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Annual report
and accounts 2012

Financial review

Chris Kennedy , Chief Financial Officer

We will maintain a robust capital structure and deliver sustainable returns to shareholders.

Key performance indicators

easyJet has delivered a strong financial performance for the 2012 financial year, despite continuing macroeconomic challenges across Europe and fuel prices remaining both high and volatile. Profit before tax grew by 27.9% to £317 million, resulting in profit before tax per seat of £4.81; close to our ambition of £5. Profit after tax was £255 million, an increase of 13.3% from £225 million last year.

Return on capital employed and capital structure

ROCE – excluding operating leases adjustment14.5%12.7%+1.8ppt
ROCE – including operating leases adjustment11.3%9.8%+1.5ppt
Return on equity14.6%14.0%+0.6ppt

When return on capital employed was introduced as a key performance indicator in 2010, the decision was taken not to adjust the calculation for aircraft held under operating leases. This was in the expectation that the IASB’s leasing project would complete in a relatively short time frame, resulting in all leases being shown on the statement of financial position.

Over the last year it has become clear that this process is far from complete and the accounting position is not expected to change before our 2016 financial year at the earliest. Consequently it has been decided to amend our ROCE calculation to reflect appropriately the impact on return on capital of aircraft held under operating leases by capitalising that at seven times the annual lease rental, in line with market practice. While the returns indicated by the new measure are lower, the measures are closely correlatedand both old and new measures indicate returns in excess of cost of capital.

ROCE including operating leases adjustment for the year was 11.3%, an increase of 1.5 percentage points from the previous year.

Return on equity improved by 0.6 percentage points to 14.6%. This increase is lower than that seen in either ROCE measure due to the increase in effective tax rate from 9% last year to 20% this year.

During the year good progress has been made on reducing excess liquidity and capital by paying a special dividend of £150 million and repaying £162 million of relatively high-coupon mortgage debt. Gearing was stable at 29% (2011: 28%).

Financial performance per seat

£ million£ per seatPence per ASK£ million£ per seatPence per ASK
Total revenue3,85458.515.343,45255.274.98
Costs excluding fuel2,38836.253.312,28736.623.30
Profit before tax3174.810.442483.970.36
Tax charge620.940.09230.370.04
Profit after tax2553.870.352253.600.32

Total revenue grew by 11.6% to £3,854 million resulting in growth of 5.9% in revenue per seat to £58.51. At constant currency, revenue per seat grew by 7.5% to £59.41. Just over half of this improvement was driven by improved ticket prices, with the balance mainly from the annualising of changes to fees and charges introduced last year.

Excluding fuel, cost per seat fell by 1.0% to £36.25, however it grew by 1.8% at constant currency. easyJet experienced above-inflation increases in charges at regulated airports (particularly in Spain and Italy). Set against this easyJet successfully re-negotiated a number of key ground handling contracts and also continued to benefit from the increasing proportion of larger A320 aircraft in the fleet. To a lesser extent, cost per seat was also adversely impacted by higher load factors and benefited from slightly shorter average sector length.

Disruption levels and the costs that resulted were exceptionally low this year with just over 1,000 sectors cancelled on the day or delayed overnight. This is a quarter of the level experienced last year. While it is pleasing to be able to report this, easyJet does not consider it to be representative of what may be seen in the future.

As previously reported, our average fuel price increased by $164 per tonne compared with last year resulting in an increase in fuel unit costs of £182 million, equivalent to £2.77 per seat.

Overall, profit before tax increased by £69 million (£0.84 per seat) to £317 million (£4.81 per seat). While the impact of exchange rate changes on certain components of the income statement were significant, overall profit before taxation was improved by £10 million driven by the favourable timing of Euro booking revenues.

The tax charge was £62 million resulting in an effective tax rate of 20% (2011: charge of £23 million and effective tax rate of 9%). The difference between the effective tax rate and standard UK rate is principally driven by the reduction in the UK deferred tax rate to 23% and the utilisation of previously unrecognised losses.

Earnings per share and dividends per share

Earnings per share62.5p52.5p19.0%
Ordinary dividend per share21.5p10.5p104.8%
Special dividend per share34.9pN/A

easyJet paid its first ever dividends during March 2012, comprising an ordinary dividend of 10.5 pence per share and a special dividend of 34.9 pence per share. The total dividend paid was £196 million. Following payment of the special dividend, share capital was consolidated on a basis of 11 for 12, and at year end we had 396 million shares of 2727 pence outstanding.

