“ If you ca n’t crush them, fall in them ” , this is an old expression. The concern mantra now is “ If you ca n’t crush them, get them ” . Low cost bearers ( LCCs ) plunged into the European Airline industry during the early 1990 ‘s. Ever since they invaded the air hose industry they have shows steady domination with rapid addition in their market portion. The LCCs exhibited a rapid addition in their market portion over the period 1990- 2004, with an addition from 1 % to about 17 % [ 1 ] .
The LCC concern in 2007 had been dominated by major participants such as Ryan air and Easyjet plc, with Market portion as a per centum of available seats of 26 % and 24 % severally.
The Industry analysis
The European air hose industry comprises of both scheduled and charted rider transit both international and Domestic. Domestic market and LCCs would be in focal point in this study, sing the fact that both Easyjet and Flybe autumn under these classs.
The Industry has grown well over the last five old ages with a Changeless mean growing of 3.9 % . The intra European rider count for the twelvemonth 2009-2010 was 184.6 million, approximately 31.9 % of the industrial entire rider count. The industry has performed exceptionally good despite being affected by recession and natural catastrophes like volcanic ash consequence.
The entire gross of the industry was 70.85 billion during the period 2009-10 with 76 % of the gross coming from the four major participants which are bequest air hoses.
The crisp dual digit diminution in the growing rate is due to the recession. Low cost bearers contributed a important 20 % in the gross to the industry.
The LCCs were non dominant in the industry until 1997 i.e. before the deregulating. The LCCs earlier competed with other bequest bearers but are now viing with other manners of transit like coachs and trains, particularly over long distances. The of all time increasing demand for mobility goads tough competition in the LCC market as trueness no longer affairs, the cheapest bearer wins. Technological progresss have helped in cut downing the ‘Turn around clip ‘ from approximately one hr to less than half an hr, low turn around clip means better borders.
However, as air travel becomes cheaper environmental groups warn that this could hold a terrible impact on the environment because of the big C emanations. Like it has ever been in the history Fuel monetary values besides affect the LCCs, which calls for efficient fiscal direction of fuel militias including trading with options and hereafters, to maintain costs down and remain competitory in the market.
Low cost bearers are chiefly of three types.
Core Low-cost Airlines, E.g. : RyanAir
Low-cost Airlines, E.g. : Easyjet, Flybe
Assorted low-cost/ Charter Airline, E.g. : Air Berlin
Some of the Major Characteristics of these LCCs are specified.
Core Low-cost Airline
Using chiefly secondary airdromes
No rider services, “ no frills ”
Tickets available in the cyberspace or call-centres
High aircraft use by point to indicate operation,
Flight timings between 1 and 2 hours soap
Single Aircraft Fleet
Minimal disposal costs
High crew-utilisation and lower crew costs
How Low-cost differs
from Core Low-cost Airlines?
Use of Primary Airports
Better Passenger Service
How Assorted Low-cost Differs
from the above two?
Use of both Primary and Secondary airdromes
Sometimes flies charter and low-priced riders
on the same flight
Passenger services better so core low-cost and
Easyjet has strategically ever aimed at being the figure one air conveyance web in Europe. The focal point nevertheless has been on assorted facets of the concern such as on-line gross revenues of tickets, efficient usage of Airports, high plus use, efficient usage of human resources ( 2009 ) and of class safety.
Easyjet successfully met its strategic mark by being ranked at the top in the presence in the top 100 paths crushing bequest bearers like BA, Lufthansa and Air France turn outing it is the figure one air conveyance web in Europe.
The twelvemonth 2009 the company shifted its focal point to its human resources. It stated in its one-year study “ We believe people make the difference. It ‘s through the attempts of all out people to present our four strategic precedences that we will gain our vision: to go the best low menu air hoses in the universe ” . Easyjet ‘s Employee count has been on a rise. This is besides complimented by addition in its figure of aircrafts and airdromes of operation.
Effective usage of resources is demonstrated by steady addition in the Revenue per place in lbs.
Finally in 2010 Easyjet set its vision to “ Turn Europe Orange ” , with focal point on every facet of the concern fiscal to Operational excellence.
Unlike Easyjet, Flybe is more of a short term scheme oriented company. Over the period 2002 to 2010, the company has set and worked towards, concern oriented short term ends.
