fy 2016 analyst & investor...
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FY 2016 Analyst & investor
presentation
Tuesday 15 November 2016
Introduction
Carolyn McCall
Chief Executive Officer
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Proven business model in all market conditions
• Strong performance in a tough year
• Purposeful and disciplined growth; reinforcing our market
positions
• Revenue and network differentiate easyJet and drive RPS
• Strong cost performance
• Strong balance sheet to support strategy which delivers
dividend.
3
Financial review
Andrew Findlay
Chief Financial Officer
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Financial performance
*Favourable / (adverse)
** Profit before tax at constant currency including balance sheet revaluations
FY 2016 FY 2015 Change* Change*
£ m £ m % % @ CC
Total revenue 4,669 4,686 (0.4%) (0.9%)
Fuel (1,114) (1,199) 7.1% 7.4%
Costs excluding fuel (3,060) (2,801) (9.2%) (5.3%)
Profit before tax 495 686
Profit before tax at constant currency 576 686 **
EBITDAR 770 940 (18.0%) (9.0%)
EBITDAR Margin (%) 16.5% 20.0% (3.5ppt)
Earnings per share (pence) 108.4 139.1 (22.1%)
Dividend per share (pence) 53.8 55.2 (2.5%)
Return on capital employed (%) 14.6% 22.2% (7.6ppt)
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Revenue performance
*Favourable / (adverse)
FY 2016 FY 2015 Change*
Seats flown (m) 79.9 75.0 6.5%
Load factor (%) 91.6% 91.5% +0.1ppt
Passengers (m) 73.1 68.6 6.6%
Average sector length (km) 1,098 1,118 (1.7%)
Total revenue - reported (£m) 4,669 4,686 (0.4%)
Total revenue -constant currency (£m) 4,644 4,686 (0.9%)
Total revenue per seat - reported (£) 58.46 62.48 (6.4%)
Total revenue per seat - constant currency (£) 58.16 62.48 (6.9%)
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c.35% of the decrease in RPS can be attributed to the immediate impact of post terrorist incidents in Sharm el Sheik, Paris, Brussels, Nice and Turkey
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A strong focus on costs
Total cost per seat bridge • Total cost per seat at constant currency: 4.6% decrease
• Cost per seat ex fuel at constant currency: 1.1% decrease
1.32
1.960.09
1.41
0.400.10
0.130.100.59
0.30
0.53
HPT blades Fuel
52.81
Before Mgmt action
Balance sheet
revaluations
Cost post Mgmt
actions
Other savings
including lean
FY 2015 Eurocontrol settlement
54.62
Inflation* Disruption Regulated airports inflation
FY 2015
53.33
FY 2016 P&L FX
A320 mix Reduced sector length
52.26
*Operational price increases including unregulated airports, ground handling, navigation and crew costs
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Impact of fuel & currency
*Favourable / (adverse)
FY 2016 fuel impact* FY 2016 FY 2015 Change*
Fuel $ per metric tonne
Market rate 415 619 204
Effective price 754 872 118
US dollar rate
Market rate 1.41 1.54 (13 cents)
Effective price 1.57 1.58 (1 cent)
Actual cost of fuel £ per metric tonne 479 553 74
FY 2016 currency impact* EUR CHF USD Other Total
£m
Revenue 8 10 4 2 24
Fuel - - (3) - (3)
Prior year balance sheet revaluations (3) 1 (5) - (7)
Costs excluding fuel and prior year balance sheet revaluations
(84) (13) (3) (2) (102)
Total (79) (2) (7) - (88)
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Strong cash generation
106
19
6
22586
139
219
99
2235
169
498
Cash and MMD’s @ 30 Sep ’16
969
FX Net interest Restricted cash
Own shares CAPEX Increased borrowings
Cash & MMDs
post div & tax paid
1,345
Ordinary dividend
Tax paid Other operating
Net working capital
Depn & amort
Operating profit
Cash & MMDs at 1 October
2015*
939
*Includes money market deposits but excludes restricted cash
Cash flow bridge • Net cash: £213m (FY15: £435m)
• Adjusted net debt: £508m (FY15: £363m) Cash generated from operations
(excluding dividends): £724m
Investing and financing
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Strong balance sheet
£m FY 2016 FY 2015
Goodwill and other intangible assets 517 492
Property, plant and equipment 3,252 2,877
Derivative financial instruments 98 (297)
Other assets (excluding cash and money market deposits) 324 348
Unearned revenue (568) (619)
Other liabilities (excluding debt) (1,124) (987)
Capital employed 2,499 1,814
Cash and money market deposits 969 939
Debt (756) (504)
Net cash 213 435
Net assets 2,712 2,249
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Liquidity is supported by the 500 million US dollar Revolving Credit Facility that has no financial covenants or draw-stops
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Gross capital expenditure
- Figures in graph quoted in millions
- Assumes base case fleet plan
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£1,050
FY19 FY18
£1,100
FY17
£650
FY16
£600
Replacement Maintenance/other Retrofit Growth