Earnings per share grew 19.0% to 62.5 pence per share. Of this increase, 13.6% is due to growth in profit after tax and 5.4% due to the impact of the share consolidation following payment of the special dividend in March.

Ordinary dividend per share grew by 104.8% to 21.5 pence per share. easyJet is pleased to announce that dividend policy is being amended from this year to pay out one-third of profit after tax for each year, up from the one-fifth payout introduced last year. There are no plans to propose a further special dividend at this time, and excess liquidity will continue to be used where appropriate to pay down mortgage debt.

Exchange rates

Capacity grew in the year by 3.4 million seats flown, of which around two-thirds was deployed in bases outside the UK. While this resulted in increased cash flows denominated in euros, the weakness of the euro against the pound meant that the overall currency profile of the business was little changed year-on-year:

US dollar1%35%35%
Other (principally Swiss franc)9%9%6%6%

Average exchange rates

Euro – revenue€1.19€1.15(3.9%)
Euro – costs€1.22€1.155.8%
US dollar$1.60$1.61(0.6%)
Swiss francCHF 1.46CHF 1.45(0.7%)

The value of the euro against sterling declined during the year, with the year end exchange rate 7.8% lower at €1.25/£1. This decline was more marked during the second half of the year. Since the business generates a euro surplus (euro revenue exceeds euro costs) a net loss from this euro exposure might be expected.

However a significant proportion of summer bookings were taken before the sharpest decline in the exchange rate, which, coupled with the policy of hedging surplus euros, meant that easyJet was shielded from the full impact of the falling euro in this financial year.

The impact on profit of changes in exchange rates was as follows:

Favourable / (adverse)

Euro £ millionSwiss franc £ millionUS dollar £ millionOther £ millionTotal £ million
Costs excluding fuel684(5)269

Financial performance


£ million£ per seatPence per ASK£ million£ per seatPence per ASK
Seat revenue3,79457.615.263,38954.254.89
Non-seat revenue600.900.08631.020.09
Total revenue3,85458.515.343,45255.274.98

Revenue per seat improved by 5.9% compared with last year to £58.51 reflecting strong performances across the network (with the exception of Spain), particularly from London Gatwick, France and Switzerland.

Seats flown grew by 5.5% to 65.9 million, principally in London Gatwick, France and Switzerland. Load factor was marginally higher at 88.7% and passengers increased by 7.1% to 58.4 million.

Seat revenue contributed 6.2% of this increase, held back by significant increases in APD, VAT and similar taxes levied on passengers. Overall these taxes, driven by a further increase in UK APD, increased by 8.0% to £6.76 per seat.

Non-seat revenue contracted by 11.8% to £0.90 per seat as commissions earned from sale of travel insurance and, to a lesser extent, car hire continued to fall.


£ million£ per seatPence per ASK£ million£ per seatPence per ASK
Operating costs excluding fuel2,17433.003.012,06733.102.98
Ownership costs2143.250.302203.520.32
Total costs3,53753.704.903,20451.304.62
Total costs excluding fuel2,38836.253.312,28736.623.30

Total cost per seat increased by 4.7% to £53.70; however excluding fuel, cost per seat was broadly flat at £36.25, and up by 1.8% at constant currency.

Operating costs excluding fuel

£ million£ per seatPence per ASK£ million£ per seatPence per ASK
Ground operations95514.491.3292314.791.33
Selling and marketing1041.580.141021.640.15
Other costs2003.050.281712.740.25

Operating costs per seat excluding fuel decreased by 0.3% to £33.00. At constant currency, operating costs per seat excluding fuel increased by 2.8% to £34.01 per seat.

Ground operations cost per seat fell by 2.0% but increased by 1.6% excluding the effect of changes in exchange rates. Although costs have decreased due to the relatively benign winter weather and better controls over the use of de-icing fluid, as well as savings on contract renegotiations with ground handlers, this has been offset by significant increase at airports operated in Spain by AENA and a doubling of charges for on-ground navigation services in Italy. The further increases in AENA charges were a factor in our decision to withdraw the six aircraft based in Madrid from December 2012.