Shown below is the focal point of Flybe over the clip period 2002 to 2010.
Strategic Focus of Flybe
Delivering the concern Turnaround
Pull offing growing
Transformational Acquisition of BA connect
Pull offing through Recession
The Growth in figure of riders and the gross are really much in line which shows stableness in menus over a period and it besides is aligned with the scheme for the period 2003 to 2007.
The sudden leap in the rider count and Revenue during the twelvemonth 2008 is justified by the successful acquisition of BA connect. The acquisition of BA connect was profitable to Flybe because of the undermentioned grounds:
Flybe acquired a significant and established path, with minimum convergences to its ain web
Entree to Slot constrained airdromes and attractive clip slots
With BA connect came experient Pilots, Engineering and Cabin crew resources.
Flybe exploited the opportunity to rationalize on the unprofitable seats of 1.4 million in the combined web path.
One of Flybe ‘s cardinal operational schemes is the “ Two aircraft type scheme ” , which was put into topographic point in 2007. Flybe employed the fleet permutation mechanism and achieved the aim of “ two aircraft fleet ” in 2009 with 54 Q400s and 14 E195s in contrast to 2008 when they had 37 Q400s, 10 E195s, 23 E145s and 1 BAE 143-300. However unlike Easyjet bulk of Flybe ‘s fleet is leased in with Flybe having merely 15 % of its fleet.
Finally Both Easyjet and Flybe seem to be highly good at gaining their schemes which is significantly backed up my Numberss both financially and with regard to resources.
Shown below is a amalgamate position of the cardinal fiscal figures for Easyjet over the last 4 old ages ( 2007-10 ) . Easyjet exhibits a growing in gross over the period. The Operating net income and EBITDAR have shown a diminution in the twelvemonth 2008, because the gross grew by 31.5 % but the cost of goods sold, increased by about 41 % . This was due to the addition in the Fuel monetary value, Airport charges and land handling charges. The growing in its capital outgo and acquisition and the coincident growing in entire liabilities are due the enlargement of fleet and web. The Equity of class has shown steady addition.
Operating net income
Net income for the Year
Operating Cash Flow
Capital and Acquisition
A amalgamate position of the financials for Flybe is depicted. The gross has increased over the period merely with a little dip of 0.33 % in the 2010. The net income per twelvemonth as shifted from the negative side of the graduated table to positive in the twelvemonth 2008, the acquisition of BA connect could be a possible ground for the enormous addition. Flybe does non have many of its aircrafts which is indicated by the low capital and acquisitions outgo, except for in the twelvemonth 2007 when they acquired BA connect, when it was the highest at 46.95 million. Flybe had big sums of debt which have been carried over from the old old ages. However the diminution in the entire debt in the old ages 2008 and 2010 shows that the company is doing an attempt to convey down its degree of debt. After negative equity in the twelvemonth 2007, equity has shown a steady growing in the last 3 old ages.
Operating net income
Net income for the Year
Operating Cash Flow
Capital and Acquisition
Short Term Liquidity Ratios
These ratios help mensurate the solvency of the ability of both Easyjet and Flybe to run into their short-run fiscal duties and to measure the liquidness.
The current ratio merely gives us an reading how much assets the company has for each lb ( ? ) of debt it has. The current ratio for Easyjet and Flybe are displayed below.
Current Ratio, Easyjet
Current Ratio, Flybe
The Quick ratio besides gives the indicant of the house ‘s short term liquidness. A high quick ration shows that the house is in a better place.
Quick Ratio, Easyjet
Quick Ratio, Flybe
ACP gives the step of the figure of yearss on an norm in which trade receivables are paid back to the house.
ACP in yearss, Easyjet
ACP in yearss, Flybe
Long Term Solvency Ratios
These rations focus on the house ‘s ability to refund long term creditors. These rations should be every bit low as possible. They indicate the house ‘s ability to defy rancid concern conditions without enduring losingss or registering for bankruptcy.
All the ratios mentioned below provide utile information about the step of the fiscal purchase of the company.
Debt to Total Assets, Easyjet
Debt to Total Assets, Flybe
Entire Debt to Equity, Easyjet
Entire Debt to Equity, Flybe
LT Debt to Total Capital, Easyjet
LT Debt to Total Capital, Flybe
These ratios are used to measure direction ‘s ability to supervise and command disbursals and to gain net income on resources which are committed to the concern. They give us the step of the efficiency of utilizing assets to bring forth net income and gross revenues.
