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Comparative Financial Analysis of Easyjet & Ryanair

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Both these airlines ever since they have come into existence in 1984 (Ryanair) and 1995 (EasyJet) have proliferated all over Europe mainly due to conducive economic conditions and environment, made possible owing to the formation of European Union which allowed airlines from member states to operate within the union without hindrance. Ever since, these two airlines have survived all odds and thrived to grow, changing the way people travelled. The success of these two airlines is primarily owing to innovative approach to business as against the age old practices and conventions of their older full fare rivals.

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This paper attempts to financially analyze and compare the two airlines. In the first part, PESTEL analysis has been done along with comparisons of both the airlines. Aviation industry is largely ruled by political, economical, environmental and technological frameworks. While all airlines have similar characteristics and make similar responses to situations, yet each airline has some distinctive features and characteristics in order to maintain competitiveness in the aviation industry.

Since EasyJet and Ryanair both are low fare airlines they focus more on cost saving strategies thereby compromising on comfort levels during flights and other customer services. Other than this, factors like rise in price of oil and imposition of high tax rates by different governments impact low fare airlines more than high fare airlines. This is because the strategy of these airlines to keep their cost low suffers and this affects the demand patterns since they are forced to raise fares to meet rising expenses.

EasyJet and Ryanair have the first movers advantage in the industry over new entrants owing to their flexibility to lower their fare prices more easily compared to the full fare airlines. In case of potential new entrant in the low fare segment, the strategy adopted by EasyJet and Ryanair thwarts competitions and renders entry of new companies financially unviable. Incidents like growing terrorist threats and air accidents even if they happen to other airlines tend to affect the demand patterns of EasyJet and Ryanair because of their low cost strategies.

This is because people tend to lose confidence over low fare airlines regarding their security system. Very typically, these companies also tend to suffer when economies are in a high employment phase. With rising employment, the purchasing power of people also improves. While this brings in new people who can afford to fly, the low fare airlines tends to lose travelers to full fare airlines whose preferences shift to experience greater comfort while flying. Increased incomes make people quality, customer service and comfort conscious during flights.

EasyJet and Ryanair lag behind high fare airlines regarding customer comfort during flights because of their cost saving strategies. In this study it has been found that Ryanair bases its competitiveness by using secondary and regional airports in order to avoid congestion, keep airport charges at minimum and afford a fast and efficient turnaround time for its aircrafts. But EasyJet does not compromise on airport facilities and uses the expensive services of primary airports. This makes EasyJet the second best low fare airline in Europe, second to Ryanair.

EasyJet has a wider customer base since it targets both leisure and business customers while Ryanair targets only leisure customers. Other than government laws like low carbon emission, sound reduction, passenger safety and security measures, there are competition legislations that restrict the activities of low cost airlines like Ryanair and EasyJet. The need is to always stay technologically up to date in regard to aircrafts so that the aircrafts are fuel efficient to deal to mitigate the risk arising out of rise in oil price in the international markets.

This puts pressure on the low cost strategies adopted by Ryanair and EasyJet. Both the airlines are known for their operational efficiency and financial stability. Both the airlines have shown good financial performance, this means they can promptly meet all payment obligations to creditors and suppliers. Equity ratio for EasyJet has marginally increased in 2012 compared to the previous year and similarly for Ryanair in 2013. Efficiency ratio has increased in 2012 for both EasyJet and Ryanair which means they can make all payments because of greater profitability and higher sales volumes.

Gearing ratio which reflects a company’s financial position in the long run shows that EasyJet is in a better financial position than Ryanair in the fiscal year 2011-2012. However at the end, EasyJet with low working capital and yet maintaining a growth trend in profitability, lower gearing/leverage as opposed to Ryanair, consistent positive growth in net worth and, the fact that it remains competitive in spite of utilizing full service airports and providing free refreshment for long haul flights, EasyJet emerges a better buy for long term growth and potential.

Important note: The study will draw its resources and content from all sources which are duly declared in the references section in p. p. number 32. 2. Introduction EasyJet is a British airline company whose headquarter is based at London’s 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 acquired 40% of Swiss charter operation, TEA Basel AG after which EasyJet was renamed as EasyJet Switzerland. Company’s 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 than that of 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 unrest. All these along with various functional problems presented immense challenge to the performance level of EasyJet. The commitment and dedication towards work that stimulates the employees of EasyJet kept its workforce going and provide uninterrupted world class service.

EasyJet keeps constantly looking out for opportunities that help increase its operations, lower its cost and improve profitability in European short-haul aviation. In the beginning of 2011 the Board of EasyJet decided to start the practice of dividend payments during profitable phases without ignoring the fact that the company always needs to have a strong financial base with a strong 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. -7). Ryanair. is an Irish airline company. It was established in the year 1984 by the Ryan family with 25 employees. 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 carried 5000 passengers in its first year of operations. 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 Euro 1,257 million o Euro 893. 9 million. This factor combined with a rise in revenues from Euro 2,942. 0 millions to Euro 2,988. 1 millions 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 Euro 305. 3 millions. The primary goal of Ryanair is to achieve the 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). Given the above background, this report will attempt to analyze the two companies i. e. , Ryanair and EasyJet viz. PESTEL analysis, Porter’s 5 forces, a summary strength and weakness analysis, various key financial ratios for comparison and eventually conclude by giving a general recommendation of findings. 3. PESTEL Analysis PESTEL is an acronym for Political, Economic, Social, Technological, Environmental and Legal factors of a business.

PESTEL analysis helps to assess the prospects of expansion and the risks involved. With the help of this analysis companies design strategies to reduce risks attached to development and expansions beyond the borders of the country of origin. This helps a company to deal with situations during difficult times. 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. 3. 1 PESTEL Analysis for EasyJet Ltd. Political

EasyJet 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. The constant threat of a Middle East (Iran) war can adversely 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 anxious 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. Economic The price of oil primarily affects any airline company’s viability.

Since EasyJet’s mission is to provide air services at low costs, high fuel price can adversely affect the economic viability and 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 warrant higher costs. The sustained economic recession with the European Union with no signs of it abating 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, labor etc. 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 volatilities in international currency markets. Social Unlike other low fare airlines that 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 upgrades with regard to aircraft manufacturing. It is a key matter for EasyJet. By swiftly adopting and adapting to advancements in technology, EasyJet can to a great extent counter the adverse impact of rising fuel costs, e. g. , the modern state-of-the-art aircrafts are significantly more fuel efficient in comparison to the older aircrafts of yesteryears. To attract more customers EasyJet must also concentrate on designing user-friendly websites for easy booking experience.