Crew cost per seat increased by 0.6%, and by 2.8% at constant currency driven by an average 2% increase in salaries and disciplined thinning of capacity during the winter months.

Navigation costs fell 6.7% to £4.25 per seat and were down 1.2% at constant currency despite regulated cost increases averaging 2%. This reduction is driven by the increased proportion of A320 aircraft in the fleet and a slightly shorter average sector length as capacity based on the European mainland continues to grow at a faster rate than in the UK.

Maintenance costs have been declining for a number of years, but increased this year by 7.7% to £3.08 per seat; similar to the level seen in 2010. This increase is driven by one-off items that are unlikely to recur. The cost benefits from reducing the proportion of leased aircraft in the fleet have now come to an end, and the average age of the fleet is gradually increasing as planned. We are investing in process improvements that will maintain our cost position in the future.

Other costs increased by 11.3% to £3.05 per seat. This is due to investment in IT infrastructure, and higher performance-related employee costs, reflecting the significantly improved profitability of the business. This was partly offset by unusually low levels of operational disruption resulting in lower compensation payments under EU Regulation EU261/2004.


£ million£ per seatPence per ASK£ million£ per seatPence per ASK

The market price for jet fuel remained high and volatile over the year, mostly in excess of $1,000 per tonne. Our hedging activities continued to defer the full impact of this. Average price paid increased by $164 to $982 per tonne; in sterling terms an increase of £110 to £618. Of the total increase in fuel costs of £232 million, £182 million (£2.77 per seat) is due to the roll off of fuel purchases hedged at favourable rates.

Forward purchases of 1.8 million tonnes of fuel for 2013 and 2014 were executed during the periodic dips below $1,000 at an average price of $992 per tonne. As a result the hedged percentages are 78% for 2013 at $985 per tonne and 55% for 2014 at $993 per tonne.

Ownership costs

£ million£ per seatPence per ASK£ million£ per seatPence per ASK
Aircraft dry leasing951.440.131091.750.16
Interest receivable(10)(0.14)(0.01)(9)(0.15)(0.01)
Interest payable and other financing charges250.380.03240.380.03
Net exchange (gains) / losses(1)(0.02)60.090.01

Ownership costs declined slightly to £3.25 per seat; continuing recent strong performance.

The final two Boeing 737 aircraft were returned to lessors during the first quarter, and we now operate a standardised fleet with two gauges of Airbus aircraft. Depreciation cost per seat increased by £0.14 to £1.47 driven by the increased proportion of owned aircraft in the fleet.

The leased proportion of the fleet is currently 26%, which is below the objective of a 70% owned and 30% leased fleet mix, as completion of a number of leases was deferred into the first quarter of the coming financial year. The recent trend of declining ownership costs is not expected to continue at the same rate, although the increasing proportion of A320 aircraft in the fleet will continue to deliver some reductions to depreciation and aircraft dry leasing costs per seat.

Exchange gains and losses arise from changes in the value of monetary assets and liabilities denominated in currencies other than sterling. Fluctuations of the size seen in the last two years are within the range of expectations given the size of the related foreign currency cash flows.

Cash flows and financial position

Summary consolidated statement of cash flows

2012 £ million2011 £ millionChange £ million
Net cash generated from operating activities (excluding dividends)45742433
Ordinary dividend paid(46)(46)
Special dividend paid(150)(150)
Net capital expenditure*(389)(478)89
Net loan and lease finance (repayment) / drawdown(314)356(670)
Net decrease / (increase) in money market deposits55(38)93
Other including the effect of exchange rates(68)(76)8
Net (decrease) / increase in cash and cash equivalents(455)188(643)
Cash and cash equivalents at beginning of year1,100912188
Cash and cash equivalents at end of year6451,100(455)
Money market deposits at end of year238300(62)
Cash and money market deposits at end of year8831,400(517)

* Stated net of disposal proceeds of £75 million in 2011.

In line with prior years, easyJet generated strong operating cash flow in the year principally driven by growth in forward bookings and revenue per seat. Operating cash flow exceeded capital expenditure and the ordinary dividend paid in line with the ambition to self‑fund growth and fleet renewal.

Net capital expenditure principally comprises the acquisition of 19 A320 aircraft and advance payments on aircraft due to be delivered mainly over the next two years.