• Incremental capex in FY18 &
FY19 driven by replacement
expenditure
• Unit cost savings of 13-14% are
anticipated from up-gauging
to 186 seat A320 Neo’s
• Maintenance capex is
projected to remain stable
over the next 3 years
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257
301
312
335
357
279
302
331
345
358
257
239 234
222
175
200
225
250
275
300
325
350
375
FY16 FY17 FY18 FY19 FY20 FY21
Base Case
Contracted Max
Contracted Min
Fleet flexibility
Extra aircraft allows greater flexibility in fleet planning
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Business Review
Carolyn McCall
Chief Executive Officer
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easyJet delivers returns in all market conditions
Purposeful network strategy
Capital Discipline
Tough on cost
50% dividend payout &
Long term shareholder returns
Strong balance sheet
+
+
=
Supported by
Differentiated proposition &
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Strong underlying demand in our markets
Passenger forecasting undertaken at city level and aggregated up to countries
3.6%
Expected passenger growth CAGR, 2016-21
United Kingdom
France
Germany
Switzerland
Italy
3.2%
3.2%
Spain & Portugal
2.4%
3.8%
3.1%
3.5%
Netherlands
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Purposeful growth with a significant opportunity to secure long term returns
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Purposeful Growth
Opportunities to support profitable growth of up to 9% per annum
Purposeful growth
Disciplined capital allocation
UK, Switzerland
• Portfolio management: sustained short term returns & investment for future
• Allocating aircraft and churning routes to maximise returns
• Leverage lean bases to access markets cost-efficiently
Build & strengthen No1 positions
Take advantage of growth opportunities
Target specific catchment areas
Invest in lean bases
France
Eg: Amsterdam, Venice, Berlin
Eg: Barcelona
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#1 Other #2
easyJet position at airport
Purposeful allocation of capacity
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• Leverage, build and strengthen
• Strong positions behind legacy carriers
• Build or churn • Lean basing
Highly profitable
Profitable
Returns driven by strong network positions at primary airports….
Purposeful Growth
The sweet spot is being No1 at the airport and No1
on the route
Graph not to scale
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Source : easyJet internal plan for 2017 data. Departing capacity 18
easyJet’s 2016 capacity split
▪ 98% of capacity touches a number 1 or number 2 position airport.
▪ easyJet has a high share of capacity at number 1 positions driving premium returns
Focused investment to drive the highest returns
▪ Focussed capacity deployment in FY17 to invest in number 1 positions
▪ Purposeful investment to develop other airports to become no 1 or 2
Purposeful Growth
2017 new capacity growth
- 5.5 million seats into No 1 positions
- 1.6 million seats into No 2 positions
- Flat seat growth in other
83%
15%
Number 1
Number 2
Other
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Strong positions in slot constrained airports
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Purposeful Growth
Airport1 Current morning peak utilisation1,2,3
London Gatwick
Milan MXP
London Luton
Geneva
Berlin SXF
Paris CDG
Manchester
Edinburgh
Pais Orly
Lyon
Amsterdam Schipol
Nice
Lisbon
Barcelona
Full at peak times
Constrained at peak times
Less constrained at peak times
80% of easyJet capacity touches an airport that is slot constrained during peak times
Up-gauging allows easyJet to continue to grow capacity at slot constrained airports
A network that is difficult to replicate
1) easyJet airports that are part of the top 30 European airports, where easyJet is present (therefore excludes Heathrow, Frankfurt, Istanbul and Dublin); 2) Based on theoretical max runway capacity at airport 3) Peak = first wave departures (before 8.30am) on weekdays in IATA Summer season or at other time of day. For leisure destinations may also include weekend peak demand periods e.g. Saturday in Geneva in ski season;
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easyJet
Non-LCC P2P Non-LCC transfer
Other LCC
Significant opportunities within the current network
High return opportunities at easyJet’s top 20 airports
77m seats
Capacity split at easyJet’s top 20 airports
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Purposeful Growth
63m seats at
airports where easyJet hold a No1 or No2 position
14m Other
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c.9% easyJet capacity growth in 2017
UK
France
Italy
Switzerland
Germany
Country capacity growth is schedule on schedule, based on network touching seats.