This will reduce the fare burden on customers by avoiding travel agents. Environmental Since UK has a saturated market for air travel and prospect of growth is limited, therefore EasyJet’s focus must be on the continental and Eastern European market. The emphasis must be on cost-cutting strategies and expansion of route network. EasyJet is also affected by other environmental issues like inflation, per capita income, gross domestic product and government taxes. Then there are strict regulations from the EU regarding reduction of carbon emissions. 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 and disrupt airspace in Europe as witnessed recently with Eyjafjalla volcano. 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. 3. 2 PESTEL Analysis of Ryanair Ltd. Political Since Ryanair has its base in both European Union (EU) and Ireland, it is regulated by authorities both in the Ireland and the EU e. . , 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 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 labor 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. 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 sustained current global economic recession has had an adverse impact on many airlines including Ryanair because high unemployment rates and rising fuel costs almost led to bankruptcy. Ryanair’s fuel expenses are 45% of its total operational expenses, and so any rise in 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 Ryanair is overbooking by customers and their compensation later on.

Then there are also problems of cancellations 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. Natural 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’ perception on low fare services. An incident like air accident can lead the customers to rethink about the compromises adopted in aircraft maintenance.

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. Ryanair is alert to any technological development and strives to embrace new processes to enhance service efficiency. For instance, in 2004, Ryanair put aviation industry’s “first paperless pilot training program” into practice (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 flight cancellations led to Euro 50 million loss for Ryanair. This included legal expenses for its no compensation policy. In order to abide by government’s regulations of carbon emissions, Ryanair operates flights that consume less fuel and makes low noise level. Moreover, governments are also planning to restrict expansion of aviation industry in order to protect the 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 sources of oil. In such case Ryanair’s current oil price strategies may not hold good. 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 labor costs by 30-40% as they start their business with inexpensive second-hand aircrafts (Sorenson, 2005, p. 37). 3. 3 Comparative analysis based on PESTEL Ryanair and EasyJet both being the top European low fare airlines face some common advantages and disadvantages. High tax rates on aviation industry affect these airlines since they strive to keep their fare low. In response to the new eco tax imposed by the government in Germany, Ryanair has reduced the number of flights that travel over German routes.

Unlike EasyJet which has base only in Europe, Ryanair is regulated by both EU and Irish authorities. Hence Ryanair needs to consider labor markets and government regulations of both countries. Factors like growing terrorist threats and air accidents affect these airlines most because people tend to lose confidence over their security measures due to their low cost strategy. The growing rate of employment can have both positive and adverse effects on EasyJet and Ryanair. With more purchasing power people will tend to travel by flight, but also people become more quality conscious and hence prefer high fare airlines for better customer service.

Low fare airlines also face the problems of overbooking and cancellations which add to their compensation expenses. EasyJet has broadened its customer base by targeting both business and leisure travelers which is an advantage over Ryanair. To ensure low cost maintenance of aircrafts it is essential that EasyJet and Ryanair adopt latest technologies. The websites they have need to be updated regularly so that customer experience is enhanced and need of travel agents get reduced to save costs. There are some infrequent environmental issues that can disrupt services of airlines like volcanic eruptions, pandemics ike swine flu and government regulations like reduction of carbon emissions. Easy entry of new airlines and restriction of monopolization of airports can pose stiff competition for EasyJet and Ryanair. 4. 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 analysis, which includes 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. 4. 1 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 well established airlines like EasyJet. Also, too many airlines can create market saturation which can lead to market standardization of services which means people will have no particular preference for 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 are not favorably poised to pay for many of the sophisticated landings, 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 all 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 alternatives.

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 a 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 factors 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. 4. 2 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 to 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 is 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 encourages 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 aerobridges, elaborate check-in-service which is preferred by full fare 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 substitutes and alternative modes of travel.

Moreover, these are cheaper modes of travel than air travel. 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 principal purpose for traveling by air is to conduct face-to-face meetings, but these meetings often become redundant because of technology which provides videoconferencing and does away with the need to physically meet. 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 throughout Europe and no single customer 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. 4. 3 Comparative analysis based on Porter’s 5 forces analysis New entrants in the aviation industry will be less threatening for well entrenched and already established low fare airlines like EasyJet and Ryanair because the new airlines will have low capital base and limited airport slots.

Both the airlines use frequent-flyer program which is an added advantage over any new entrants. Low fare airlines have the problem of working with primary airports because of the expensive aerobridges and elaborate check-in-services of these airports. However, EasyJet pays high fees to use the services of primary airports thus not achieving low costs in all its activities. This makes EasyJet second best low fare airline in Europe after Ryanair. Alternative modes of transport do not form a threat to low fare airlines like EasyJet and Ryanair for distance more than 400 km.

The recent availability of price comparison websites have increased the bargaining power of buyers especially between two low fare airlines like EasyJet and Ryanair. Due to low fares EasyJet and Ryanair face less competition from high fare airlines, but there is internal rivalry between these two airlines. 5. Strengths and Weaknesses 5. 1 EasyJet EasyJet’s strength lies in its strategically low fare air service. It has destinations in many principal cities across Europe. EasyJet in comparison to other low fare airlines provides quality service at low price, internet booking facilities and other ancillary services.

EasyJet’s aircrafts 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 that customers have to pay. EasyJet’s 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 principal weakness of EasyJet is that it strives to keep fares low as well as focus on consumer satisfaction, and keeping balance between the two becomes difficult. EasyJet’s routes within the EU boundaries face stiff competition from other low fare airlines like Jet2, BMI Baby, Ryanair. 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 not longer than 2 hours (EasyJet Airline Company Limited, n. d. ). 5. 2 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 activity, 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 arrangements on board allow 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 in 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 cost 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 a low fare airline like Ryanair, and to off-set this they use high density seating arrangements on board; that way fuel price per passenger is 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). 5. 3 Comparative analysis based on strengths and weaknesses

Ryanair and EasyJet focus on low fares thus compromising on customer services. However, EasyJet has a policy of serving free refreshments to customers for long haul flights but this service is not available in Ryanair. Ryanair’s dependence on regional airports gives it a situational disadvantage while EasyJet compromises on low fare by using the facilities of primary airports. This makes EasyJet second best low fare airline in Europe after Ryanair in terms of cost. 6. Financial Comparisons (See appendix for all ratios and graphs) 6. 1 Profitability ratio In both the cases i. e. EasyJet & Ryanair, the Gross Income ratio has increased from 2010 to 2012 and remained more or less stable. In case of EasyJet, the Gross Income ratio has improved from 0. 12 to 0. 14 over the three years and where as in case of Ryanair, this ratio has improved from 0. 13 to 0. 16 over the same period. (Appendix, Table 4) While the stability in the Gross Income margin does convey about the ability of both the companies to maintain a stable rate of earnings, it also showcases that the low fare air travel market is stagnating and the capacity to increase earnings in spite of increased revenues is almost negligible.