No new loan or lease finance was drawn down during the year, and mortgage loans on 12 aircraft were fully repaid. Two of these loans had reached their contractual end, however the other ten loans were repaid early as part of our strategy to reduce excess liquidity.

Summary consolidated statement of financial position

2012 £ million2011 £ millionChange £ million
Property, plant and equipment2,3952,149246
Net working capital(792)(765)(27)
Restricted cash15912336
Net (debt) / cash(74)100(174)
Current and deferred taxation(227)(188)(39)
Other non-current assets and liabilities(32)(79)47
Opening shareholders’ equity1,7051,501
Profit for the year255225
Ordinary dividend paid(46)
Special dividend paid(150)
Change in hedging reserve28(21)
Other movements2

Net assets increased by £89 million driven by the profit for the year offset by dividends paid and a small net change in the hedging reserve.

The net book value of property plant and equipment increased by £246 million driven principally by the acquisition of 19 A320 family aircraft, and advance payments for aircraft due to be delivered over the next two years.

Net working capital was broadly flat at a net negative £792 million. Passengers pay for their flights in full when booking, therefore the key component of this balance is unearned revenue, which increased by £24 million to £496 million. This increase was rather lower than that seen last year as flights for July and August 2013 did not go on sale until shortly after year end.

Reconciliation of net cash flow to movement in net (debt) / cash

2012 £ million2011 £ millionChange £ million
Cash and cash equivalents6451,100(455)
Money market deposits238300(62)
Bank loans(752)(1,079)327
Finance lease obligations(205)(221)16
Net (debt) / cash(74)100(174)

easyJet ends the year with £883 million in cash and money market deposits; a decrease of £517 million compared with 30 September 2011. Net borrowings decreased by £343 million.

Net debt at 30 September 2012 was £74 million compared with net cash of £100 million at 30 September 2011. At 30 September 2012 gearing was 29%, marginally higher than last year’s gearing of 28%.

Although the net position has changed relatively little, both cash and debt balances have declined markedly during the year, due to payment of the special dividend and accelerated repayment of £162 million mortgage loans and a reduction in the number of leased aircraft. These actions reduced excess liquidity, and we ended the year with a cash and money market deposits balance in line with our policy of holding £4 million cash per aircraft in the fleet.

Operational measures

Seats flown (millions)65.962.55.5%
Passengers (millions)58.454.57.1%
Load factor88.7%87.3%+1.4ppt
Available seat kilometres (ASK) (millions)72,18269,3184.1%
Revenue passenger kilometres (RPK) (millions)65,22761,3476.3%
Average sector length (kilometres)1,0961,110(1.3%)
Block hours786,854761,7083.3%
Number of aircraft owned / leased at end of year2142044.9%
Average number of aircraft owned / leased during year206.6198.83.9%
Number of aircraft operated at end of year2031973.0%
Average number of aircraft operated during year195.7185.45.5%
Operated aircraft utilisation (hours per day)11.011.3(2.1%)
Owned aircraft utilisation (hours per day)10.410.5(0.6%)
Number of routes operated at end of year60554710.6%
Number of airports served at end of year1331238.1%

Financial measures

Return on equity14.6%14.0%+0.6ppt
Return on capital employed – excluding operating leases adjustment14.5%12.7%+1.8ppt
Return on capital employed – including operating leases adjustment11.3%9.8%+1.5ppt
Profit before tax per seat (£)4.813.9721.3%
Profit before tax per ASK (pence)0.440.3622.8%
Revenue per seat (£)58.5155.275.9%
Revenue per seat at constant currency (£)59.4155.277.5%
Revenue per ASK (pence)5.344.987.2%
Revenue per ASK at constant currency (pence)5.424.988.9%
Per seat measures
Total cost per seat (£)53.7051.304.7%
Total cost per seat excluding fuel (£)36.2536.62(1.0%)
Total cost per seat excluding fuel at constant currency (£)37.2836.621.8%
Operational cost per seat (£)50.4547.785.6%
Operational cost per seat excluding fuel (£)33.0033.10(0.3%)
Operational cost per seat excluding fuel at constant currency (£)34.0133.102.8%
Ownership cost per seat (£)3.253.52(7.8%)
Per ASK measures
Total cost per ASK (pence)4.904.626.0%
Total cost per ASK excluding fuel (pence)3.313.300.2%
Total cost per ASK excluding fuel at constant currency (pence)3.403.303.1%
Operational cost per ASK (pence)4.604.306.9%
Operational cost per ASK excluding fuel (pence)3.012.980.6%
Operational cost per ASK excluding fuel at constant currency (pence)3.102.984.1%
Ownership cost per ASK (pence)0.300.32(6.6%)