Investment in the network in 2017 to capture market opportunities
Netherlands
Purposeful Growth
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4.1m
2.4m
0.5m
0.6m
1.4m
1.4m
Build & strengthen No1 positions
Take advantage of growth opportunities
Target specific catchment areas
Invest in lean bases
Spain
1.7m
xx 2017 growth – seats, millions
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Track record of driving returns
Contribution per block hour by route (FY16)
Capital Discipline
Mature routes (> 3 years)
Maturing routes (< 3 years)
Not operated in FY12
14%
Outside top 25% then
40%
In top 25 % then 46%
54% of our top 25% of routes were not in our top
25% in FY2012
Development of our top 25% routes
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WACC = 8%
Graph not to scale
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The easyJet brand is strongest in our most profitable markets
#1/2 airport positions % pax1
% returning pax1
First choice airline
(vs LCC) 2 Value
perceptions2 Digital
demand3 Top rated
airline app4
14 45 79 #1 #1 #1 #1
6 14 68 #1 #1 #2 #1
2 11 82 #1 #1 #1 #1
Strong network and digital offering
Compelling value proposition
First choice airline for a growing, loyal and valuable customer
base
+
1. Source: easyjet customer database 2. Source: Millward Brown easyJet brand tracker 3. Source: Google searches last 12 months, Google Analytics 4. Source: iTunes
Differentiated Proposition
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Digital offering that drives ticket sales
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1. easyJet.com
• Web visits now totalling over 350M
• 84% passengers check in online – repeat visit
Differentiated Proposition
2. Mobile - Industry leading app
• 4.5* UK Apple app rating (example Ryanair 1.5*)
• Highly used mobile boarding passes + 63% YOY
• 168M visits and 20.3% of all e commerce bookings now made on mobile + 38% YOY
3. Balanced approach with GDS/Aggregator/Direct API capability
• Market leading 3rd Party API capability (12.5% of total seats)
• Over 300 TMC relationships to support the corporate customer
Digital distribution strategy is built on three commercially mature channels
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Differentiated Proposition
Driving growth in non-ticket revenue
Digital offering that drives ancillary revenue
Inflight revenue +31% v FY15
• Premium in flight range to match customer profile
• Increased penetration and spend per head
• Improved supplier terms/waste reduction
Non ticket seat revenue +9% v FY15
• Allocated seating conversion uplift
• >40% growth in eJ+ revenue
• Flight club launch and roll out
Partner Ancillaries +6% v FY15
• New media sales initiatives
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Data is driving customer insight and loyalty
Source easyJet database FY16
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Differentiated Proposition
Source: easyJet database
Customer insight Driving loyalty
• 26.3M marketable customers – an increase of 5% YOY
• easyjet Plus has increased 40% YOY • Our email programme drives incremental value:
• 30% more customers in the programme make a booking (versus non marketable).
• They book more frequently and spend more each time they book: • 50% more flight revenue • 47% more ancillary revenue
We understand our 73.1m passengers: • 55% passengers originate from outside of the UK
• 20% travel for business purposes, 51% travel for
occasional leisure purposes and 17% are high-frequency leisure travellers
• 50% easyJet’s customers are AB, and our most
frequent and valuable customers come from the highest UK socio-economic group (Business Elite) • Managers, professionals and directors • High earnings • Strong internet and smartphone usage
Socio-economic profile (UK)
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Investment in business driving higher yielding growth
27
Differentiated Proposition
12.5m passengers
travelled
Record 1.3m passengers in
September
Over 300 corporate
agreements
14% increase in Business
Fares
Award Winning B2B program
GDS contracts renewed
On track to deliver increased business passengers of 25% over next 3 years
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On-going digital momentum
Source easyJet database FY16
28
Differentiated Proposition
Live or imminently going live initiatives • Inflight vouchers (live) • Earlier flight (live) • easyJet holidays (live) • Disruption portal & self service initiatives (live) • Personalised ancillary upsell at check-in (live) • Inflight pre-order (December) • EPOS on board (January) • Tours and excursions (February ‘17)
Future Commercial Platform • Hybris e-commerce platform in build • Personalised Sitecore platform rolling out • Will be an industry leading merchandising capability
and the platform for deeper ancillary integration • Programme on track for delivery in FY18
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Increasing cost advantage
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Tough on cost
Cost advantage over non LCC carriers
Market share on easyJet’s network
*Capacity on easyJet airport to airport pairs (FY 2016)
4.1%
2.9%
1.4%
4.8%
Norwegian Airberlin easyJet Ryanair
Stage length adjusted CASK ex fuel cagr growth, 2011 - 2016
easyJet cost performance vs LCC’s
9.78.6
6.0
3.5
AF-KLM Lufthansa IAG easyJet
Stage length adjusted CASK ex fuel, pence
Source: Airline Analyst. Note: CASK covers last 12 months to 30 June 2016 for peers (unless otherwise noted) & FY16 for easyJet. Peer cask translated to pence using average rate for FY16.
