Strategic Management
- Company Background
Easyjet was founded and later incorporated in 1995 and has its head office in London, Luton
Airport in the UK. It has 8300 employees who operate over 600 local and international routes
across 32 countries in the world. Easyjet has one subsidiary in Switzerland that is based in
Geneva. In 2013 Easyjet flew over 60 million passengers. EasyJet has a total market
capitalization of £6.68 billion (Bodie, Kane & Marcus, 2008). It has more than 200 airbus
aircrafts (EasyJet Annual Report, 2013). EasyJet developed its own pan European network in
UK by building portfolio slots that would not be constrained for a number of years. Easy Jet is
one of the leading European intercity market pairs and it has been allowed in gatwick. The major
competitors for Easyjet in airline industry is Ryannair and British Airways. Ryannair is listed at
the LSE and has its headoffice in Dublin, Ryanair currently operates 300 new Boeing 737-800.
British Airways bought new 787 Dreamliners to supplement the previous 777. BA presents a
tough challenge to Easy Jet to grow.
2.0Financial Performance
4
Easyjet
2.1Financial Trend
EasyJet Plc maintained its average performance compared to British Airways which is one of the
largest airlines globally. The figures below compare the finacial results of the two airlines in the
year 2013. Easyjet gross profit increased by 26.48 percent compared to BA 203.86 percent
increase when compared to the year 2012 (Garrison, Noreen & Brewer, 2009). The improved
financial trend can be directly attributed to EasyJet the company’s business traveler. This
initiative that allows faster security checkup and convenience to most business traveler.
Trend
BAA EasyJet
GP 203.86 26.486486
Net Profit –
248.39
56.078431
EAT –
248.39
56.078431
Shareholders’ Equity 159.79 12.430323
Total Assets 7.05 2.7240978
Total Liabilities -5.86 -4.238305
Cost of Goods 2.06 6.7408968
Debt -5.86 -31.71806
EBIT 631.71 50.788644
Sales 5.49 10.482615
Net Assets 159.79 12.430323
The net profit for Easyjet increased by 56% in 2013 when comapred to British Airways increase
of 248.39%. The great improvement in BA is however due to the losses incurred in 2012 hence
the trend appears to be very favourable (Easyjet, 2013).
5 EasyJet
-300.00-200.00-100.000.00100.00200.00300.00400.00500.00600.00700.00
Financial Trend Between BAA & EasyJet
BAAEasyJet
2.2 Liquidity
The liquidity of the two companies reveals that EasyJet Plc has better liquidity ratios than BA. In
the year 2013, BA had a current ratio of 0.63 and 0.60 in 2012. Easyjet had a current ratio of
1.05 in 2013 and also 2012. The ratios mean that for every current liability EasyJet could match
it with an asset of equal value however for BA the current liabilities were almost twice the
current assets. In case of any urgent payments the current assets for BA cannot honor all the
financial commitments of the company. The ideal current ratio is supposed to be 1:2. That is for
every current liability a company must have twice more than the current assets. The quick ratio
provides more standard as the cost of the remaining inventory is deducted from the current assets
to provide a 1:1 ratio of current assets to current liabilities. This ratio highlights the liquidity
status of a company.
2.3 Profitability
6
Easyjet
The gross profit for Easyjet in 2013 amounted to £936 million compared to £740 million in
- These amounts represented an increase of 26%. The net profit for EasyJet also increased
by 56% from £255 million in 2012 to £398 in 2013. BA improved from a loss of £560 million in
2012 to a net profit of £831 million representing an increase of 248% (Kimmel, Weygandt, Kieso
& Donald, 2011). The performance of BA was not so good in 2012 compared to EasyJet. The
gross profit for Easyjet in 2013 amounted to £936 million while in 2012 it was £740 million. British
Airways had a gross profit of £708 million in 2013 compared to £233 in 2012. The shareholders equity
increased by 159.79% in 2013 for British Airways where as EasyJet Shareholding equity increased by
12.43% from £1794 in 2012 t0 2017 in £2013. The increase is attributed to the increase in the company’s
asset base after the acquisition of new aircrafts by the company.
