First LCC in Europe 1949 First LCC

1990 Aviation Deregulation

1995 EasyJet

Present LCC covers around 30% of total flights

http://www.oagaviation.com/OAG-FACTS/2012/August-Executive-Summary

Low-Cost Carriers Sub-regional network; short-haul, point-to-point

Point of Difference Network

Full-Service Carriers Inter-regional; connecting flights (hub and spoke)

Offers same fares to all customers

No code-sharing or interlining Direct sales only via website Operates single aircraft model

Fare structure

Differs fares by customer/channel

Some use of code-sharing and interlining Distributes through Global Distribution System Mix of aircraft models

Partnerships

Sales and distribution Operations

Full-Service Carriers

Low-Cost Carriers

Key Partners

Key Activities

Value Proposition Cust. Relationship Cust. Segments

Key Resources

Dist. Channels

AGENT Cost Structure Revenue Streams

Paperless ticket and operation

Homogeneous Fleet: Airbus 320 Family Outsourcing Strategy Independent and Centralized Reservation System Paperless Operations

Low Fares

Lean company structure

Point-to-point Top 100 Routes and optimization Use major airports Bigger market segments: low cost and business Maximixing Load factor with peak time slots High utilization of aircraft (11 hrs/day on average) High ancillary revenue

High Revenue

Number of airports served

140 600 500 400 300 200 100 0 1 2 3 4 5 1

Number of routes served

120
100 80 60 40 20 0

Passenger revenue arises from the sale of flight seats 2007 Passenger Ancillary 1626 171.2 2008 1995.7 367.1 2009 2150.5 516.3 2010 2402 571 2011 2733 719 Growth 13.86% 43.15%

Ancillary revenue primarily arises from the provision of checked baggage and speedy (priority) boarding services, booking, credit card and change fees, and commissions earned from services sold on behalf of partners

EasyJets main ancillary partners are:

Gate Gourmet, who provide our in-flight food and merchandise Europcar, who provide car rental Hotelopia and Laterooms who broker hotels Alvia who, through the Mondial brand, provide insurance.

Region United Kingdom Southern Europe Northern Europe Other Total

2010 (in million) 1423 1022 504 24 2973

2011 (in million) 1594 1190 629 39 3452

Passengers by Country

Strengths Eliminate unnecessary costs across service processes Lower maintenance and distribution costs, nonprovision of meal Has a strong contingent of business travelers Paperless airline saves money on ticket printing and increase environmental image Opportunities In Spain more than 60% of air travel is purchased in offline channels and consequently easyJet is implementing measures to improve its presence in these areas. Opportunity to tackle other EU markets as many airlines struggle

Weaknesses Fierce competition: Undifferentiated services against other providers, such as Ryanair and Norwegian. Consumers have low switching costs Does not serve the main central airports Vulnerable to macroeconomic conditions: Increase in fuel prices, tax regulations, Threats The UK Governments proposal to increase the tax on short-haul travel and reduce it for long-haul travel Lack of Government commitment to expanding runway capacity in the South East. Inconsistent application of consumer rules across Europe

Finance Lease
Recognized at the inception of the lease at the fair value of the leased asset, or, if lower, at the present value of the minimum lease payments Depreciated under straight line basis over the shorter of lease term and their expected useful lives

Operating Lease
Non-contingent opt. lease are charged to I/S on a straight-line basis, while contingent rental payments based on variable interest rates Operating lease rentals are a mix of fixed and floating rates (in 2011 was 60%/40%)

Benefit from low interest rate since 20 aircraft subject to floating rate agreements Expected useful life Sale and leaseback transactions whereby it Medium term financing target: Aircraft 23 yearssells to a third-party rights to acquire aircraft. 70% owned, 30% leased Aircraft spares 14 years 2007 2008 2009 2010 2011 Aircraft improvements 37 years Operating Lease 51% 38% 32% 31% Aircraft prepaid maintenance55% 310 years 45% 510 years 49% or the length 62% of lease 68% if shorter 69%

Owned and Finance Lease Leasehold improvements

LCC in Europe

EasyJet

RyanAir

Norwegian Airlines

Routes Coverage
Market Share (of LCC in Europe) Business strategy

The common feature of these three companies is their majority flight routes are in Europe
40% 31% 1. No Frills 2. self-printing Boarding Pass 3. Homogeneous Fleet(Airbus 320) 4.etc Leisure and Business Major airports Leisure Secondary Airports Leisure and Business Secondary Airports 8%

Market Segment Network

EasyJet Reporting Standards HTM AFS Depreciation IFRS

RyanAir IFRS

Norwegian Airlines IFRS

held at cost plus interest using the effective interest method, less any impairments measured at the lower of their carrying value less costs to sell. Depreciation ceases at the point of their reclassification from non-current assets. straight-line basis at percentages of cost based on the expected average useful lives of the assets and their residual values which are reviewed at least annually. historical cost convention as modified by the revaluation subject to review for impairment in accordance with United Kingdom Financial Reporting Standard 11 Impairment of Fixed Assets and Goodwill Unearned revenue represents flight seats sold but not yet flown and a provision for government tax refund claims attributable to unused tickets, and is included in accrued expenses and other liabilities.

revaluation Goodwill Unearned Revenue

Panel Data

Easyjet expands its network

Successfully attracted 11.8% more passengers in 2011

Leads to revenue growth by 13.20% in 2011

Ratio stock turnover period debtors's collection period creditors' payment period

2007 39.28 -

2008 28.92 -

2009 25.02 -

2010 14.44 -

2011 12.58 -

no inventory Airline industry is a service industry and easyJet has built specialized partnerships no cost of sales The stock turnover period and creditors payment period is nil

Time Series Analysis

renegotiating contract terms with key card acquirers

receivable turnover days in 2008 is 30 days and decreased to 15 days in 2010

Cross Sectional Analysis

Time Series Analysis

EasyJet borrowed money to buy the airplane in 2008 (the borrowing IR is based on the LIBOR and LIBOR in 2008 experiencing a sharp decrease, all borrowing are at floating interest rates repricing every 3-6 months)

Cross Sectional Analysis

Lease buyback policy

Increasing cash

Might be a signal of manipulation

Time Series Analysis

As a result of the purchase of new planes and acquisition of GB in 2009 with debts

Cross Sectional Analysis

Different capital structure

Time Series Analysis

high emissionbased tax

new regulations for SMEs since 2008 volcanic ash disruption in 2009

Time Series Analysis

EPSs trend is consistent with profit margins

The ratio indicates that there is a positive trend in profitability, liquidity and solvency

Targetting wider market segment than competitors (Low Cost + Business Travelers = Not seasonal)

Be different with the major airports strategy

Actively doing route optimization: close the route if its below the expected margin

Still generating profit during economic turmoil (Europe crisis, increasing fuel cost, etc)

Still in the growth stage in LCC Industry

Exploit the benefits of partnerships or outsourcing

Single fleet risk

IT system risk do not have they own, rely on the airport. No backup.

Ground operation cost is double than the Ryanair, while operating in fewer airports (Ryanair operates in 150 airports, while easyJet in 108 airports)