Comparative Financial Analysis of Ryan Air & Easy Jet - Assignment Example

EasyJet and Ryanair Airlines Introduction EasyJet is a British airline company whose headquarter is based at London Luton Airport. It was established in the year 1995 by Sir Stelios Haji-loannou with the purpose of providing scheduled air services at low costs. The first ever flight of this company had its route from Luton to Edinburgh and Glasgow. The first international flight was launched in the year 1996 with aircraft whose sole ownership belonged to this airline and the route was from Luton to Amsterdam. In March 1998, EasyJet becomes 40% shareholder of Swiss Charter Operation, TEA Basel AG after which EasyJet was renamed as EasyJet Switzerland. Its headquarter was moved to Geneva which became the first base outside UK. Today EasyJet has in its service 175 aircrafts over 400 routes in 27 countries. In 2009, EasyJet catered to passengers with 50% having passports of countries other that UK. In the year 2010 EasyJet faced a number of major problems that posed a threat to its efficient service. There was the eruption of Eyjafjalla volcano that produced ash which induced problems in European airspace. Then there were incidents like heavy snowfall and major ATC industrial activities. All these along with various functional problems provide immense challenge to the performance level of EasyJet. It was the integrity and dedication towards work that stimulated the employees of EasyJet to continue to provide uninterrupted world class service. EasyJet is efficiently capable to take in its wings the opportunities available for consistently increasing profit in European short-haul aviation. Along with this growth, EasyJet stresses on cost reduction strategies and embracing pathways for more revenue. All these elements have the potential to ensure continuous growth of functional cash making. In the beginning of 2011 the Board decided to start the practice of dividend payments during profitable phases without ignoring the fact that the company always need to have a strong financial base with a prudent balance sheet. This will be a stimulating factor for the shareholders in profitable years even as the company continues to enjoy market share (EasyJet: Annual reports & accounts 2011, pp.4-7). Ryanair Ltd. is an Irish airline was established in the year 1984 by the Ryan family with the assistance of only 25 people. Ryanair’s inaugural flight had its daily route from Waterford in Ireland to London Gatwick. The first operating aircraft was a 15-seater Bandeirante that could carry 5,000 passengers. Headquarter of the company is situated at Dublin Airport. Focus on low-fare operations was initiated in the early 1990s by a new team of directors in the board. In the year 2010, there was a reduction in the costs of fuel from €1,257 million to €893.9 million. This factor combined with a rise in revenues from €2,942.0 million to €2,988.1 million allowed the company to make an unprecedented profit on regular functions. The profit was declared after making all tax payments in 2010 financial year that amounted to €305.3 million. The primary goal of Ryanair is to achieve that status of being the “biggest scheduled passenger airline” in Europe. This target can be fulfilled with constant developments and widening of its low-fare services, without ignoring efficient operational services. The low-fare services of Ryanair are structured in the manner to entice passengers who travel for leisure or business. Such passengers prefer to choose airlines with minimum traveling expenses or may opt for not traveling at all. Ryanair also emphasizes on providing the most efficient customer service compared to other rival airlines. Customer satisfaction is another element that this company keeps track of by measuring it online or by passenger surveys. Since Ryanair provides services at low costs, its demand is very high. To meet the demand, management focuses on maintaining enough flights every day. Regular review is done by management to monitor demand of flights (Ryanair: Annual reports and financial statements 2010, pp.53-54,58). PESTEL analysis PESTEL is an acronymn whose letters stand for Political, Economical, Social, Techonological, Environmental and Legal factors of a business. PESTEL analysis helps to assess the prospects of expansion and also the risks involved. With the help of this analysis multinational corporations can design strategies to reduce risks attached to development and expansions beyond the borders of the origin nation. This helps a company to fulfill its vision in any hazardous phases. Since the factors cannot be influenced by a business enterprise, so it is upon the business to adapt itself to the factors. PESTEL analysis provides different reports depending on whether the analysis is done in domestic or international arenas. PESTEL analysis