The total assets for Easyjet increased by 2.72% from £4,295 million in 2012 to £4412 in 2013. British
Airways total assets were £11,136 million in 2012 but increased to £11921 million in 2013 representing
an increase of 7.05% (EasyJet Annual Report, 2013).
British AIRWAYS EasyJet
31-Dec-
13
31-Dec-
12
31-Dec-13 31-Dec-12
Current Ratio Total Current Assets/Total current liabilities 0.63 0.60 1.05 1.05
Quick Ratio TT C/ Assets – inventories /TT/ C Liabilities 0.61 0.57 1.05 1.05
Receivable turnover Annual credit sales/average receivables 22.37 21.21 0.97 0.90
Inventory Turnover Cost of goods sold/Average inventory 94.89 92.98 0.47 0.47
Asset turnover Sales/Average total assets 0.99 0.94 19.92 12.68
Dividend yield Net assets / total sales 0.20 0.08 0.54 0.58
Dividend cover EBIT/Annual Interest Expense 1.84 0.28 19.92 12.68
Net assets turnover Debt/Assets 0.84 0.89 0.09 0.06
Times interest earned EBIT/Annual Interest Expense 0.04 0.03 0.54 0.58
The improved performance of Easyjet profitability can be associated with its reduced fares that
may have increased the number of customers (Easy Jet annual report, 2013).
7 EasyJet
The improved profitability can also be attributed to the strong performance of EasyJet in leading
routes like Switzerland, France, Italy, Germany and Portugal. The introduction of the new
allocated seating on all Easyjet networks increased revenues without any cost impact. The return
on capital employed increased by 6.1% to settle at 17.4%. The company’s board announced an
ordinary dividend amounting to 33.5p for every share while also recommending a special
dividend amounting to 44.1P for every dollar.
UK Economic Indicators
200820092010201120122013
-6
-4
-2
0
2
4
6
8
10
Real GDP Growth
Inflation rate
Unemployment rate
Source: ( http://research.stlouisfed.org/publications/iet/ , no date)
The improved economic performance in UK may have boosted the performance of EasyJet
financially. The reducing inflation rate and the increasing real GDP growth may have brought
better prospects for Easyjet.
8
Easyjet
2.4 Leverage
Easyjet is less solvent than BA (International Airlines Group, n, d.). The times interest ratios for
EasyJet in 2013 was 0.54 and 0.58 for 2013 and 2012 respectively however for BA it was 0.04
and 0.03 for the same period respectively (Atrill & Mclaney, 2013).
Debt to equity ratios in 2013 for Easyjet was 0.5 compared to 0.88 in 2013 while for BA the debt
to equity ratio amounted to 4.29 in 2013 compared to 11.83 in 2012. The overall leverage status
for Easyjet was much better than those of BA (Bowman, and Faulkner, 1997). The debts in 2013
were more than 4.29 the total value of BA equity while in 2012 it was much worse as the debs
were 11.83 times more than the company’s equity. For Easyjet the debts were less than 0.56 in
2013 while in 2012 the debts were less than 0.88 (Basu, Little& Millard, 2009).
2.5 Efficiency
The inventory turnover for Easyjet was 0.47 times in 2013 and 2012 while for BA it was 94.89
and 92.98 respectively. The efficiency of BA is by far incomparable to Easyjet. BA is more
efficient and more advanced than EasyJet plc. The stock turnover for BA was 94.89 times in
2013 compared to Easyjet’s 0.47 times for the same period (David, 2009). Stock turns represent
the number of times inventory is replaced. BA must have taken advantage of technological
advancement to improve their reservations as well as their online payments (Thompson and
Martin 2010).