Gross Profit ( EBITDAR ) , Easyjet
Gross Profit ( EBITDAR ) , Flybe
Gross Profit Percentage, Easyjet
Gross Profit Percentage, Flybe
Tax return on Gross saless, Easyjet
Tax return on Gross saless, Flybe
Tax return on Equity, Easyjet
Tax return on Equity, Flybe
Asset Utilisation, Easyjet
Asset Utilisation, Flybe
Net border, Easyjet
Net border, Flybe
RONA can be expressed as pyramid:
However in the air hose industry it is hard to separate Expenses and cost of gross revenues because it is service based industry and hence we would lodge merely to the first degree of the pyramid.
Industry specific Ratios
These ratios are specific to the air hose industry. There are a figure of others which consider Available Passenger stat mis or Kilometers but this information is non available for Flybe hence we stick to per rider ratios.
Operating Net income Per Passenger, Easyjet
Operating Net income Per Passenger, Flybe
Gross per rider, Easyjet
Gross per rider, Flybe
Operating cost per rider, Easyjet
Operating cost per rider, Flybe
Short term Liquidity Ratios
These ratios are important to Potential loaners and creditors of the company as they determine the house ‘s ability to run into current liabilities. Investors study these as the current assets and liabilities impact the on the job capital of the house.
The regulation of pollex regulation for current ratio is 2:1. But the current ratio is between 2 and 1 which is acceptable. If Below one would intend the house is inefficient in run intoing its short term liabilities.
The current ratio may besides be used as which gives per centum up to with the current assets can travel down and still the house can run into its current liabilities.
Example for the twelvemonth 2010 ( Easyjet ) , Which mean even if Easyjet ‘s current assets go down by 29.58 % it can still run into its current liabilities.
An ideal value for the Quick ratio is 1.
The Quick ratio of both Easyjet and Flybe are reasonably much similar in their ability to pull off short term liabilities Easyjet jet being better in 2007 and 2010.
In most of the industries the recognition period is 90 Days. But a Lower ACP is ever better.
The ACP of Flybe is about dual that of Easyjet which means the financess are tied up in trade receivables for a longer clip for Flybe, these financess could hold used for more profitable intents. Easyjet ‘s ACP has demo a steady diminution from 45 yearss to 26 yearss, which is first-class.
Long term Solvency Ratios
Debt to entire assets ratio shows the proportion of the assets financed by debt.
If this ration is below 1 it means most of the assets are financed through equity, which is really much true for Easyjet. Flybe nevertheless has values really near to one which means Flybe has more debt funding. Hence we may reason that Flybe has higher purchase than Easyjet and may acquire into problem if the creditors demand for refund of Debt.
The geartrain ratio for Flybe is exceptionally high which indicated big sums of debt or really low values of equity or both. The Equity for Flybe was negative in 2007, therefore the pitching ratio calculated was neglected in the graph ( Airline finance, Peter s. Morrell ) . This has a positive side to this, if the company bring forth more money than the involvement it has to pay it is distributed among the stockholders. However the degree of debt should be kept under control if its high it could take to bankruptcy. However the diminution in the D/E ratio of Flybe shows the house ‘s attempts to cut down debt and increase equity. Easyjet has its values in a safe zone.
Debt to capital ratio once more is a clear index of the purchase of the house.
The Variation in the gross net income is justified by the difference in the size and operations of the two houses. However the tendency that the Gross per centum follows is reasonably much the same for both Easyjet and Flybe. Easyjet has been on the top merely by a small in 2007,2009 and 2010.
The return on gross revenues ( ROS ) reflects the bottom line public presentation of the house. The values are interesting because of the sudden addition in ROS of Flybe, which was likely because of the acquisition of BA connect. The ROS of Easyjet has shown a diminution during 2007-09 due to the enormous addition in the airdrome and land handling charges during the period. Both Easyjet and Flybe has shown an betterment in the twelvemonth 2010. Easyjet performed a batch better than Flybe.
The Return on Equity is once more really stable for Easyjet nevertheless that of Flybe had shown a enormous addition in 2008, once more likely due the BA connect acquisition. However Flybe ‘s inability to keep it reflects severely on the fiscal public presentation of the company.