of EasyJet Ltd. Political Easyair being a British airline company is performing within the political framework of Europe. There are various political factors that can affect the performance of the company and are needed to be assessed before making any expansion plans. The unstable political scenario in the Middle East is in a perpetual war like condition. This constant threat of a Middle East war can strongly affect the oil price. If the oil price increases then it will be difficult for EasyJet to maintain its policy of providing air services at low costs. If this happens then demand will fall which will add to the cost. Secondly, trade unions are creating problems all over Europe with their increasing demands. Thirdly, there is a growing threat of terrorist attacks across Europe. After the terrorist attacks in America people have become apprehensive regarding traveling by air, and such threats of terrorist attacks can further influence flight demands of European airlines including EasyJet. Finally, the government has imposed higher taxes on flights which add to the cost thereby resulting in increasing air fares. Economical The price of petroleum and other fuels affect any airline company. Since EasyJet’s mission is to provide air services at low costs, high fuel price can adversely affect the economic structure of the company. The rate of unemployment in Europe is very high which means a major portion of European population cannot afford to travel by air. The pervasive risk of terrorism means airlines like EasyJet have to emphasize on strict security measures which will require high financing. The ongoing global recession which has no probable solution in the near future induces business travelers to reduce their travel expenses. One positive factor is globalization which can increase flight demand in the long run. This is because globalization has enhanced alliance between nations for trade, technology, labour purposes. Since the launching of single currency in Europe, the nation has become more integrated and this has increased flight demands in EasyJet (Mayer, 2007, p.16). The aviation industry also gets influenced by the fluctuating values of US Dollar. Social Unlike other low fare airlines who focus primarily on leisure travel, EasyJet has discriminated by targeting both business and leisure travelers. This kind of differentiation has created an advantage over competitors. Thus, EasyJet must design its strategy for a broader customer base. Secondly, there still exist problems like unwillingness to use credit cards over phone or via internet among the French and German customers which cause problems in online booking facilities. The general public responses swell towards cheap flights however it adds to their grievance if promotions in newspapers promise flights at a particular rate when in reality they cost much higher (Mayer, 2007, p.16). Technology Airline industry is one sector that is highly dependent on technologies. To maintain competitiveness in the market EasyJet needs to keep an eye on the technological updates regarding aircraft manufacture. It is a key matter for EasyJet to see that adopting latest advancements in technology can counteract any increased weight on prices and costs. To attract more customers EasyJet must also concentrate on designing user-friendly websites for easy booking facilities. This will reduce the fare burden on customers by avoiding travel agents. Environmental Since UK has a saturated market and prospect of growth is limited, therefore EasyJet’s focus must be on the continental market and Eastern Europe. The emphasis must be on cost-cutting strategies and expansion of route network. EasyJet is also affected by other environmental issues like inflation, per capital income, gross domestic product and government taxes. Then there are strict regulations from the EU regarding reduction of carbon emissions. These regulations are imposed for the purpose of lowering global warming to protect the world from its dangerous impacts on climate and human life. The purpose is to build a low-carbon European economy (Mayer, 2007, pp.17-18). There are other infrequent environmental issues like volcanic eruptions from which ash can emit to disrupt airspace in Europe. Finally, EasyJet must convince people that it is the safest mode of air travel at lowest cost. Legal EU laws related to aviation industry do not allow monopolization of airports. Stringent laws regarding safety and air traffic rights put financial pressure on low-fare airlines like EasyJet (EC: Bulgaria Breaks EU Competition Law in Sofia Airport, 2010). PESTEL analysis of Ryanair Ltd. Political Since Ryanair has its base in both EU and Ireland, it is regulated by numerous Irish and EU authorities like “Department of Transport, the Irish Aviation Association, the European commission and the European Aviation