Going concern

easyJet’s business activities, together with factors likely to affect its future development and performance, are described in the business review. Note 22 to the accounts sets out the Group’s objectives, policies and procedures for managing its capital and gives details of the risks related to financial instruments held by the Group.

The Group holds cash and cash equivalents of £645 million as at 2012. Total debt of £957 million is free from financial covenants, with £129 million due for repayment in the year to 30 September 2013.

The business is exposed to fluctuations in fuel prices and US dollar and euro exchange rates. The Group’s policy is to hedge between 65% and 85% of estimated exposures 12 months in advance, and 45% and 65% of estimated exposures from 13 up to 24 months in advance. The Group was compliant with this policy at the date of this Annual report and accounts.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group will be able to operate within the level of available facilities and cash for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the accounts.

Significant contracts and creditor policy

Significant contracts

easyJet operates a single Airbus fleet with the last two Boeings having been returned to lessors in the year to 30 September 2012. Engines are provided by CFM International. Maintenance is undertaken by SR Technics, Virgin Atlantic Engineering*, Monarch Aircraft Engineering, General Electric, BF Goodrich, ATIS, Storm, Nayak, Honeywell, Dublin Aerospace and Lufthansa Technik. The major lessors of aircraft to easyJet are Amentum Capital, AWAS*, GECAS*, Nomura Babcock & Brown*, SMBC Aviation Capital*, Sumisho*, and Santander*. The major lenders to easyJet for aircraft purchase are Alliance & Leicester*, Bank of Tokyo-Mitsubishi*, BNP Paribas*, Calyon*, Commerz, HSH Nordbank*, KfW*, Natixis*, PK AirFinance*, SMBC Aviation Capital*, Sumitomo Mitsui Banking Corporation* and WestLB*.

Our main insurers are Global Aerospace, Allianz, AXA, Canada Life, QBE Houston Casualty Company Europe and Generali.

One of our biggest costs is fuel and our main suppliers are Shell, Air BP, Exxon, Air Total and Q8. Our IT systems include agreements with AIMS, who provide crew, aircraft and flight management control and operation software; SAVVIS who provide data centre hosting facilities and our data network; Lufthansa Systems who provide flight planning systems; SOPRA who develop and support our reservations system and other areas of system development; AD OPT Technologies who provide our pairings and roster optimiser; and Unit 4 who provide our accounting system, Agresso.

As at 30 September 2012 easyJet had 23 bases and they were operated by:

BAAGlobal Infrastructure Partners
AdPEuroAirport Basel-Mulhouse-Freiburg
Manchester Airports GroupSouth West Airports
AbertisPeel Holdings
Aeroports de LyonFlughafen Berlin-Schoenefeld
Aeroporti Di MilanoNewcastle Airport
Geneva International AirportAENA
Aeroporti di RomaLondon Southend Airport Company
Aeroport Toulouse BlagnacAeroport de la Cote D’Azur
ANA – Aeroportos de Portugal

At these airports our ground handling was carried out by:

Menzies AviationServisair
Group Europe HandlingAviapartner
SwissportSEA Handling
Globeground BerlinSwissport Menzies
Aviation ServiceGate Aviation
PortwayLondon Southend Airport Company

Our main ancillary partners are Gate Gourmet, who provide our in-flight merchandise, Europcar, who provide car rental services, who broker hotels, Low Cost Holidays who provide accommodation and transfers for easyJet UK Holidays and Alvia who, through the Mondial brand, provide travel insurance.

Our credit card acquirers are Elavon, Lloyds TSB, Barclays Merchant Services and American Express. Our payment service providers are CyberSource.

The Company is regulated in the UK by the CAA and easyJet Switzerland is regulated by FOCA. We have important relationships with NATS and Eurocontrol in relation to air traffic services.