Asset Turnover step the house ‘s ability to utilize its assets to bring forth gross. Flybe clearly is better in utilizing its assets in comparing with Easyjet, the chief ground for this is because Flybe does non have the major assets like the fleet which is leased in. The addition after the acquisition of BA connect is maintained.
The Profit border follows the same tendency as that of return on gross revenues. Even the net income border is greatly influenced by the addition in the cost of gross revenues. Net income border is besides influenced by the industry non executing good due to external factors such as recession, Volcanic eruptions etc.
Return on Net assets is clearly an index of the public presentation of the house. The RONA of Easyjet has been between 0 and 1 during the period 2007-10. However RONA of Flybe has fluctuated mostly from the negative side of the graduated table to really high and so low values which shows instability in the public presentation of the house.
Industry Specific Ratios
The figure of riders have been on a rise for both Easyjet and Flybe and so was the gross. After recession struck in 2009 the companies have made attempts to cut down operating costs which is reflected in the operating cost per rider of both the air hoses. Operating net incomes have fluctuated mostly because they are influences by external factors. With regard to the industry both the house are following a similar tendency except for in 2007 when Flybe had a negative operating net income per rider.
This study focuses on the fiscal facet of both the houses. With regard to fiscal stableness Easyjet puts up a better image so Flybe. However the attack can be looked at from strategic position which might turn out that Flybe is better in certain facets like the acquisition cost would be low due to low fixed assets and it could besides look better if considered from the web point of position.
Association of European Airlines. ( 2007 ) . Operating Economy of AEA Airlines – drumhead study. Association of European Airlines.
Brealey, R. A. , Myers, S. A. , & A ; Allen, F. ( 2008 ) . Principles of Corporate Finance. Singapore: McGraw- Hll.
Charles Stanley Securities. ( 2010 ) . Easyjet – Company note. London: Charles Stanley Securities.
Datamonitor. ( 2010 ) . Easyjet plc – Company profile. London: Datamonitor.
Datamonitor. ( 2010 ) . Flybe Group Limited – Company Profile. London: Datamonitor.
Datamonitor USA. ( 2010 ) . Airlines in Europe. New York: Datamonitor.
Demydyuk, G. ( 2010 ) . Choosing Fiscal Key Performance Indexs: The Airline Industry instance. Zurich: Lorange Institute.
Domanico, F. ( 2007 ) . The European air hose industry: Law and economic sciences of low cost bearers. Roma: Springer Science+Business Media, LLC.
Drake, W. , Ainsworth, G. , Goidell, J. , Ledoux, C. , Modi, T. , Owens, G. , et Al. ( 1998 ) . A Fiscal Analysis of Southwest Airlines.
Easyjet PLC. ( 2007 ) . Annual Report. Bedfordshire: Easyjet PLC.
Easyjet PLC. ( 2008 ) . Annual Report. Bedfordshire: Easyjet PLC.
Easyjet PLC. ( 2009 ) . Annual Report. Bedfordshire: Easyjet PLC.
Easyjet PLC. ( 2010 ) . Annual Report. Bedfordshire: Easyjet PLC.
European Cockpit Association. ( 2006 ) . Turbulence IN THE EUROPEAN SKIES: Low Cost Carriers in Europe: Economic Data, Market and Pilot Demand Forecast. Brussels: European Cockpit Association.
Flybe PLC. ( 2007 ) . Annual Report. Devon: Flybe PLC.
Flybe PLC. ( 2008 ) . Annual Report. Devon: Flybe PLC.
Flybe PLC. ( 2009 ) . Annual Report. Flybe PLC.
Flybe PLC. ( 2010 ) . Annual Report. Devon: Flybe PLC.
Flybe plc. ( 2011 ) . Flybe – An Introduction. Flybe plc.
Mason, K. J. , & A ; F, A. ( 2007 ) . EU web bearers, low cost bearers and consumer behavior: A Delphi survey of future tendencies. Journal of Air Transport Management, 299-310.
Mclaney, E. , & A ; Atrill, P. ( 2010 ) . Accounting – An Introduction. Essex: Pearson Education Limited.
Morrell, P. S. ( 2007 ) . Airline finance. Hampshire: Ashgate Publishing limited.