Safety Agency.” (Muller, 2011, p.38) Any tax reforms or rule modifications related to flight insurance of passengers, airport activities and market competition can affect Ryanair. More recently, Ryanair has reduced the number of flights that travel over German routes to because of the new eco tax imposed by government which can drastically reduce the level of profit. Since Ryanair has its operational bases in several European countries, so it must take into consideration variable labour markets and government regulations. Moreover, national airlines like Ryanair get additional benefits from governments during periods of huge losses. Governments can also put restrictions on mergers and acquisitions. Economic The growing rate of employment increases the spending capacity of people with more money at disposal. This specially affects aviation industry as people tend to spend on traveling more than anything else. More employment also means economic growth which can influence low fare airlines, because with more spending power people tend to emphasize more on quality and comfort during flight than price. As such, low fare airlines are regarded as inferior in the entire aviation industry. The ongoing global recession had a severe impact on many airlines including Ryanair because high employment rates and rising fuel costs almost led to bankruptcy. Ryanair’s fuel expenses are 45% of its total operational expenses, and so any rise fuel price will affect Ryanair’s decision regarding “no-fuel surcharge policy” to earn profit (Muller, 2011, p.38). One common economic factor that affects a low fare airline like ryan is overbooking by customers and their compensation later on. Then there are also problems of cancelled for delayed flights, for which compensations and reimbursements can become a major expense for Ryanair. Social Airline profits are highly dependent on the behavioral and demand patterns of customers. National calamities and also human events like flight accidents and terrorist attacks can drastically reduce flight demand as mode of travel. Also, profitability of low fare airlines like Ryanair depends on the customers’ perspectives on low fare services. An incident like air accident can force the customers to rethink about the compromises adopted in aircraft maintenance efficiency in low fare airlines like Ryanair. Incidentally, Ryanair has had no air accidents with casualties till date. Moreover, pandemics like swine flu can adversely affect flight demands. Other social factors like proportion of old age population must also be taken into consideration as old people tend towards alternate modes of travel due to airsickness or other problems. Then there is also a “growing interest in multiple product features, product quality and service” which may cause people to try other airlines merely to get a different kind of experience (Muller, 2011, p.39). Technology Ryanair needs to keep itself updated on the technological innovations that can lead to enhancement of airport service efficiency, security efficiency and cost efficiency. As far as information technology goes Ryanair operates a multi-featured website for selling flight tickets and ancillaries. The website needs to be kept aligned with technological updates. Ryanair is also alert for any technological development and strives to embrace new processes to enhance service efficiency. For instance, in 2004, Ryanair put into practice aviation industry’s “first paperless pilot training program.” (Muller, 2011, p.39) Environment Airline services can be drastically disrupted by natural calamities, for instance the 2010 Eyjafjalla volcanic eruption in Iceland disrupted European air space for several days. Massive proportion of flight cancellations led to € 50 million loss for Ryanair. This included legal expenses for its no compensation policy. In order abide by government’s regulations of carbon emissions, Ryanair operates flights that consumes less fuel and makes low noise level. Moreover, governments are also planning to restrict expansion of aviation industry in order to protect the future environment. Also, there are speculations that oil supply all over the world will decline as oil production will reach optimum level and there will be need for new oil sources. In such case Ryanair’s current oil price strategies may not be applicable. Legal In the EU due to deregulation policy, there are less restrictions regarding entry of new airline ventures which means government’s strict control over airlines have been modified to provide new opportunities for new airlines leading to free competition. This can pose stiff competition for Ryanair. This is because new airlines emerge with more market demand, and lower operational and labour costs by 30-40% as they start their business with inexpensive second-hand aircrafts (Sorenson, 2005, p.37). Porter’s 5 forces