Portfolio task 3

MAIN ECONOMIC FACTORS

- Fuel Prices and Hedging

- US Dollar and Euro Exchange Rates

- Currency Impact

- Financial Measures

- Airport Charges

- Financial Measures

- Reduction in Aircraft Utilisation

FUEL PRICES AND HEDGING

Total fuel cost amounted to £807.2 million in 2009, an increase of 13.9% compared to 2008, equating to a cost per seat of £15.28, up £1.63 per seat or 11.9%. The average market price for jet fuel during 2009 was $595 per metric tonne (excluding fees and taxes) compared to $1,070 in 2008, driven by the extraordinary spike in fuel prices during that year. However, after taking account of hedging taken out in 2008 during the period of high fuel prices, easyJet’s effective price for 2009 was $951 per metric tonne compared to $948 in 2008.
With the effective US dollar price broadly flat for 2009 compared to 2008, the increase in fuel cost per seat is largely driven by the strengthening of the US dollar against sterling, partly mitigated by US dollar hedging.
Despite the introduction of additional heavier A320 aircraft into the fleet and an increase in the average load factor of 1.4ppt, average fuel burn for the year was 715 US gallons per block hour compared to 717 in 2008, principally reflecting the implementation of fuel conservation initiatives.

US DOLLAR AND EURO EXCHANGE RATES

The market rate for the US dollar strengthened by 22% from an average rate of 1.99/£ in 2008 to 1.56/£ in 2009; after taking account of hedging, easyJet’s effective rate strengthened from an average of 1.96/£ in 2008 to 1.78/£ in 2009. The business has no US dollar revenues but significant US dollar costs for fuel, aircraft leases, maintenance and some loan interest and consequently the 9% movement in the effective dollar rate had a significant impact on financial performance.
The euro has strengthened by 12% from an average rate of 1.32/£ in 2008 to 1.16/£ in 2009. Approximately 42% of revenues and 31% of costs (principally ground handling, airport and navigation charges and some crew costs) are denominated in euro resulting in a net long position; the strengthening of the euro, therefore, delivers a positive impact to the results. For the first time this year some hedging of the euro surplus has also been undertaken.

CURRENCY IMPACT

The following charts illustrate easyJet’s exposure to foreign currency revenues and costs:

Certain key measures are therefore significantly impacted by exchange rate fluctuations.

COMPANY OR

Safety is our No.1 priority and a clear imperative for every airline, including easyJet. We recognise the risks associated with operating an airline and work tirelessly to ensure the safety of our customers, our people and our shareholders’ investments.
At easyJet we believe people make the difference; by treating our people well, they will be more customer-focused and better represent the easyJet brand – and that in turn will drive greater customer satisfaction.
In order for aviation to have a long-term future, we must minimise our environmental impact, ensure that environmental impacts and the evolving regulatory environment are considered in all key business decisions and continue to invest in a fleet of young and fuel-efficient aircraft.

Safety and our customer proposition are key strategic priorities and are covered in detail here and here of this publication and therefore this Corporate Responsibility report focuses on our approach to people and environmental management.

People

Our business is only as good as the people that we recruit, train and retain. Our people strategy is underpinned by the cornerstones of talent, engagement and organisational design and aims to ensure that, through strong leadership, we have the right skills in the right place at the right time, thereby creating an environment where people perform better for us than they would for anyone else. We recognise that having the right skills, experience and culture directly influences our performance across all of our strategic objectives. Our ethos is expressed through five values: safety (our No.1 priority – no compromises), teamwork (we’ll get there faster together), pioneering (breaking the mould to find new ways and new opportunities), passionate (we’re ambitious to be the best we can be) and integrity (we mean what we say, and do it!).

Recruitment

Our employer brand remains a key strength – we received over 45,000 hits on our website for opportunities which resulted in over 20,000 applications; the quality of these applications was high and continues to ensure that we have buoyant holding pools from which to source our future employees.

We continue to focus on recruiting crew that live and breathe our values and have, for the past few years, changed the emphasis of our employment model to match the seasonal peaks of our business. We recruited 672 cabin crew in the year; our strategy to employ on fixed term contracts and invite people back year after year enables us to manage our business flexibly whilst maintaining our high standard of operation. We also operated the Flexicrew scheme for our pilot requirements, employing 92 pilots across seven bases for fixed periods of time, to meet our operational needs.

Following the consolidation of easyTech and GB into the easyJet engineering and maintenance function, our focus has been on integration and building talent for our future growth. We have recruited 28 people into the function this year following the in-sourcing of several activities previously undertaken by a third party supplier. This exercise has enabled us to manage the safety, oversight, availability and reliability of the ever growing fleet. This has been another positive step forward in ensuring a world-class operation and a fully integrated engineering and maintenance function.

Training

A wide variety of people joined easyJet through the year. We have looked to continuously improve our well-established and thorough induction training programme for crew and are in the process of refreshing our offering for those within the Management and Administration (M&A) population. This will ensure that all of our new joiners understand the easyJet culture, what we value, our strategic objectives and how they can contribute to our success from day one. easyJet wants people who are new to the organisation to settle in as quickly and efficiently as possible and will continue to invest in the induction process for everyone’s benefit.

We continue to partner with leading schools such as Cranfield University and London City University to ensure our managers get high quality support in developing both their technical and management skills. We continue to build and maintain good relationships with well regarded research and advisory organisations and many of our senior managers continue to represent easyJet at numerous external events hosted by these leading organisations.

Retention

easyJet targets a sensible balance of retention and attrition, benefiting from our investment in recruitment and training, combined with continual injection of fresh thinking. Retention rates are influenced by rewards (including pay, benefits and career development opportunities) and employee engagement.

We recognise that it is often beneficial to the business to identify and develop talent internally together with recruiting externally. Four years ago, we developed our talent identification and succession planning process, which is now embedded in our organisation. As a result, we are more effective at identifying and retaining a pool of talent internally on which we can draw as key roles become vacant or new roles are created. Consequently, whilst we have experienced higher than normal turnover among senior managers this year, we have been able to source some replacements from within our talent pool whilst also taking the opportunity to refresh our talent mix from outside. Overall unforced staff turnover has improved by 5.1 percentage points to 6.9% since 2008, although understandably, the tough economic environment may have also significantly influenced employees’ decision to stay at easyJet.

Turning Europe Orange

In line with our quest to “Turn Europe Orange” we have made significant progress in expanding our employer presence across Europe. In 2009, easyJet continued to grow its employee base in Italy, Spain and France, strengthening our position as a truly pan-European air transport network.

As at 30 September 2009, easyJet employed 6,666 people (2008: 6,107), based throughout Europe as illustrated below:

United Kingdom	4,473
Switzerland	498
France	435
Spain	432
Italy	521
Germany	307
Total	6,666