Comparatively between the two airlines, Ryanair has outperformed EasyJet in the given period between 2010 – 2012 in terms of Gross Income as a percentage of Total Revenue (Appendix, Vertical Analysis, Tables 7, 11). This indicates that Ryanair is more efficient in terms of cost control and earnings margin. The trend remains same in the given years for both the airlines in the Net Income ratio. (Appendix, Table 4, Net Income ratio). The return on shareholders’ funds also is seen closely identical ranging between 0. 12 in 2010 to 0. 16 in 2012 for EasyJet and whereas 0. 11 in 2010 to 0. 17 in 2012 for Ryanair.

Here too, Ryanair marginally outperforms EasyJet over the three years of study. (Appendix, Table 4). However in the measure of Return on Assets, EasyJet consistently outperforms Ryanair over the study period of three years (2010, 2011 and 2012). EasyJet has earned a Net Interest margin of 7% as compared to Ryanair’s 6% in the financial year 2012 indicating that EasyJet’s utilization of assets is better than that of Ryanair’s. 6. 2 Efficiency ratio It measures the proportion of expenses-without-interest in relation to total 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 two airlines have improved profitability in 2012. The lower the ratio, the better. In this case, Ryanair does better than EasyJet. (Appendix, Table 4). 6. 3 Liquidity and Current ratio Under this ratio, we measure the company’s ability to meet it short term expenses. EasyJet’s Net Current Assets to Sales i. e. , Working Capital to Sales ratio suggests that the company manages its debtors and creditors very efficiently.

A low working capital means, less amount of non-current liabilities are utilized to finance the current assets. In doing so, the company saves upon expensive sources of capital to finance low earning current assets. EasyJet has done it exceptionally well in comparison to Ryanair. (Appendix, Table 4, Liquidity Ratio and Current Ratio). 6. 4 Gearing ratio and Interest Cover ratio This ratio indicates how efficiently (multiple) the capital of the company has been leveraged, meaning for every unit of capital employed how many units of loan is raised.

In doing so, a company tends to improve its earnings per share (EPS). In this measure, EasyJet is less geared as compared to Ryanair. Higher the gearing, higher is the risk to investor. Gearing ratio assesses the company’s financial position in the long run. In EasyJet the ratio has shown a reduction from 2011 to 2012, while in Ryanair it increased gradually from 2010 to 2012. EasyJet is in a better financial position than Ryanair. This also reflected in the Interest Cover ratio. The interest cover ratio for EasyJet has improved from 13. 53 to 21. 24 from 2010 to 2012.

Whereas for Ryanair, this ratio has improved from just 5. 58 to 6. 26 between the same period. This means EasyJet is in a far better position to borrow as compared to Ryanair and its (EasyJet’s) ability to meet all interest expense is better than Ryanair. (Appendix, Table 4, Gearing and Interest Cover ratio). 6. 5 Price-Earnings ratio Price-Earnings ratio is an important analysis for investors because it shows how much investors are willing to pay for each unit of profit of the company. Higher the ratio means higher the perceived value of the company and vice versa.

In this case, both EasyJet and Ryanair have a witnessed a declining trend in the ratio from 2010 to 2012. A low price-earnings ratio is an attractive proposition to invest in the stocks of the two companies. (Appendix, Table 4, Price-Earnings Ratio). 6. 6 Horizontal analysis Comparing the sales, operating profit (O. P) and net profit (N. P) of EasyJet and Ryanair it can be seen that all the three elements have witnessed substantive growth between fiscal year 2009-2010 to fiscal year 2011-2012. O. P. of EasyJet has increased by more than 90% from 2010 to 2012, and N. P. as more than doubles to 212% during the same period. (Table 5: Horizontal Analysis of Income Statement – EasyJet) O. P. of Ryanair has increased by 70% between the same period 2010 to 2012, and N. P. has increased by 84%. (Appendix, Table 9: Horizontal Analysis of Income Statement – Ryanair) Although both the airlines have witnessed growth in operating expenses between year 2010 and year 2012, the operating profit margin of EasyJet has shown greater improvement over that of Ryanair. Ryanair’s operating expenses have increased by 43% from 2010 to 2012 and EasyJet’s by 27%. (Appendix, Table 5 and Table 9).

Comparing the 5 elements of Balance sheet of both the airlines, it can be observed that asset management has been good in both the companies. In the instance of EasyJet, while the non-current assets have registered a net increase of 19% in two years (2012) over 2010 levels as base, the current assets have seen at net fall of 12% during the same period. This has resulted in an overall increase of 7. 0% increase in total assets between 2010 and 2012. On the liabilities side, the non-current liabilities have fallen by 14% over 2010 levels and where as the current liabilities have registered a growth of 19% during the similar period.

In summary, it shows that EasyJet has successfully kept its cash outflows at minimum and at the same time managed to pare its non-current liabilities (the expensive source of fund) in favor of an increase in current liabilities. This indicates that EasyJet has overall managed its assets and liabilities efficiently without compromising in profitability; the net profit during the same period has grown by 57%. (Appendix, Tables 5 and 6). In case of Ryanair, the assets and liabilities have both registered positive growth.

The total assets have increased by 19% (non-current assets – 14% and current assets – 27%) over the two year period between 2010 and 2012. The total liabilities have grown by 21% between 2010 and 2012 (non-current liabilities by 23% and current liabilities by 17%). Ryanair has put the increase in overall assets and liabilities to good use, it has managed to almost double the growth in net profits from Euro 305 million to Euro 560 million translating to an increase of 84% over 2010 levels. (Appendix, Table 9: Horizontal Analysis of Income Statement – Ryanair). 6. Vertical analysis Vertical analysis measures all the items in terms of total revenue in the income statement and total assets in the financial position statement. It provides a common size comparison between different organizations with regard to their respective individual performances. EasyJet’s net profit (after tax) has been 6. 07%, 5. 91% and 7. 34% for the years 2010, 2011 and 2012 of the respective year’s total revenue. At this stage it is noteworthy that the total revenues for EasyJet have consistently grown year upon year – by 16% and 30% over 2010 base year.

In tandem, the net worth of the company too has registered healthy growth – from GBP 1500 million to GBP 1794 million between 2010 and 2012. The net worth as a percentage of total assets for the years 2010, 2011 and 2012 have been 37. 49%, 38. 15% and 41. 77% respectively. (Appendix, Tables 5, 7 and 8). Ryanair’s net income after tax has been growing at a healthy rate and is almost twice the yearly percentage growth of EasyJet. The net income after tax for years 2010, 2011 and 2012 as a percentage of total revenue of the respective years has been 10. 22%, 10. 32% and 12. 76%. Here too it is noteworthy that the base i. e. the total revenue of Ryanair has also grown by 21% during 2011 and by 47% during 2012 over 2010 base year. The net worth of Ryanair has been more or less remained same as a percentage of total assets – 38%, 34% and 37% for years 2010, 2011 and 2012. However, in absolute terms the net worth has grown from Euro 2. 8 billion in 2010 to Euro 2. 9 billion during 2011 and to Euro 3. 3 billion in the year 2012. (Appendix, Tables 9, 11 and 12). 7. Conclusion There has been a tremendous growth in the European aviation industry in last few years, and the likes of Ryanair and EasyJet have emerged as dominant players in the European market.