analysis A business enterprise before its establishment needs to study the forces that will impact its profitability, and a tool for such assessment is Porter’s 5 forces analyses which are bargaining power of customers, bargaining power of suppliers, threat of new entrants, threat of substitutes and competitive rivalry. By accurately assessing these forces a firm can equip itself with strategies to defend it against the forces or use the forces to its own advantage. Porter’s 5 forces analysis of EasyJet Threat of new entrants The deregulation policy encourages new airlines to emerge, but since initial capital investment is too high it becomes difficult for new entrants to compete with incumbent airlines like EasyJet. Also, too many airlines can create market saturation which can lead to market rationalization which means people will have no particular preference on any one airline. As such EasyJet has the advantage of providing low fare which will be difficult for new entrants to offer, and also EasyJet has a goodwill attached to its name which is something a new entrant will take years to replicate. Bargaining power of suppliers EasyJet being a low fare airline may have disadvantages regarding the availability of the best air routes which will be taken by larger airlines. Also, primary airports prefer to do business with high fare airlines since low fare airlines like EasyJet cannot afford many of the sophisticating landing, baggage and check-in services. Differentiating services for airlines is not viable for many primary airports. However, this factor plays low for EasyJet as it uses primary airports like Schiphol, Copenhagen etc. resulting in high fees for airports. Thus EasyJet cannot achieve low cost in every activities and so has ended up being the second best low fare airline in Europe after Ryanair (Sorenson, 2005, pp.84-85). Threat of substitutes This force is not much applicable to aviation industry especially if the airline is a low fare one like EasyJet. Automobiles, bus services and railways can act as substitutes but where time saving is important, there can be no substitute to airlines. Technological innovations like videoconferencing is actually another form of substitute since it enables business people to do meetings online thereby flights become unnecessary for face-to-face meetings. Bargaining power of buyers Usually a number of aircrafts from various airlines fly on the same air route thus increasing the bargaining power of buyers because of availability of options. This factor is more applicable on EasyJet since it is a low fare airline and availability of other low fare airlines on same route can be a threat to EasyJet. In such case scheduling plays a major part to attract more customers. However, EasyJet does not compete with high fare airlines whose customers are mostly business or elite passengers who prefer added comforts and services during flight. EasyJet promotes itself as no-frills airline (Sorenson, 2005, p.84). Competitive rivalry Air fare is the driving factor for competitive rivalry in aviation industry. Low fare can be an advantage for EasyJet but airline customers often emphasize more on comfort and services to cost factor both of which are strong elements in high fare airlines. Selecting air routes, strategic flight scheduling are some elements that can allow EasyJet to maintain competitiveness. Internal rivalry also exists between low fare airlines like EasyJet and Ryanair. Porter’s 5 forces analysis of Ryanair Threat of new entrants In the European aviation industry new entrants face the disadvantage of limited airport slots as these are mainly accessible by established airlines like Ryanair. Ryanair being an existing airline can lower its air fare to wipe out new entrants. Ryanair can either lower air fare to level with that of the new entrant or else can lower further which will make the new entrant struggle to survive because of its low capital base. This can end up with the new entrant leaving the industry. Another program that can be used by Ryanair is frequent-flyer program which means customers are given a free flight after they complete a specific number of flights in a given period with Ryanair. This will encourage customers to use Ryanair even if other cheaper flying options are available. This program cannot be afforded by new entrants because it has the added burden of agent incentives which means Ryanair can give huge incentives to agents to make them prefer Ryanair (Sorenson, 2005, p.52). Bargaining power of suppliers Bargaining power of suppliers can be strong if they are concentrated i.e. there are few suppliers and many buyers. This is most common in aviation industry since only few companies manufacture aircrafts. For instance, there are two major aircraft manufacturers namely Airbus and Boeing. This can be an important factor for Ryanair as