Correlation of Core Financial Data of EasyJet and Macroeconomic Environment - Statistics Project Example

EasyJet Contents Contents 2 Introductions: 3 Key Statistics: 3 Financial Reports: 5 Operational efficiencies: 10 Future outlook: 11 Personal Log: 11 References: 13 Appendix: 15 Introductions: EasyJet plc, a low cost airlines service started operations in November 1995. (Where Have We Come From?, 2009). It offers airlines services mainly within Europe over short to medium distances. It has it’s headquarter in Luton, UK (easyJet plc, April 2009). It is also Europe’s 2nd largest low cost airline after Ryanair (Rothwell S., October 2008). EasyJet had a market share of 6-7% in July 2008 which the management hoped would increase to 10% 2012 (EasyJet to win market share as rivals disappear, July 2008). Key Statistics: The following tables show some key statistics about easyJet in comparison with other competing low cost airlines of Europe. Special attention must be paid to Ryanair’s statistics since it is the largest low cost airline in Europe and easyJets’ closest competitor. Table.1. Important Statistics-A Source: (Members’ statistics June 2008 1/3, European Low Fares Airline Association) From the above data it’s evident that in term of average load factor easyJet was ahead of Ryanair during the period Jul’07 to Jun’08. But Ryanair flew 12 million passengers more than easyJet. While Ryanair leads in terms of number of daily flights i.e. 1099, easyJet is a close second with 1045 daily flights. Table .2. Important Statistics-B Source: (Members’ statistics June 2008 2/3, European Low Fares Airline Association) Table. 2. points out that Ryanair covered 712 routes and 145 destinations with 5981 employees, while easyJet covered almost half number of routes i.e. 340 and 88 destinations but it had 6500 employees, i.e. more employees than Ryanair. Therefore it can be inferred that operational efficiency or productivity wise Ryanair leads at least in certain parameters. Table.3. Important Statistics-C Source: (Members’ statistics June 2008 3/3, European Low Fares Airline Association) Table.3. shows easyJet had 163 aircrafts while Ryanair had 166 aircrafts in Jun’08 while in terms of average age of fleet Ryanair leads over easyJet. As of December 2008, easyJet had 22.98% market share in terms of passenger numbers, while its load factor was 84.6%, whereas for the same period Ryanair has 27.85% market share in terms of passenger numbers, while it had a load factor of 81.1%. EasyJet served 27 countries as of December 2008 whereas its closest competitor served 26 countries. (ELFAA member Statistics, December 2008). Financial Reports: Table.4 : EasyJet plc annual report and accounts 2008-2007 Source: (EasyJet plc annual report and accounts 2008, 2008) The above table shows that in the year 2007 easyJet made a profit of £152.3 million on revenue of £1797.2 million, whereas the company could make a profit of only £83.2 million on much larger revenue of £2362.8 million in the year 2008. In May 2008 it was reported that if there is a hike of $1 in price per barrel of oil, the company’s profit comes down by £2.5m (Wearden G., May 2008). Therefore the drop in profit in spite of higher revenues in 2008 could be attributed primarily to the increase in price of oil or aviation turbine fuel. The data also points out that current assets of the company had a healthy rise of £248.6 million in the year 2008 over 2007. But in the year 2008 current liabilities also showed upward trends and increased by £288.5 million over the year 2007. Net assets increased from £1152.4 million in 2007 to £1278.2 million in 2008 i.e. an increase of £125.8 million. The cash flow statement data shows that cash flow from operating activities increased by £31.5 million in 2008 over 2007. Again while the increase in cash or cash equivalents in 2007 over 2006 was £141.6 million, the rate of increase slowed down considerably in 2008 and it amounted to £86.9 million. Table.5. Raynair Holdings plc partial Annual income statement 2008-2007 Source: (Financial Statements Ryanair Holdings plc LSE, April 2009) Table 5. Shows total revenue of Ryanair increased by £433.65* million in 2008 over 2007.Gross profit increased by £165.22* million in 2008 over 2007. Net income after taxes has come down by £40.83* in 2008 in comparison to 2007. Total current assets decreased by £20.19* million form 2007 20 2008.Current liabilities on the other hand went up over the same period by £33.37 million (Annual Balance Sheet, April 2009). * All figures in Euro or € and have been converted into GBP sterling or £ by using currency converter at exchange rate as on April 6 2009 and therefore the figures are approximate only (currency converter, April 2009). Table.6. Ratio Analysis of EasyJet Source: (Ratios EasyJet plc LSE, April 2009) From the above table ‘Ratio Analysis’, it is evident that P/E ratio of easyJet is 16.46 i.e. the