EasyJet British Airways
Millions 31-Dec-
13
31-Dec-
12
31-Dec-
13
31-Dec-
12
GP 936 740 708.00 233.00
Net Profit 398 255 831 -560
EAT 398 255 831 -560
9 EasyJet
Shareholders’ Equity 2,017.00 1,794.00 2,255.00 868.00
Total Assets 4,412.00 4295 11,921.00 11,136.00
Total Liabilities 2395 2501 9,666.00 10,268.00
Inventories – – 110.00 117.00
Cost of Goods 3547 3323 10,770.00 10,553.00
Average inventory 113.5 113.5
Debt 1085 1589 9,666.00 10,268.00
EBIT 478 317 300 41
Sales 4258 3854 11421 10827
TT Assets- Inventories 0.00 2,805.00 2,517.00
Interest payable 24 25 163 148
Current Assets 1448 1327 2,915.00 2,634.00
Current Liabilities 1379 1264 4,627.00 4,398.00
Financial Strengths
Easyjet major cost advantages stem from factors that include optimal aircraft configurations that
allow an aircraft to accommodate more passenger seats. The extra load factor promotes better
aircraft utilization which decreases the maintenance cost per passenger. These savings eventually
subsidizes the aircraft maintenance costs. (EasyJet, 2013)
Financial Weaknesses
The financial losses that were experienced in 2013 were majorly related to high fuel prices which
eventually increased the total cost of flying hence a reduction in total profits (International
Airlines Group, n, d.).
Opportunities
From the financial trends of Easyjet as shown on the charts above makes it clear that Easyjet Plc
concentrated majorly on building the company’s asset base and expanded all the trading
activities simply by reducing the market capitalization of the company and directing more
attention to the core businesses which is in investing on its commercial airline fleets that saw
10
Easyjet
EasyJet acquire several aircrafts and the expansion to other emerging and new markets and
routes (Drews, 2009).
This strategy made it possible for Easyjet to increase its annual profitability and also to
rejuvenate its entire business activities. Though the trading pattern for EasyJet maintained a
relatively constant trend for most periods it was generally expected in view of the heavy
investment made, but all the same there are some positive signs that the company’s revenues
were on average improving (Rothaermel, 2012).
Threats
The natural forces of nature or acts of God like bad weather, earthquakes or volcanoes posed
seriously threats to EasyJet operations. The other threats like epidemics, terrorism and general
strikes were also considered as potential threats to the airlines existence (Lukac, 2008).
Conclusion
EasyJet should embrace other types of businesses and also engage in different alternatives of
businesses in order to utilize other advantages like economies of scales while also outsourcing
some non-core activities or processes that may assist in improving process efficiencies (Easyjet,
2013). The company has great potential in expanding to other business operations like car hires
11 EasyJet
and other forms of businesses that may be applicable. Though BA is more efficient and more
advanced than EasyJet plc Easyjet low price sales strategy is one position that is only
comparable to historical leadership position that utilized generic strategies where organizations
drove their prices downwards while targeting high volumes to increase profitability in future.
EasyJet has strategized and has turned to be competent players in the industry (Basu, Little &
Millard, 2009).
The variables like product positioning affected either the price, nature or the quality of the
product. Easyjet chose the low price business strategy as indicated in its 2013 annual reports.
(Easyjet, 2013) It’s a position allowed the company to adjust comparably to the low cost generic
strategies where most companies drive some of their prices for certain products downwards to
achieve high volumes that would compensate the company’s low profitability margins. Overtime
EasyJet has strategized and it is currently one of the leading airlines in UK Aviation industry
(Jones, 2007).
The improved profitability can also be connected to the strong performance of EasyJet in leading
routes in Europe. The introduction of the new allocated seating on all Easyjet networks increased
revenues without any cost impact. The return on capital employed increased by 6.1% to settle at
17.4%. The company’s board announced an ordinary dividend amounting to 33.5p for every
share while also recommending a special dividend amounting to 44.1P for every dollar.
The low cost EasyJet operating strategy has allowed it to save towards reduction of the
company’s air ticket that’s charged lower than other airlines in the same industry without
affecting the company’s profitability. It has also expanded its aircraft carrying capacity to also
include additional passengers as well as cargo (Johnson, Scholes, Whittington, 2008).
12
Easyjet
13 EasyJet
References
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Bowman, C. and Faulkner, D. (1997) “Competitive and Corporate Strategy”, Irwin, London.
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http://corporate.easyjet.com/~/media/Files/E/Easyjet-Plc-V2/pdf/investors/result-center-
investor/annual-report-2013.pdf
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Easyjet
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