Ryanair in particular has had a major role in the development of secondary and regional airports in continental Europe. Low fare airlines primarily focus on keeping the costs down by cutting down on costs of customer service and airport facilities. While Ryanair does not provide any free refreshments irrespective of distance or duration travelled, EasyJet on the other hand provides free refreshments and meals for all flights of more than 2 hours duration. Although these strategies do help in keeping the costs down, they also deter those customers who prefer being served while flying. Their endeavor to cut costs also result in doing way with personal one-to-one interface with customers. They cut down staff costs to the bare minimum necessity and as such do not provide for staffs at the reception or ticketing. They create user-friendly websites which encourages people to book tickets online thereby eliminating the need of travel agents. This in turn helps them to keep the fare down and become competitive. In order to become a competitive low fare airline, it is important that costs be economized or minimized. Every effort has to be paid in order to keep the costs of operations at the bare minimum albeit without compromising on safety and security of passengers.

This calls for constantly reinventing processes and upgrading and adopting the latest in the technology to keep ahead of the race. In their effort to standardize all activities and primarily maintenance of aircrafts, RyanAir and EasyJet like all other low fare airlines buy standard configuration identical aircrafts with a high density seating. These strategies although have helped them in keeping the costs low, but they certainly are a cause of inconvenience to the discerning customers. For example, in the quest to increase the seating density, the count of washrooms are kept at bare minimum.

The increased seating leaves very little leg room for a relaxed travel. The policy of no refunds also irks customers who miss flights for genuine reasons. However, in spite of all the givings and primarily the shortcomings compared to the legacy full service/full fare airlines, the low fare airlines has transformed the way people travelled. They have caught the fancy of those people (in the low-to-middle income bracket) who have found air travel through these low fare airlines as an alternative to other modes of travel – road and railways.

In the last three financial years both these airlines – Ryanair and EasyJet have shown good performances financially and otherwise. They have earned more incomes and have flown more people than ever before. 8. Recommendation The overall management of both these airlines has been good and so much so that these have emerged to be the two top low fare airlines in the European market in spite of all competitions, adverse economic conditions and environmental adversities. While the total revenues for Ryanair has grown at a steady and faster pace than EasyJet, the passenger revenue as a percentage of EasyJet is far higher than that of Ryanair.

The total revenue for Ryanair has grown by 21% and 47% over 2010 levels for years 2011 and 2012, while for EasyJet the total revenues have grown by 16% and 30% over 2010 for years 2011 and 2012. The passenger revenue as a percentage of total revenue for Ryanair is approximately 80%, whereas for EasyJet it is in excess of 95%. (Appendix, Graphs 1 & 2). Ryanair by virtue of its scale of operations, fleet size and leverage consistently earns operating revenues at a margin of more than 10% of total revenues while in case of EasyJet it has been always below 10% for the last three years.

Ryanair’s operating profit as percentage of total revenue for years 2010, 2011 and 2012 have been 13. 46%, 13. 45% and 15. 56% respectively. On the other hand, EasyJet has been earning at a modest rate of 5. 81%, 7. 79% and 8. 59% of the total revenues as operating profits for the same three years. However, a closer scrutiny of the working capital level of the two airlines reveal a different a scenario as opposed to the popular belief of Ryanair being the better managed airline of the two. Ryanair’s working capital needs as a percentage of total assets has been consistently around the 15% mark whereas for EasyJet it has been 5. 1%, 7. 79% and 8. 59% for years 2010, 2011 and 2012. This clearly establishes that EasyJet’s funds management vis-a-vis trade, credit and cash cycle is far superior to Ryanair’s. Ryanair’s net worth as a percentage of total assets for years 2010, 2011 and 2012 has been 38%, 34% and 37% respectively. The same for EasyJet has been 37%, 38% and 42%. While EasyJet’s net worth has consistently witnessed growth, albeit as a percentage of total assets, the net worth of Ryanair has in fact shrunk percentage wise from year 2010 to year 2012. (Appendix, Graphs 1, 2, 3, 4 and 5).

With low working capital and yet maintaining a growth trend in profitability (Appendix, Graphs 4 and 3), far lower gearing/leverage as opposed to Ryanair (Appendix, Table 4), consistently positive growth in net worth (Appendix, Graph 5 and Tables 6 and 8) and the fact that it remains competitive in spite of utilizing full service airports and providing free refreshment for long haul flights, EasyJet is certainly a better buy for long term growth and potential. EasyJet certainly has better value than Ryanair! 9. References 1. EasyJet Airline Company Limited (n. d. businessteacher, retrieved on March 9, 2013 from:http://www. businessteacher. org. uk/business-resources/swot-analysis-database/EasyJet-swot-analysis. php 2. EasyJet: Annual Reports and Accounts (2010, 2011, 2012) 3. Hoffman, S. (2007) The Low-Cost Airline Ryanair, GRIN Verlag 4. Mayer, F. (2007) A Case Study of EasyJet and the Airline Industry, GRIN Verlag 5. Muller, C. (2011) Case Study and Comparative Strategic Analysis of Toyota and Ryanair, GRIN Verlag 6. O’Cuilleanain, et al. (2004) Ryanair Plc. , retrieved on March 9, 2013 from: http://solvay. ulb. ac. be/cours/alle/BuspPresRyanair04. pdf 7.

Ryanair: Annual Report and Financial Statements (2010, 2011, 2012) 8. Sorenson, T. C. (2005) An analysis of the European low fare airline industry – with focus on Ryanair, retrieved on March 8, 2013 from: http://pure. au. dk/portal-asb-student/files/2049/000139957-139957. pdf 9. http://www. ryanair. com/en/about 10. http://corporate. easyjet. com/about-easyjet. aspx? sc_lang=en 11. http://aviationknowledge. wikidot. com/aviation:low-cost-airlines:a-brief-history-the-current-state#toc2 12. http://abcnews. go. com/Travel/story? id=8408493#. UU4fiVd9XS8 10. Appendix Table 1: Income statement 201020112012