market or the investors are ready to disburse €16.46 for current earning of €1.Whereas the P/E ratio for the industry over the same period is only 1.35. This signifies that the easyJet stock is performing better than the industry. Again from the Beta figures for easyJet it is clear that the stock is considerably more volatile than the industry. The quick ratio figure shows that the company’s ability to meet its short term obligations is higher than that of the industry i.e. company is doing better than the industry. The current ratio figure also shows that the company’s ability to pay for its liabilities is better than that of the industry as a whole. The company is doing better than the industry in context of ROI, ROA and ROE also. Table. 7. Ratio Analysis of Ryanair Continued… Source: (Ratios Ryanair Holdings plc LSE, April 2009) From table No. 7, it is clear that the Ryanair stock is more volatile in comparison to the industry as it has a higher beta. Again from the quick and current ratio figures it is evident that the company’s ability to pay for obligations and short term liabilities are both higher than that of the industry average. The table shows some important indicators about the company’s ROA, ROI and ROE figures which are all in the negative. Therefore it can be inferred that easyJet has higher ROA, ROI and ROE than Ryanair over the same period and therefore has been performing better. Operational efficiencies: The low cost airlines industry has some specialties. They are called no frill airlines because they provide the bare minimum service and thus save cost. Their main objective is to minimize cost on every front and increase operational efficiency to the maximum so as to gain the highest return for a single Pound spent. One of the most important areas for proper functioning of a low cost airline is airports. These no frill airlines like to function from smaller airports as there is less congestion which leads to less turnaround time for the aircrafts (Flexible design a necessity for todays airports, May 2008). Therefore an aircraft can be readied for the next flight in a lesser time thus utilising the resource .i.e. the aircraft to the maximum possible level and also increasing the return in terms of revenue per aircraft. EasyJet also follows these same concepts and tries to curtail unnecessary costs in its operations. These operational strategies include: Tickets through internet; from as early as 1998, the company has been selling tickets over the internet. It has been able to leverage the power of internet up to a high extent and currently 95% of their tickets are sold through the net. When the customers book tickets on easyJet online, they get an email in return with all the stipulated details and they are not given printed tickets. This strategy has been successful in cutting costs in terms of paper, printing, distribution, etc. The airline also does not provide free food on air but those who want it could buy from them. EasyJet has a turnaround time of 30 minutes; it also saves cost by special agreements with different airports which also help it in cutting cost. The company believes in the philosophy of using IT to the maximum extent and has been focusing on creating a paperless office, where nearly everything is done through IT, thus saving huge costs over paper in daily operations. (Company overview, 2008). Future outlook: Experts predict that budget airlines in Central Europe will do good business this year i.e. 2009. This is because oil prices have come down from the highs of last two years and due to the prevailing recessionary environment companies and businesses are looking at cutting costs stringently. So if earlier the executives use to travel by bigger airlines, now they are shifting their commitment towards the low cost carriers. The experts point out that specially Smart Wings from Czech Republic and Wizz Air from Hungary would prosper the most. (Cardais A.S., February 2009). But towards the start of 2008, in January outlook was bad for the sector as easyJet had a 2.2% decrease in load factor in January ’08 in comparison to December’07. Following this easyJets’ stock price stumbled by 14%. EasyJets’ market valuation also cane down to $3.8 billion. Again its biggest competitor and the largest low cost carrier of Europe Ryanair’s market valuation came down to $8.6 billion. This situation compelled both these low cost carriers to push back the plans of expansion of routes and acquiring new fleet. (Scott M., January 2008). But on January 2009 EasyJet showed improvement in terms sales as it increased by 32% for the 4th quarter. Total revenue also increases by £132 million over the same period (Bawden T., January 2009). It would be prudent to invest in this company as it is showing good performance even amidst tough macroeconomic conditions. So when the economic conditions improve it would not be difficult for easyJet