our experience has shown that passengers at these airports prefer Ryanair‘s low fares over the much higher fares being charged by other so called low cost carriers, or flag carriers, and so they switch to Ryanair in significant numbers to make significant savings on their travel costs. We will continue to roll out new products, new services and new routes, as we make the customer experience when flying with Ryanair the best in the business. We plan to reduce the cost of flying for individual customers, for families and for businesses. We will offer more choice of services, with an increasing range of flights to/from many of Europe‘s primary airports, and we will continue to offer Europe‘s consumers lower fares than all other airlines, as well as a better customer experience. Digital While the Ryanair.com website is Europe‘s largest travel website, we have been slow over the past year or two to invest or improve our website, and to address new mobile technology as it develops rapidly. As a result we have allowed higher fare competitors to develop better websites and mobile platforms than those of Ryanair. This will not happen again. Over the last year we have transformed the Ryanair.com website to make it easier to use, and we have launched a great new mobile app which makes Ryanair‘s fares, flights and ancillary services readily available to our customers on smartphones, laptops and other mobile devices. We are not content to rest on these laurels. We are actively developing our Ryanair Labs team which will be charged with developing Ryanair‘s presence on all digital platforms, expanding the range of services we offer, entering into partnerships with other digital leaders, and investing in emerging trends such as wearable devices, travel package holidays and related products and services. Our people 14

Over the past year average numbers employed in Ryanair rose from 9,059 to 9,501. Of this number more than 560 people were promoted as our growth created new opportunities for promotion, career progression and development. Despite the difficult economic environment, and a decline in profits, we agreed a modest pay increase in April for our team. We have also negotiated 5 year pay and condition deals with our cabin crew bases and 12 of our pilot bases, directly with our people, when their previous 5 year deals ended in March. We were pleased to move into our new Dublin offices in January 2014, where we have created an exciting and engaging environment for all our people and which affords us the space to grow our team and invest in IT and digital specialists. We are pleased that Ryanair‘s new offices (which were designed by our people) were recently ranked one of Ireland‘s top 8 ―coolest office spaces ‖ and we hope that many shareholders will take the time to visit us in our great new space over the coming months. Our Shareholders Unlike other airlines, Ryanair continues to deliver substantial returns for our shareholders. Because our Board and Management team own a significant stake in the airline, we think, we plan, we invest, and we act like shareholders because we are significant shareholders.

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Het Annual Report 2014 (pag. 46) geeft de volgende belangrijke operationele informatie :

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Zie voor meer informatie over Ryanair de volgende video’s: https://www.youtube.com/watch?v=n-1fSG85Knk https://www.youtube.com/watch?v=h1DyB7l0Wz4 http://nos.nl/artikel/710238-ryanair-start-slag-om-schiphol.html http://nos.nl/artikel/2065332-ryanair-vliegt-vanaf-vandaag-ook-vanaf-schiphol.html

Dinsdag 2 november 2015 heeft Ryanair de meest recente halfjaarcijfers geplubliceerd. Zie de volgende links: http://www.volkskrant.nl/economie/winstsprong-van-37-procent-voor-ryanair~a4176751/ http://investor.ryanair.com/h1-results-fy16/

6. Discuss two important differences between EasyJet and Ryanair regarding strategic and operating choices. 7. Is Ryanair’s competitive advantage sustainable? Explain.

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