SalesO. PN. PSalesO. PN. PSalesO. PN. P EasyJet2,973. 1173. 61543,4522692483,854331317 Ryanair2,988. 1402. 13413,629. 5488. 2420. 94,390. 2683. 2633 OP – Operating Profit and NP – Net Profit Table 2: Balance sheet of EasyJet Noncurrent assetsCurrent assetsCurrent liabilitiesLong-term liabilitiesShareholder equity 20102,487. 61,514. 91,064. 61,437. 21,500. 7 20112,7311,7381,1771,5871,705 20122,9681,3271,2641,2371,794 Table 3: Balance sheet of Ryanair Noncurrent assetsCurrent assetsCurrent liabilitiesLong-term liabilitiesShareholder equity 20104,5003,063. 41,549. 63,165. 22,848. 6 20115,118. 43,477. 1,837. 23,804. 92,953. 9 20125,1253,8761,8153,879. 33,306. 7 Table 4: Gross Income ratio 201020112012 Gross incomeSalesGross income/salesGross incomeSalesGross income/salesGross incomeSalesGross income/sales EasyJet361. 302,973. 100. 124683,4520. 145313,8540. 14 Ryanair402. 12,988. 100. 13488. 23,629. 500. 13683. 24390. 20. 16 Net Income ratio 201020112012 Net incomeSalesNet income/salesNet incomeSalesNet income/salesNet incomeSalesNet income/sales EasyJet181. 22,973. 100. 062043,4520. 062833,8540. 07 Ryanair305. 32,988. 100. 10374. 63,6300. 10560. 44,3900. 13 Return on shareholder funds 201020112012

Net incomeShareholders’ equityNet income/shareholders’ equityNet incomeShareholders’ equityNet income/shareholders’ equityNet incomeShareholders’ equityNet income/shareholders’ equity EasyJet181. 21,500. 700. 122041,7050. 122831,7940. 16 Ryanair305. 32,848. 600. 11374. 62,9540. 13560. 43,3070. 17 Return on Assets 201020112012 Net incomeTotal assetsNet income/total assetsNet incomeTotal assetsNet income/total assetsNet incomeTotal assetsNet income/total assets EasyJet181. 24,002. 500. 052044,4690. 052834,2950. 07 Ryanair305. 37,563. 400. 04374. 68,5960. 04560. 49,0010. 06 Efficiency ratio 201020112012 Expenses (excl. nterest)RevenueExpenses/RevenueExpenses (excl. interest)RevenueExpenses/RevenueExpenses (excl. interest)RevenueExpenses/Revenue EasyJet2,612. 602,973. 100. 882,9843,4520. 863,3233,8540. 86 Ryanair2,5862,988. 100. 873,141. 303,629. 500. 873,7074,390. 20. 84 Sales to Net Worth 201020112012 SalesNet WorthSales to Net WorthSalesNet WorthSales to Net WorthSalesNet WorthSales to Net Worth EasyJet2,973. 1015011. 983,45217052. 023,85417942. 15 Ryanair2,988. 102848. 61. 053,6302953. 91. 234,3903306. 71. 33 Liquidity ratio 201020112012 Net Current AssetsSalesNCA to SalesNet Current AssetsSalesNCA to SalesNet Current AssetsSalesNCA to Sales EasyJet450. 02,973. 100. 155613,4520. 16633,8540. 02 Ryanair1,513. 802,988. 100. 511,6403,6300. 452,0614,3900. 47 Current ratio 201020112012 Current assetsCurrent liabilitiesCurrent assets/current liabilitiesCurrent assetsCurrent liabilitiesCurrent assets/current liabilitiesCurrent assetsCurrent liabilitiesCurrent assets/current liabilities EasyJet1,514. 901,064. 601. 421,7381,1771. 481,3271,2641. 05 Ryanair3,063. 401,549. 601. 983,477. 601,837. 201. 893,8761,8152. 14 Gearing ratio 201020112012 Total DebtNet WorthTotal Debt/Net WorthTotal DebtNet WorthTotal Debt/Net WorthTotal DebtNet WorthTotal Debt/Net Worth EasyJet1,437. 015010. 961,58717050. 931,23717940. 69 Ryanair3,165. 202848. 61. 113,804. 902953. 91. 293,879. 33306. 71. 17 Interest cover ratio 201020112012 EBITInt. exp. EBIT/Int. exp. EBITInt. exp. EBIT/Int. exp. EBITInt. exp. EBIT/Int. exp. EasyJet361. 3026. 7013. 53468. 0030. 0015. 6531. 0025. 0021. 24 Ryanair402. 172. 15. 58488. 293. 95. 20683. 2109. 26. 26 Price-Earnings ratio 201020112012 Market price per share (MPS)Earnings per share (EPS)MPS/EPSMarket price per share (MPS)Earnings per share (EPS)MPS/EPSMarket price per share (MPS)Earnings per share (EPS)MPS/EPS EasyJet3. 7128. 40. 133. 552. 50. 075. 6762. 50. 9 Ryanair1. 9320. 680. 091. 9925. 210. 082. 2438. 030. 06 Source: Annual Reports of EasyJet and Ryanair for financial year ending 2010, 2011 and 2012. Table 5: Horizontal Analysis of Income Statement – EasyJet CONSOLIDATEDIn GBP MillionIn Percentage, base year 2010 INCOMEYear Ended September 30,Horizontal Analysis STATEMENTS201020112012201020112012 Passenger Revenue2,402 2,733 3,794 100%114%158% Ancillary Revenue571 719 60 100%126%11% Total Revenue2,973 3,452 3,854 100%116%130% Ground Operations (805) (923) (955)100%115%119% Fuel (733) (917) (1,149)100%125%157% Navigation (256) (285) (280)100%111%109%

Crew (336) (407) (432)100%121%129% Maintenance (177) (179) (203)100%101%115% Selling & Marketing (92)(102) (104)100%111%113% Aircraft & passenger insurance (10)- – 100%- – Aircraft wet lease (14)- – 100%- – Volcanic Ash Disruption (27)- – 100%- – Other Costs (162) (171) (200)100%106%123% EBITDAR*361 468 531 100%130%147% Amortization of Intangible Assets (6) (7) (8)100%113%129% Depreciation (73) (83) (97)100%114%134% (Loss)/Profit on disposal of assets held for sale (7)- – 100%- – Aircraft Dry Leasing (102) (109) (95)100%107%93% Operating Profit173 269 331 100%156%192%

Interest Receivable & other Financing Income7 9 11 100%127%155% Interest Payable & other Financing Charges (27) (30) (25)100%112%94% Net Finance Charges (20) (21) (14)100%107%71% PBT/Profit before tax153 248 317 100%162%207% Tax (charge)/Credit (33) (23) (62)100%70%190% Profit for the year121 225 255 100%187%212% Other Comprehensive Income Fair Value gains/(losses)90 122 109 100%135%121% (Gains)/losses transferred to income statement (9) (152) (74)100%1670%813% Related Tax (23)9 (7)100%140%131% Currency translation differences1 – – 100%- – Total Comprehensive Income180 204 283 100%113%157%