The main employee unions we deal with in the UK are BALPA, UNITE and Prospect; in France they are SNPL and UNAC/SNPNC/CFTC; in Spain they are SEPLA, STAVLA and CCOO; in Italy IPA, FIT-CISL and FILT-CGIL; in Germany Ver.di; and in Switzerland SSP/VPOD.

We use contract pilots from Airline Recruitment Limited and CAE Parc Aviation and flight simulation services from CAE and SIM Aerotraining.

We have a key relationship with easyGroup IP Licensing, who own the easyJet brand, through the Amended Brand Licence, and with Sir Stelios Haji-Ioannou through the Comfort Letter1.

* These contracts contain provisions giving the other party the right to terminate if there is a change in control in easyJet.

1 See Note 26 to the accounts on Related Party Transactions.

Policy and practice on payment of creditors

easyJet aims to have partnership agreements with suppliers, which stresses the importance of strong suppliers aligned to the success of easyJet as a business. Many of our supply agreements are unique and tailored to the needs of the business, to make sure that suppliers are rewarded appropriately for delivering services which meet pre-agreed performance targets and align with easyJet’s own internal performance goals. Our practice is to:

  • Agree the terms of payment at the start of business with the supplier
  • Ensure that those suppliers are made aware of the terms of the payments
  • Pay in accordance with contractual and other legal obligations

At 30 September 2012, the number of creditors days outstanding for the Group was 10 days (2011: 8 days), and for the Company was nil days (2011: nil days).

Principal risks and uncertainties

The risks and uncertainties described below are considered to have the most significant effect on easyJet’s business, financial results and prospects. This list is not intended to be exhaustive.

easyJet carries out a detailed risk management process, to ensure that risks are identified and mitigated where possible, although many remain outside our full control, for example adverse weather, pandemics, acts of terrorism, changes in government regulation and macroeconomic issues. A more detailed overview of the risk management process and internal control can be found in our Corporate Governance section.

Strategic impactRisk description and potential impact Current mitigation

Major safety incident / accident

Failure to prevent a major safety incident or deal with it effectively.

This could adversely affect our reputation, operational and financial performance.

Our number one priority is the safety, including security, of our customers and people. We operate a strong safety management system through:

  • Fatigue Risk Management System. Incident reporting.
  • Safety Review Board.
  • Safety Action Group.
  • Management and control system for our operations including weekly operations meetings and reporting.
  • Regular review by the Board of Directors.

We have response systems in place and provide training for crisis management; combined with full crisis management exercises performed regularly.

Insurance is held which is believed to be in line with other airlines.

We constantly ensure that regulations required by relevant Governments are enforced. Crew are trained within the current guidelines.

Security and terrorist threat or attack

A major security related threat or attack from either internal or external sources occurs and we fail to deal with it effectively.

This could adversely affect our reputation, operational and financial performance.

Strategic impactRisk description and potential impact Current mitigation

Impact of mass disruption in peak seasonal months

A number of factors can lead to widespread disruption to our network, including epidemics / pandemics, forces of nature (extreme weather, volcanic ash, etc), acts of terrorism, union activity and strike action. Any widespread disruption could adversely affect our reputation, operational and financial performance.

If the widespread disruption occurred during our peak summer months then easyJet’s financial results would be significantly impacted. As load factors are also higher during this period, it would potentially take longer to recover from any significant disruption.

Processes in place to adapt to widespread disruption. A full crisis management exercise is performed regularly and a business continuity programme is in place.

Significant analysis and senior management focus has resulted in crewing solutions being put into place to further recognise the external factors and volatility that impact the airline industry.

easyJet has a strong financial balance sheet allowing us to be in a strong position to withstand potential events that result in periods of reduced revenues.

Single fleet risk

easyJet is dependent on Airbus as its sole supplier for aircraft, with two aircraft types (A319 and A320).

There are significant cost and efficiency advantages of a single fleet, however there are two main associated risks:

  • Technical or mechanical issues that could ground the full fleet or part of the fleet which could cause negative perception by the flying public.
  • Valuation risks which crystallise on the ownership exit of the aircraft. The main exposure at this time is with the ageing A319 fleet, where we are reliant on the future demand for second-hand aircraft.

The efficiencies achieved by operating a single fleet type are believed to outweigh the risks associated with the Company’s single fleet strategy.