aircrafts cannot be substituted. Secondly, primary airports often choose not to work with low fare airlines as the latter do not need many services like airbridges, elaborate check-in-service which is preferred by big airline companies. Since it is not profitable for airports to differentiate their services, Ryanair opts for “secondary and regional airports.” (Sorenson, 2005, p.56) Threat of substitutes Unlike other industries, this factor is less applicable in aviation industry. However, for distance less than 400 km bus service, railways and automobiles can act as substitute modes of travel. Moreover, these are cheaper modes of travel than air travels. Since fuel prices can become very high, people often prefer air travel to automobiles for distance more than 400 km (Sorenson, 2005, pp.59-60). Another factor comprises of business travelers whose principle purpose for traveling by air is to conduct face-to-face meetings, but these meetings often become redundant because of technological innovations like videoconferencing. All these factors can severely impact Ryanair. Bargaining power of buyers Ryanair is not much affected by buyers’ bargaining power since airline customers are scattered through Europe and no single customers makes bulk purchase of airline tickets. However, this scenario has changed in recent times because of availability of price comparison websites like “Orbitz, Travelocity, MrJet or Priceline” which allow customers to compare air fares and customer services of different airlines (Sorenson, 2005, p.65). Competitive rivalry Because of increased competition in the European aviation industry, rivalry between airlines has increased. Low fare airlines like Ryanair can lower their price to force bigger airlines to also reduce their price to maintain competitiveness. There also exists internal rivalry between low fare airlines like Ryanair and EasyJet. Strengths and Weaknesses of EasyJet EasyJet’s strength lies in its strategically low fare air service. It has destinations in many principle cities across Europe. EasyJet has in its disposition quality service at low price, internet booking facilities and other ancillary services. EasyJet’s aircraft have distinctive features that make them distinguishable from aircrafts of rival airlines. EasyJet gains confidence of customers with their user friendly website where they disclose the price breakdown of travel expenses of customers hence there are no hidden costs once customers are due for payment. EasyJet’s strategic activities comply with the regulations imposed by government regarding global warming like low carbon emissions, operating aircrafts that consume less oil and make less noise. EasyJet keeps its focus on environmental awareness programs while making any future strategies. EasyJet has an “average turnaround time of 30 minutes or below” which goes to prove its service efficiency and reliability. EasyJet focuses on passenger comfort by offering them free refreshments in flights whose durations are more than two and a half hours thus giving the passengers a comfortable journey (EasyJet Airline Company Limited, n.d.). EasyJet uses reward policies to motivate its employees by giving an “annual performance-driven bonus and grants of performance shares” to eligible employees. This motivates the employees towards efficient contribution to EasyJet’s strategic objectives (EasyJet: Annual reports & accounts 2011, p.35). One principle weakness of EasyJet is that it strives to keep fare low as well as focus on consumer satisfaction, and keeping balance between the two becomes difficult. EasyJet’s routes within the national boundaries face stiff competition from other low fare airlines like Jet2, BMI Baby, Ryan Air. Such competitions set limitations to EasyJet’s pricing policies on less revenue routes. External factors like increasing oil price can severely impact fare structure since the fare is already low. In EasyJet air travel there is no arrangement for free meal services in flights that are longer than 2 hours (EasyJet Airline Company Limited, n.d.). Strengths and Weaknesses of Ryanair Ryanair is considered as the top low fare airline in Europe. Its strength lies in reducing cost of activities on board. Employees are not engaged in any one particular activities, they do various jobs thus reducing the need of multiple personnel. For instance, flight attendants also do the work of cleaners or gate agents. Ryanair also focuses on “faster pre-flight preparation”; this minimizes the grounded time of aircraft (Hoffman, 2007, p.6). Ryanair does not take the services of primary airports to avoid high airport charges and opts for regional airports. Because of its brand name Ryanair also acts as barrier for new entrants in the European aviation industry. Its high seat density arrangement on board reflects optimum use of aircrafts. Ryanair plans