Earnings Per Share, pence ** Basic28 53 63 100%185%220% Diluted28 52 62 100%186%220% * EBITDAR = Earnings before interest, taxes, depreciation, amortization and restructuring. ** Earnings per share is calculated based on profit for the year. Table 6: Horizontal Analysis of Balance Sheet – EasyJet CONSOLIDATEDIn GBP MillionIn Percentage, base year 2010 FINANCIAL POSITIONAs on September 30,Horizontal Analysis STATEMENT201020112012201020112012 Goodwill365 365 365 100%100%100% Other intangible assets87 86 91 100%99%105% Property, plant & equipment1,928 2,149 2,395 100%111%124% Derivative financial instruments8 24 21 100%293%256%

Loan notes13 11 10 100%84%76% Restricted cash33 33 29 100%102%89% Other non-current assets54 63 57 100%118%107% Total Non-current Assets2,488 2,731 2,968 100%110%119% Assets held for sale73 – – 100%0%0% Trade & other receivables194 165 241 100%85%124% Derivative financial instruments53 83 73 100%158%139% Restricted cash23 90 130 100%390%563% Money market deposits260 300 238 100%115%92% Cash and cash equivalents912 1,100 645 100%121%71% Total Current Assets1,515 1,738 1,327 100%115%88% Trade & other payables (829) (916) (1,021)100%111%123% Borrowings (127) (155) (129)100%122%101%

Derivative financial instruments (10) (52) (26)100%542%271% Current tax liabilities (28) (9) (29)100%33%105% Maintenance provisions (71) (45) (59)100%63%83% Total Current Liabilities (1,065) (1,177) (1,264)100%111%119% NCA/WORKING CAPITAL450 561 63 100%125%14% Borrowings (1,085) (1,145) (828)100%106%76% Derivative Financial Instruments (4) (27) (24)100%675%600% Non-current deferred income (57) (59) (46)100%104%81% Maintenance provisions (144) (177) (141)100%123%98% Deferred tax liabilities (148) (179) (198)100%121%134% Total Non-current liabilities (1,437) (1,587) (1,237)100%110%86% NET ASSETS/NET WORTH1,501 1,705 1,794 100%114%120%

Share Capital107 108 108 100%101%101% Share Premium652 654 656 100%100%101% Hedging Reserve35 14 42 100%40%121% Translation Reserve1 1 1 100%125%125% Retained Earnings706 928 987 100%131%140% SHAREHOLDERS’ EQUITY1,501 1,705 1,794 100%114%120% Table 7: Vertical Analysis of Income Statement – EasyJet CONSOLIDATEDIn GBP MillionAs a percentage of total revenue INCOMEYear Ended September 30,Vertical Analysis STATEMENT201020112012201020112012 Passenger Revenue2,402 2,733 3,794 80. 78%79. 17%98. 44% Ancillary Revenue571 719 60 19. 22%20. 83%1. 56% Total Revenue2,973 3,452 3,854 100. 00%100. 00%100. 00%

Ground Operations (805) (923) (955)27. 08%26. 74%24. 78% Fuel (733) (917) (1,149)24. 67%26. 56%29. 81% Navigation (256) (285) (280)8. 61%8. 26%7. 27% Crew (336) (407) (432)11. 30%11. 79%11. 21% Maintenance (177) (179) (203)5. 95%5. 19%5. 27% Selling & Marketing (92) (102) (104)3. 10%2. 95%2. 70% Aircraft & passenger insurance (10)– 0. 34%- – Aircraft wet lease (14)- – 0. 46%- – Volcanic Ash Disruption (27)- – 0. 92%- – Other Costs (162) (171)(200)5. 45%4. 95%5. 19% EBITDAR*361 468 531 12. 13%13. 56%13. 78% Amortisation of Intangible Assets (6) (7) (8)0. 21%0. 20%1. 51% Depreciation (73) (83) (97)2. 44%2. 0%2. 52% (Loss)/Profit on disposal of assets held for sale (7)- – 0. 24%- – Aircraft Dry Leasing (102) (109) (95)3. 43%3. 16%2. 46% Operating Profit173 269 331 5. 81%7. 79%8. 59% Interest Receivable & other Financing Income7 9 11 0. 24%0. 26%0. 29% Interest Payable & other Financing Charges (27) (30) (25)0. 90%0. 87%0. 65% Net Finance Charges (20) (21) (14)0. 66%0. 61%0. 36% PBT/Profit before tax153 248 317 5. 15%7. 18%8. 23% Tax (charge)/Credit (33) (23) (62)1. 10%0. 67%1. 61% Profit for the year121 225 255 4. 05%6. 52%6. 62% Other Comprehensive Income Fair Value gains/(losses)90 122 109 3. 04%3. 53%2. 3% (Gains)/losses transferred to income statement (9) (152) (74)0. 31%4. 40%1. 92% Related Tax (23)9 (7)0. 76%0. 26%0. 18% Currency translation differences1 – – 0. 04%- – Total Comprehensive Income180 204 283 6. 07%5. 91%7. 34% Earnings Per Share, pence ** Basic28 53 63 Diluted28 52 62 * EBITDAR = Earnings before interest, taxes, depreciation, amortization and restructuring. ** Earnings per share is calculated based on profit for the year. Table 8: Vertical Analysis of Balance Sheet – EasyJet CONSOLIDATEDIn GBP MillionAs a percentage of total assets FINANCIAL POSITIONAs on September 30,Vertical Analysis