Rigorous established maintenance programme is followed.

easyJet constantly reviews the second-hand market and has a number of different options when looking at fleet exit strategies, e.g. easyJet’s targeted fleet mix is a 70:30 split between owned and leased. This facilitates the exit strategy of older A319s, protects residual values as well as increasing flexibility in managing the fleet size.

IT system failure

easyJet is currently dependent on a number of key IT systems and processes operated at London Luton airport and other key facilities.

A loss of systems and access to facilities including the website, could lead to significant disruption and have an operational, reputational and financial impact.

Key systems are hosted in multiple datacentres in two distinct locations with failover arrangements between them.

A business continuity programme including disaster recovery arrangements is in place. This is being refined to ensure continued alignment to operational requirements.

Alternative sites are available should there be a need to relocate critical staff at short notice due to a loss of facilities.

Dependence on third-party service providers

easyJet has entered into agreements with third party service providers for services covering a significant proportion of its operation and cost base.

Failure to adequately manage third party performance would affect our reputation, operation and financial performance. Loss of these contracts, inability to renew or negotiate favourable replacement contracts could have a material adverse effect on future operating costs.

Processes are in place to manage third party service provider performance.

Centralised procurement department that negotiates key contracts.

Most developed markets have suitable alternative service providers.

Industrial action

Large parts of the easyJet workforce are unionised. Similar issues exist at our key third party service providers. If any action was taken this could impact on easyJet’s ability to maintain our flight schedule.

This could adversely affect our reputation, operational and financial performance.

Employee and union engagement takes place on a regular basis.

Significant analysis and senior management focus has resulted in crewing solutions being put into place to further recognise the external factors and volatility that impact the airline industry.

Strategic impactRisk description and potential impact Current mitigation

Asset allocation

easyJet has a leading presence on the top 100 routes in Europe and positions at primary airports that are attractive to time sensitive consumers. easyJet manages the performance of its network by careful allocation of aircraft to routes and optimisation of its flying schedule.

If we fail to continue to optimise our network and fleet plan this will have a major impact on easyJet’s ability to grow and gain the required yield. In addition, poor planning of the correct number of aircraft to fly the schedule would have a critical impact on easyJet’s costs and reputation.

A Network Portfolio Management Strategy is in place which looks to take a balanced approach to the route portfolio that we fly to ensure that we optimise each aircraft to get the best return for each time of day, each day of the week.

Route performance is monitored on a regular basis and operating decisions are made to improve performances where required.

Strategic impactRisk description and potential impact Current mitigation

Exposure to fuel price fluctuations and other macroeconomic shifts

Sudden and significant increases in jet fuel price and movements in foreign exchange rates would significantly impact fuel and other costs. Increases in fuel costs have a direct impact on the financial performance of the company. If not protected against, this would have a material adverse effect on financial performance.

easyJet’s business can also be affected by macroeconomic issues outside of our control such as weakening consumer confidence, inflationary pressure or instability of the Euro. This could give rise to adverse pressure on revenue, load factors and residual values of aircraft.

Board approved hedging (jet fuel and currency) in place that is consistently applied. Policy is to hedge within a percentage band for rolling 24 month period.

To provide protection, the Group uses a limited range of hedging instruments traded in the over the counter (OTC) markets, principally forward purchases, with a number of approved counterparties.

A strong balance sheet supports the business through fluctuations in the economic conditions for the sector.

Regular monitoring of markets and route performance by our network and fleet management teams.

Financing and interest rate risk

All of the Group’s debt is asset related, reflecting the capital intensive nature of the airline industry.

Market conditions could change the cost of finance which may have an adverse effect on our financial performance.

Group interest rate management policy aims to provide certainty in a proportion of its financing.

Operating lease rentals are a mix of fixed and floating rates.

All on balance sheet debt is floating rate, re-priced up to six months.

None of the agreements contain financial covenants to be met.

A portion of US dollar mortgage debt is matched with US dollar money market deposits.

Liquidity risk

The Group continues to hold significant cash or liquid funds as a form of insurance.

Lack of sufficient liquid funds could result in business disruption and have a material adverse effect on our financial performance.

Board policy is to maintain a targeted level of free cash and money market deposits.

This allows the business to ride out downturns in business or temporary curtailment of activities (e.g. fleet grounding, security incident, extended industrial dispute at a key supplier).