to garner more profit and revenue. Personal Log: In Table.1, table.2 and table.3, information has been collated on some important parameters of easyJet and its competitors. While doing a comparison focus has been on Ryanair because it is the largest low cost carrier of Europe and eaasyJet’s biggest competitor. The first three tables focus on parameters like average load factor , number of passengers carried, number of routes and destinations covered, number of employees on payroll. This has been done with the view of understanding easyJet’s position compared to Ryanair and other European Low cost airlines. Table4. and table 5. give us a comparative viewpoint on easyJet and Ryanair’s revenue, profit, cash flow, total current assets and total current liabilities for the year 2008 along with year 2007. Table 6 and table 7. have their focus on financial ratios of both the companies. P/E ratio, quick ratio, current ratio, ROE, ROI, ROA, etc have been mentioned here. Learning: It has been leant how to search for core financial data for a company and the respective sector, how to correlate the data with what is happening in the macroeconomic environment and how the former has a huge bearing on the later. For example, here it has been seen in case of easyJet that macroeconomic factors like high prices of oil have had negative impacts on the company’s performance over 2007 and 2008. But once the prices have started coming down the airlines performance has started improving. It is also important in terms of understanding, that if a company keeps its operations tight and neat, then it has better chances of coping with negative economic factors and also faster chances of a turnaround once the opportunity is there. References: Where Have We Come From? , (2009), retrieved on April 6, 2009 from http://www.easyjetcareers.com/about-us/where-have-we-come-from.asp EasyJet plc, (April 2009), retrieved on April 6, 2009 from http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ric=EZJ.L Rothwell S., (October 2008), EasyJet, Ryanair Predict Shift to Low-Cost Carriers (Update2), retrieved on April 6, 2009 from http://www.bloomberg.com/apps/news?pid=20601085&sid=am6tamp88cuM&refer=europe EasyJet to win market share as rivals disappear, (July 2008), retrieved on April 6, 2009 from http://uk.reuters.com/article/domesticNews/idUKWLA683320080724 Members’ statistics (June 2008 1/3, European Low Fares Airline Association, June 2008), retrieved on April 6, 2009 from http://www.elfaa.com/Statistics_June2008.pdf Members’ statistics (June 2008 2/3, European Low Fares Airline Association, June 2008), retrieved on April 6, 2009 from http://www.elfaa.com/Statistics_June2008.pdf Members’ statistics (June 2008 3/3, European Low Fares Airline Association, June 2008), retrieved on April 6, 2009 from http://www.elfaa.com/Statistics_June2008.pdf ELFAA member Statistics, (December 2008), retrieved on April 6, 2009 from http://www.elfaa.com/statistics.htm EasyJet plc annual report and accounts 2008 Five year summary yearend to 30 september (2008), retrieved on April 6, 2009 from http://2008annualreport.easyjet.com/?id=23700 Wearden G., (May 2008), EasyJet says profits are at mercy of high oil price, retrieved on April 6, 2009 from http://www.guardian.co.uk/business/2008/may/08/easyjetbusiness.theairlineindustry Financial Statements Ryanair Holdings plc LSE, (April 2009), retrieved on April 6, 2009 from http://www.reuters.com/finance/stocks/incomeStatement?stmtType=INC&perType=ANN&symbol=RYA.L Ratios EasyJet plc LSE, (April 2009), retrieved on April 6, 2009 from http://www.reuters.com/finance/stocks/ratios?symbol=EZJ.L Ratios Ryanair Holdings plc LSE, (April 2009), retrieved on April 6, 2009 from http://www.reuters.com/finance/stocks/ratios?symbol=RYA.L Annual Balance Sheet, (April 2009), Financial Statements Ryanair Holdings plc LSE, (April 2009), retrieved on April 6, 2009 from http://www.reuters.com/finance/stocks/incomeStatement?stmtType=INC&perType=ANN&symbol=RYA.L Currency converter, (April 2009), retrieved on April 6, 2009 from http://www.lse.co.uk/currency-converter.asp Flexible design a necessity for todays airports, (May 2008), retrieved on April 6, 2009 from http://cee.mit.edu/onbalance/2008/may Company overview, (2008), retrieved on April 6, 2009 from http://www.easyjet.com/EN/About/Information/index.html (Scott M., January 2008), Europes Discount Airlines Face Headwinds, retrieved on April 6, 2009 from http://www.businessweek.com/globalbiz/content/jan2008/gb2008019_882521.htm Appendix: Table.1. - Important Statistics-A – Page 3. Table .2. - Important Statistics-B - Page 4. Table.3. - Important Statistics-C- Page 4. Table.4. - Table.4 : EasyJet plc annual report and accounts 2008-2007 – Page 5. Table.5. - Raynair Holdings plc partial Annual income statement 2008-2007- Page 6. Table.6. - Ratio Analysis of EasyJet- Page 7. Table 7. Ratio Analysis of Ryanair – Page 8 - 9. Read More