STATEMENT201020112012201020112012 Goodwill365 365 365 9. 13%8. 17%8. 50% Other intangible assets87 86 91 2. 17%1. 92%2. 12% Property, plant & equipment1,928 2,149 2,395 48. 17%48. 09%55. 76% Derivative financial instruments8 24 21 0. 20%0. 54%0. 49% Loan notes13 11 10 0. 33%0. 25%0. 23% Restricted cash33 33 29 0. 81%0. 74%0. 68% Other non-current assets54 63 57 1. 34%1. 41%1. 33% Total Non-current Assets2,488 2,731 2,968 62. 15%61. 11%69. 10% Assets held for sale73 – – 1. 83%0. 00%0. 00% Trade & other receivables194 165 241 4. 85%3. 69%5. 61% Derivative financial instruments53 83 73 1. 31%1. 86%1. 0% Restricted cash23 90 130 0. 58%2. 01%3. 03% Money market deposits260 300 238 6. 50%6. 71%5. 54% Cash and cash equivalents912 1,100 645 22. 78%24. 61%15. 02% Total Current Assets1,515 1,738 1,327 37. 85%38. 89%30. 90% Trade & other payables (829) (916) (1,021)20. 70%20. 50%23. 77% Borrowings (127) (155) (129)3. 18%3. 47%3. 00% Derivative financial instruments (10) (52) (26)0. 24%1. 16%0. 61% Current tax liabilities (28) (9) (29)0. 69%0. 20%0. 68% Maintenance provisions (71) (45) (59)1. 78%1. 01%1. 37% Total Current Liabilities (1,065) (1,177) (1,264)26. 60%26. 34%29. 43% NCA/WORKING CAPITAL450 561 63 11. 5%12. 55%1. 47% Borrowings (1,085) (1,145) (828)27. 10%25. 62%19. 28% Derivative Financial Instruments (4) (27) (24)0. 10%0. 60%0. 56% Non-current deferred income (57) (59) (46)1. 41%1. 32%1. 07% Maintenance provisions (144) (177) (141)3. 60%3. 96%3. 28% Deferred tax liabilities (148) (179) (198)3. 70%4. 01%4. 61% Total Non-current liabilities (1,437) (1,587) (1,237)35. 91%35. 51%28. 80% NET ASSETS/NET WORTH1,501 1,705 1,794 37. 49%38. 15%41. 77% Share Capital107 108 108 2. 68%2. 42%2. 51% Share Premium652 654 656 16. 28%14. 63%15. 27% Hedging Reserve35 14 42 0. 87%0. 31%0. 98% Translation Reserve1 1 1 0. 2%0. 02%0. 02% Retained Earnings706 928 987 17. 64%20. 77%22. 98% SHAREHOLDERS’ EQUITY1,501 1,705 1,794 37. 49%38. 15%41. 77% Table 9: Horizontal Analysis of Income Statement – Ryanair CONSOLIDATEDIn EUR MillionIn Percentage, base year 2010 INCOME Year ended March 31,Horizontal Analysis STATEMENTS201020112012201020112012 Scheduled Revenues2,324. 5 2,827. 9 3,504. 0 100%122%151% Ancillary Revenues663. 6 801. 6 886. 2 100%121%134% Total Operating Revenues2,988. 1 3,629. 5 4,390. 2 100%121%147% Staff Costs (335. 0) (376. 1) (415. 0)100%112%124% Depreciation (235. 4) (277. 7) (309. 2)100%118%131%

Fuel & Oil (893. 9) (1,227. 0) (1,593. 6)100%137%178% Maintenance, materials & repairs (86. 0) (93. 9) (104. 0)100%109%121% Aircraft Rentals (95. 5) (97. 2) (90. 7)100%102%95% Route Charges (336. 3) (410. 6) (460. 5)100%122%137% Airport & handling charges (459. 1) (491. 8) (554. 0)100%107%121% Marketing, distribution & other (144. 8) (154. 6) (180. 0)100%107%124% Icelandic volcanic ash related cost- (12. 4)- – – Total operating expenses (2,586. 0) (3,141. 3) (3,707. 0)100%121%143% Operating profit – continuing operations402. 1 488. 2 683. 2 100%121%170% Finance income23. 5 27. 2 44. 3 100%116%189%

Finance expense (72. 1) (93. 9) (109. 2)100%130%151% Foreign exchange gain/(loss) (1. 0) (0. 6)4. 3 100%60%-430% Loss on impairment of AFS financial asset (13. 5)- – %- – Gain on disposal of property, plant & equipment2. 0 – 10. 4 %- 520% Total other income/(expense) (61. 1) (67. 3) (50. 2)100%110%82% Profit /(loss) before tax341. 0 420. 9 633. 0 100%123%186% Tax (expense)/benefit on profit/(loss) (35. 7) (46. 3) (72. 6)100%130%203% Profit/(loss) for the year attributable to equity holders305. 3 374. 6 560. 4 100%123%184% Basic earnings per ordinary share (euro cent)20. 7 25. 2 38. 100%122%184% Diluted earnings per ordinary share (euro cent)20. 6 25. 1 37. 9 100%122%184% Number of ordinary shares (in millions)1,476. 4 1,485. 7 1,473. 7 100%101%100% Number of diluted shares (in millions)1,481. 7 1,490. 1 1,477. 0 100%101%100% Table 10: Horizontal Analysis of Balance Sheet – Ryanair CONSOLIDATED In EUR MillionIn Percentage, base year 2010 BALANCEAs on March 31,Horizontal Analysis SHEET201020112012201020112012 Property, plant & equipment4,314 4,934 4,925 100%114%114% Intangible assets47 47 47 100%100%100% Available for sale financial assets116 114 150 100%98%129% Derivative financial instruments23 24 3 100%105%14%

Total Non-current Assets4,500 5,118 5,125 100%114%114% Inventories2. 5 2. 7 2. 8 100%108%112% Other assets80. 6 99. 4 64. 9 100%123%81% Current tax- 0. 5 9. 3 0%100%1860% Trade receivables44. 3 50. 6 51. 5 100%114%116% Derivative financial instruments122. 6 383. 8 231. 9 100%313%189% Restricted cash67. 8 42. 9 35. 1 100%63%52% Financial Assets: cash>3 months1,267. 7 869. 4 772. 2 100%69%61% Cash and cash equivalents1,477. 9 2,028. 3 2,708. 3 100%137%183% Total Current Assets3,063. 4 3,477. 6 3,876. 0 100%114%127% TOTAL ASSETS7,563. 4 8,596. 0 9,001. 0 100%114%119% Trade payables154. 0 150. 8 181. 100%98%118% Accrued expenses & other liabilities1,088. 2 1,224. 3 1,237. 2 100%113%114% Current maturities of debt265. 5 336. 7 368. 4 100%127%139% Current tax0. 9 – – 100%0%0% Derivative financial instruments41. 0 125. 4 28. 2 100%306%69% Total Current Liabilities1,549. 6 1,837. 2 1,815. 0 100%119%117% NCA/WORKING CAPITAL1,513. 8 1,640. 4 2,061. 0 100%108%136% Provisions102. 9 89. 6 103. 2 100%87%100% Derivative financial instruments35. 4 8. 3 53. 6 100%23%151% Deferred tax199. 6 267. 7 319. 4 100%134%160% Other creditors136. 6 126. 6 146. 3 100%93%107% Non-current maturities of debt2,690. 7 3,312. 3,256. 8 100%123%121% Total Non-current liabilities3,165. 2 3,804. 9 3,879. 3 100%120%123% NET ASSETS/NET WORTH2,848. 6 2,953. 9 3,306. 7 100%104%116% Issued share capital9. 4 9. 5 9. 3 100%101%99% Share premium account631. 9 659. 3 666. 4 100%104%105% Capital redemption reserve0. 5 0. 5 0. 7 100%100%140% Retained earnings2,083. 5 1,967. 6 2,400. 1 100%94%115% Other reserves123. 3 317. 0 230. 2 100%257%187% SHAREHOLDERS’ EQUITY2,848. 6 2,953. 9 3,306. 7 100%104%116% Total liabilities and shareholders’ equity7,563. 4 8,596. 0 9,001. 0 100%114%119% Table 11: Vertical Analysis of Income Statement – Ryanair