Credit risk

Surplus funds are invested in high quality short-term liquid instruments, usually money market funds or bank deposits.

Possibility of material loss arising in the event of non-performance of counterparties.

Cash is placed on deposit with institutions based upon credit rating with a maximum exposure of £150 million for AAA counterparty money market funds.

Strategic impactRisk description and potential impact Current mitigation

Major shareholder / investor relationship issues

easyJet has a major shareholder (easyGroup Holdings Limited) controlling over 25% of ordinary shares. Shareholder activism could adversely impact the reputation of the Company and cause a distraction to management.

easyJet does not own its company name or branding which is licensed from easyGroup IP Licensing. As for all brand licensees, the easyJet brand could be impacted through actions of the easyGroup or other easyGroup licensees.

We have a very active shareholder engagement programme led by our Investor Relations team. We seek to engage with easyGroup Holdings Limited on a regular basis alongside all our other major shareholders as part of that programme with a view to ensuring the Board and management team are kept aware of the views of all shareholders.

A team of individuals from the Board and senior management take responsibility for addressing issues arising from the activist approach adopted by the major shareholder. The objective is to address issues when they arise as effectively as possible in order to minimise the disruptive effect on day-to-day management of the Company’s operation and to anticipate and plan for potential future activism.

Ineffective or non-delivery of the business strategy

A number of key projects have been set up to deliver key elements of the strategy. If these projects do not deliver the benefits and cost savings planned we could fall short of our planned financial results.

Programme management office (PMO) and experienced project teams have been set up to oversee delivery and track the budget and benefits realisation of all projects.

Steering Group set up with key senior management on it to ensure monitoring, challenge and key decisions are being made at the appropriate level.

Information security

easyJet faces external and internal information security risks. The Company receives most of its revenue through credit card transactions and operates as an e-commerce business.

A security breach could result in a material adverse impact for the business and reputational damage.

Systems are secured and monitored against unauthorised access. This will receive continued focus.

Information security controls are being further enhanced in key areas including third parties, governance, HR, physical security and IT / technical.

The security of internal systems and are reviewed quarterly through penetration testing.

Employee security sessions are run periodically to maintain staff awareness.

Scanning software for fraudulent customer activity is monitored and controlled by the Revenue Protection team.

Bribery Act

The Bribery Act came into force in July 2011. To date there are no precedents set in respect of how this will be enforced with respect to corporations. As with all companies, if we were found to be in breach of the Act this could adversely affect us financially and reputationally.

easyJet has a strong ethical tone from the top.

Risks assessments have been completed and appropriate actions taken where necessary.

General awareness training has been provided, with additional targeted training given to higher risk groups.

New offerings add complexity to customer experience

easyJet has the ability to deliver value to the customer by ensuring the end to end customer proposition continues to make travel easy.

There is a risk that as easyJet continues to grow we could add additional complexity into our business model.

Rigorous change governance process in place.

The customer experience is at the heart of all changes or new offerings considered by easyJet.

Strategic impactRisk description and potential impact Current mitigation

Competition and industry consolidation

easyJet operates in competitive marketplaces against both flag carriers and other low-cost airlines.

One of easyJet’s key competitive advantages is its strong cost base. If we lost sight of this or relaxed our stance over cost control this could significantly reduce any competitive advantage and impact profitability.

Industry consolidation will also affect the competitive environment in a number of markets. This could cause a loss of market share and erosion of revenue.

Regular monitoring of competitor activity and potential impact of any consolidation activity.

Rapid response in anticipation of and to changes. Strong cost control across the company. “easyJet Lean” drives cost reduction and efficiency into targeted areas.

Regulator intervention

The airline industry is currently heavily regulated, with expected increased regulator intervention. This includes environmental, security and airport regulation which have charges levied by regulatory decision rather than by commercial negotiation.

easyJet is exposed to various regulators across our network, which will increase as the Company grows geographically. This could have an adverse impact to our reputation, cost base and market share. An inadequate knowledge or misinterpretation of local regulations could result in fines or enforcement orders

easyJet has a key role in influencing the future state of regulations.

A Regulatory Affairs Group coordinates the work and effort in this area.

Sir Michael Rake's signature

Chris Kennedy

Chief Financial Officer