schedules for aircrafts in the manner that they stay in air for longer periods thus avoiding loss incurred from grounded aircrafts. Ryanair focuses on updating aircrafts since modernized fleets require less maintenance cost. It also uses single type of aircraft which is Boeing to save on training costs of flyers (O’ Cuilleanain, et al, 2004, pp.8-9). The one weakness of Ryanair that is quite apparent is its no-frills approach by which they do not serve any free refreshments to customers on flight. This lack of personal service can induce people to opt for other low fare airlines. Ryanair also severely lacks in customer service since one cannot contact the airline through phone or e-mail except for booking purposes. Although this is a strategy for keeping fares low by cutting cost, people are denied extra service value and this may affect the demand pattern of Ryanair flights. Ryanair’s reliance on secondary and regional airports is a huge cutting strategy on their part, but it also has the added situational disadvantage since most regional airports are situated far away from passenger destinations. Also the regions being slightly rural can act as deterrent for some customers. Increasing oil prices can have severe impact especially on low fare airline like Ryanair, and to off-set this they use high density seating arrangements on board; that way fuel price per passenger will be reduced. Any air disaster even if with other airlines can affect Ryanair since people will start believing low fare airlines compromise on safety measures in order to cut costs (Sorenson, 2005, pp.97-102). Financial comparisons Table 1 shows different ratio calculations of EasyJet and Ryanair for the fiscal years 2010 to 2012. Table 1:       profitability ratio               2010     2011     2012       Gross income Sales Gross income/sales Gross income Sales Gross income/sales Gross income Sales Gross income/sales Easy jet 361.3 2973.1 0.12 468 3452 0.14 531 3854 0.14 Ryanair 402.1 2988.1 0.13 488.2 3629.5 0.13 683.2 4390.2 0.16       efficiency ratio               2010     2011     2012       Expenses (excl. interest) Revenue Expenses/Revenue Expenses (excl. interest) Revenue Expenses/Revenue Expenses (excl. interest) Revenue Expenses/Revenue Easy jet 2611.8 2973.1 0.88 2984 3452 0.86 3323 3854 0.86 Ryanair 2586 2988.1 0.87 3141.3 3629.5 0.87 3707 4390.2 0.84       liquidity ratio               2010     2011     2012       Current assets Current liabilities Current assets/current liabilities Current assets Current liabilities Current assets/current liabilities Current assets Current liabilities Current assets/current liabilities Easy jet 1514.9 1064.6 1.42 1738 1177 1.48 1327 1264 1.05 Ryanair 3063.4 1549.6 1.98 3477.6 1837.2 1.89 3876 1815 2.14       gearing ratio               2010     2011     2012       Total liabilities Total assets Total liabilities/total assets Total liabilities Total assets Total liabilities/total assets Total liabilities Total assets Total liabilities/total assets Easy jet 2501.8 4002.5 0.63 2764 4469 0.62 2501 4295 0.58 Ryanair 4714.8 7563.4 0.62 5642.1 8596 0.66 5694.3 9001 0.63       dividend ratio               2010     2011     2012       Total div. per share earning per share Total div./earning Total div. per share earning per share Total div./earning Total div. per share earning per share Total div./earning Easyjet 14 28.4 0.49 1.5 52.5 0.03 43.33 62.5 0.69 Ryanair NIL 20.68   46.73 25.21 1.85 NIL 38.03         earning ratio               2010     2011     2012       Market price per share earnings per share Market price/earnings Market price per share earnings per share Market price/earnings Market price per share earnings per share Market price/earnings Easyjet 3.71 28.4 0.13 3.5 52.5 0.07 5.67 62.5 0.09 Ryanair  1.93 20.68  0.09  1.99 25.21 0.08 2.24 38.03  0.06 (Data taken from Easyjet’s annual reports and accounts for each fiscal year from 2010 to 2012, and from Ryanair’s annual reports and financial statements for each fiscal year from 2010 to 2012.) Profitability ratio It measures the net profit after deducting all expenses from sales. A higher ratio means money earned is more for every unit received after sales. In EasyJet, the ratio has increased from 2010 to 2011 and remained almost same in 2012. It means the airlines has the capacity to generate more cash from sales. In Ryanair the ratio has jumped to 0.16 in 2012 from 0.13 in 2011. This is a sign of good performance in the year fiscal year 2011-2012, with much cash in hand for the airlines to make payments to creditors, suppliers etc. Since the growth rate of Ryanair is almost equal to Easyjet from 2010 to 2012, hence it can be said that both the airlines can plan their activities in a more economic way. Efficiency ratio It measures the proportion of expenses in relation to revenue earned. A low ratio is an indicator that an