CONSOLIDATEDIn EUR MillionAs a percentage of total revenue INCOME Year ended March 31,Vertical Analysis STATEMENTS201020112012201020112012 Scheduled Revenues2,324. 5 2,827. 9 3,504. 0 77. 79%77. 91%79. 81% Ancillary Revenues663. 6 801. 6 886. 2 22. 21%22. 09%20. 19% Total Operating Revenues2,988. 1 3,629. 5 4,390. 2 100. 00%100. 00%100. 00% Staff Costs (335. 0) (376. 1) (415. 0)11. 21%10. 36%9. 45% Depreciation (235. 4) (277. 7) (309. 2)7. 88%7. 65%7. 04% Fuel & Oil (893. 9)(1,227. 0)(1,593. 6)29. 92%33. 81%36. 30% Maintenance, materials & repairs (86. 0) (93. 9) (104. 0)2. 88%2. 59%2. 37% Aircraft Rentals (95. ) (97. 2) (90. 7)3. 20%2. 68%2. 07% Route Charges (336. 3) (410. 6) (460. 5)11. 25%11. 31%10. 49% Airport & handling charges (459. 1) (491. 8) (554. 0)15. 36%13. 55%12. 62% Marketing, distribution & other (144. 8) (154. 6) (180. 0)4. 85%4. 26%4. 10% Icelandic volcanic ash related cost- (12. 4)- – . 34%- Total operating expenses(2,586. 0)(3,141. 3)(3,707. 0)86. 54%86. 55%84. 44% Operating profit – continuing operations402. 1 488. 2 683. 2 13. 46%13. 45%15. 56% Finance income23. 5 27. 2 44. 3 0. 79%0. 75%1. 01% Finance expense(72. 1) (93. 9) (109. 2)2. 41%2. 59%2. 49% Foreign exchange gain/(loss) (1. 0) (0. )4. 3 0. 03%0. 02%0. 10% Loss on impairment of AFS financial asset (13. 5)- – . 45%- – Gain on disposal of property, plant & equipment2. 0 – 10. 4 . 07%- 0. 24% Total other income/(expense) (61. 1) (67. 3) (50. 2)2. 04%1. 85%1. 14% Profit /(loss) before tax341. 0 420. 9 633. 0 11. 41%11. 60%14. 42% Tax (expense)/benefit on profit/(loss) (35. 7) (46. 3) (72. 6)1. 19%1. 28%1. 65% Profit for the year attributable to equity holders305. 3 374. 6 560. 4 10. 22%10. 32%12. 76% Basic earnings per ordinary share (euro cent)20. 7 25. 2 38. 0 0. 69%0. 69%0. 87% Diluted earnings per ordinary share (euro cent)20. 25. 1 37. 9 0. 69%0. 69%0. 86% Number of ordinary shares (in millions)1,476. 4 1,485. 7 1,473. 7 49. 41%40. 93%33. 57% Number of diluted shares (in millions)1,481. 7 1,490. 1 1,477. 0 49. 59%41. 06%33. 64% Table 12: Vertical Analysis of Balance Sheet – Ryanair CONSOLIDATED In EUR MillionAs a percentage of total assets BALANCEAs on March 31,Vertical Analysis SHEET201020112012201020112012 Property, plant & equipment4,314 4,934 4,925 57. 04%57. 40%54. 72% Intangible assets47 47 47 0. 62%0. 54%0. 52% Available for sale financial assets116 114 150 1. 54%1. 33%1. 66% Derivative financial instruments23 24 3 0. 30%0. 8%0. 04% Total Non-current Assets4,500 5,118 5,125 59%60%57% Inventories2. 5 2. 7 2. 8 0. 03%0. 03%0. 03% Other assets80. 6 99. 4 64. 9 1. 07%1. 16%0. 72% Current tax- 0. 5 9. 3 0. 00%0. 01%0. 10% Trade receivables44. 3 50. 6 51. 5 0. 59%0. 59%0. 57% Derivative financial instruments122. 6 383. 8 231. 9 1. 62%4. 46%2. 58% Restricted cash67. 8 42. 9 35. 1 0. 90%0. 50%0. 39% Financial Assets: cash>3 months1,267. 7 869. 4 772. 2 16. 76%10. 11%8. 58% Cash and cash equivalents1,477. 9 2,028. 3 2,708. 3 19. 54%23. 60%30. 09% Total Current Assets3,063. 4 3,477. 6 3,876. 0 41%40%43% TOTAL ASSETS7,563. 4 8,596. 0 9,001. 100%100%100% Trade payables154. 0 150. 8 181. 2 2. 04%1. 75%2. 01% Accrued expenses & other liabilities1,088. 2 1,224. 3 1,237. 2 14. 39%14. 24%13. 75% Current maturities of debt265. 5 336. 7 368. 4 3. 51%3. 92%4. 09% Current tax0. 9 – – 0. 01%0. 00%0. 00% Derivative financial instruments41. 0 125. 4 28. 2 0. 54%1. 46%0. 31% Total Current Liabilities1,549. 6 1,837. 2 1,815. 0 20%21%20% NCA/WORKING CAPITAL1,513. 8 1,640. 4 2,061. 0 20. 01%19. 08%22. 90% Provisions102. 9 89. 6 103. 2 1. 36%1. 04%1. 15% Derivative financial instruments35. 4 8. 3 53. 6 0. 47%0. 10%0. 60% Deferred tax199. 6 267. 7 319. 4 2. 64%3. 1%3. 55% Other creditors136. 6 126. 6 146. 3 1. 81%1. 47%1. 63% Non-current maturities of debt2,690. 7 3,312. 7 3,256. 8 35. 58%38. 54%36. 18% Total Non-current liabilities3,165. 2 3,804. 9 3,879. 3 42%44%43% NET ASSETS/NET WORTH2,848. 6 2,953. 9 3,306. 7 38%34%37% Issued share capital9. 4 9. 5 9. 3 0. 12%0. 11%0. 10% Share premium account631. 9 659. 3 666. 4 8. 35%7. 67%7. 40% Capital redemption reserve0. 5 0. 5 0. 7 0. 01%0. 01%0. 01% Retained earnings2,083. 5 1,967. 6 2,400. 1 27. 55%22. 89%26. 66% Other reserves123. 3 317. 0 230. 2 1. 63%3. 69%2. 56% SHAREHOLDERS’ EQUITY2,848. 6 2,953. 9 3,306. 7 38%34%37%

Cite this Comparative Financial Analysis of Easyjet & Ryanair

Comparative Financial Analysis of Easyjet & Ryanair. (2016, Oct 07). Retrieved from https://graduateway.com/comparative-financial-analysis-of-easyjet-ryanair/

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