organization can duly pay all its dues. Both EasyJet and Ryanair have shown a reducing trend from 2010 to 2012. Both airlines are in a better position to make all payments. Also lower ratio means the airlines had improved profitability in 2012. Ryanair showing a higher rate than EasyJet means the former has better potential in the coming years. Liquidity ratio It is the ratio of current assets and current liabilities which shows the debt paying capability of a firm. A higher ratio means the company has enough cash to pay all debts within a year, while a low ratio can also indicate insolvency possibility. Liquidity has been very fluctuating for both Ryanair and EasyJet in the last 3 years from 2010 to 2012. EasyJet has shown a steep drop in the ratio to 1.05 in 2012 from 1.48 in 2011. It may need to arrange for extra cash to make payment to debtors and suppliers. Ryanair on the other hand has show an increase in the ratio to 2.14 in 2012 from 1.89 in 2011, which is a good thing since when the ratio exceeds 2 it means the company is in a strong position fianancially. Gearing ratio Gearing ratio analysis is essential to know the dividend paying capacity of a company. It can assess the company’s financial position in the long run. In EasyJet the ratio has shown a gradual reduction from 2010 to 2012, while in Ryanair it increased drastically in 2011 and dropped a little in 2012. Financially, Ryanair seems to be in an unstable position and needs to gear up its financial position. If EasyJet continues its gearing ratio increasing trend in the coming years, then it can be in a very strong position financially. Dividend ratio Dividend ratio analysis is important for any company as it is a major source of information for investors. If a company with high dividend ratio decided to lower the ratio, then it will be a bad indication for investors. However, high dividend ratio indicates that the company can make better payments to investors which will encourage more people to invest in the company. EasyJet had a low dividend ratio in 2011 and has increased the ratio in 2012. Such fluctuations can confuse the investors. Ryanair has not paid any dividends in 2010 and 2012. Earning ratio Earning ratio is an important analysis for investors because it shows how much investors are agreeing to pay for each unit of profit of the company. A high ratio means the company is at risk since the earnings are low. Both EasyJet and Ryanair have a decreasing earning ratio from 2010 to 2012 thereby making themselves lucrative ventures for investors to invest their money. Conclusion There has been a tremendous growth in the European aviation industry in last few years and emergence of low fare airlines like Ryanair and EasyJet have played an important role in this. These airlines have also contributed to development of secondary and regional airports. Low fare airlines focus more on keeping the costs down by compromising on many elements like customer service and airport facilities. Both Ryanair and EasyJet do not provide free refreshments or free meals during long flights. Although these strategies can keep the cost down, they can also deter those customers who prefer comfort and additional services to price of tickets. They also focus on creating their own websites to encourage people to book tickets online thereby abolishing the use of travel agents. This also helps to keep the fare down. In order to become a competitive low fare airline, it is important that costs be handled economically. Operational costs should be lowered so that these airlines can offer lower fares than their airlines. This can be done through using low fuel aircrafts and having high density seat arrangements to make optimum utilization of an aircraft’s capacity. References 1. EasyJet Airline Company Limited (n.d.) businessteacher, available at: http://www.businessteacher.org.uk/business-resources/swot-analysis-database/EasyJet-swot-analysis.php (accessed on March 10, 2013) 2. EC: Bulgaria Breaks EU Competition Law in Sofia Airport, (2010), available at: http://www.novinite.com/view_news.php?id=120651 (accessed on March 10, 2013) 3. EasyJet: Annual Reports and Accounts (2010, 2011, 2012) 4. Hoffman, S. (2007) The Low-Cost Airline Ryanair, GRIN Verlag 5. Mayer, F. (2007) A Case Study of EasyJet and the Airline Industry, GRIN Verlag 6. Muller, C. (2011) Case Study and Comparative Strategic Analysis of Toyota and Ryanair, GRIN Verlag 7. O’ Cuilleanain, et al. (2004) Ryanair Plc., available at: http://solvay.ulb.ac.be/cours/alle/BuspPresRyanair04.pdf (accessed on March 10, 2013) 8. Ryanair: Annual Report and Financial Statements (2010, 2011, 2012) 9. Sorenson, T.C. (2005) An analysis of the European low fare airline industry – with focus on Ryanair, available at: http://pure.au.dk/portal-asb-student/files/2049/000139957-139957.pdf (accessed on March 10, 2013) Read More