easyJet
easyJet Air France KLM Vueling
BA Ryanair Alitalia Thomson
TAP Monarch Thomas Cook Other
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Proven delivery of sustainable savings
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Tough on cost
Up-gauging: A structural advantage
156 seats 186 seats
Current generation
A319
New generation A320neo
13% -14%
Lean delivers sustainable savings
41
4332
46
95
315
58
Y2015 Y2014 Y2013 Y2012 Y2011 Y2017 Y2011-16 Y2016
CPS ex fuel target: flat 2015 vs 2019
2015 CPS (ex Fuel @ cc)
2019 CPS (ex Fuel @ cc)
Lean programme offsets inflation
Efficient and effective cost base
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Lean initiatives will continue to deliver
31
Tough on cost
FY 2017 CPS
Cost saving initiatives
Inflation (inc. regulated airport increases)
Investment
• Up-guaging • Airport and Ground handling contract
negotiations and efficiencies • Crew productivity initiatives including
seasonal basing and positioning • Engineering and maintenance efficiencies
and contract savings • Improved disruption mitigation and
management • Contact centre savings through increased
self service and process improvements
• Resilience • Fleet expansion • Funding • Projects / development • Data science e.g. predictive maintenance
2.0%
c.(2.0%)
c.1.0%
c. 1.0%
2018-19 CPS
2.0%
(2%) - (3%)
0% - 2%
c. Flat
easyJet Lean
Figures are excluding fuel at constant currency
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The operational environment has dramatically changed
32
Airport congestion
European short haul capacity has increased by over 100m seats in the past 2 years
London capacity has increased by 15m seats in the past 2 years
ATC issues
French ATC strikes in March and June causing over 1,000 cancellations
Brest airspace control systems upgrade
Greek islands – Heavily congested during the summer with dated systems unable to cope
London TMA
Delays due to London TMA congestion tripled from 2015 to 2016
Operating in primary slot constrained airports
80% of easyJet capacity touches an airport that is slot constrained during peak times
Gatwick airport currently have 57 days per year of more than 900 movements compared to 5 days in 2014
External factors
There is a direct link between on time performance and delays that are not in easyJet’s control
0
100
200
300
400
500
0%
20%
40%
60%
80%
100%
De
lay
Co
un
t
On
-Tim
e P
erf
orm
an
ce
Impact of ATC delays through summer
Delay Count Arr 15 Minute OTP %
When ATC delays are below 100 a day easyJet’s OTP was above 80%
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easyJet is investing in resilience
33
• Aircraft availability
• Leased business jet to deliver engineers and parts rapidly to where they are needed
• Predictive maintenance programme to increase reliability
• Crew
• Investing in recruitment and training
• Schedule and rostering
• End to end planning to improve delivery of operational performance
• Forging closer relationships with crew to ensure sustainability
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Brexit – No impact on model or strategy
• EU AOC process on schedule
• Extensive process to define criteria for best location
• Process close to completion
• Formal application expected in early 2017
• Will secure intra-European flying rights
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Confident that easyJet’s network will not be affected
Flows % of current capacity
Flying rights (AOC) Flying rights at April 2019?
Domestic UK 10% UK Yes
UK – EU 40% UK, EU Yes
EU – EU 30% EU Yes
CH – EU/UK 15% UK, EU, CH Yes
Other 5% UK, EU, CH Yes
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Outlook in 2017
Capacity (seats flown) • H1 c.+9% (before disruption)
• FY c.+9% (before disruption)
Revenue per seat at constant currency • H1 revenue per seat: down mid to high single digits
Cost per seat at constant currency • FY cost per seat: down c. 3% (assuming normal levels of disruption)
• FY cost per seat excluding fuel: up c. 1% (assuming normal levels of disruption)
FX • H1: c.£70 million adverse movement from foreign exchange rates
• FY: c.£90 million adverse movement from foreign exchange rates
Fuel • H1: unit fuel costs £85 million to £95 million favourable
• FY: unit fuel costs £245 million to £275 million favourable
• Expected total fuel cost £1,050 million
Rates at 14 November 2016 £/USD:1.2601; £/EUR: 1.1604 Unit fuel guidance based on Jet fuel trading range of $400 / metric tonne to $520 / metric tonne
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easyJet is a structural winner
• Purposeful future growth plans
• Significant opportunities for profitable growth
• Best customer proposition with constant innovation to
drive demand and loyalty
• Cost plan to deliver flat CPS ex-fuel
• 50% profit after tax pay-out ratio
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Q & A
appendix
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Fuel and foreign exchange hedging
Sensitivities – FY17
• $10 per tonne change in fuel price will impact the full year pre-tax result by +/- $2.8 million
• One cent movement in the £/$ will impact the full year pre-tax result by +/- £2.0 million
• One cent movement in the £/€ will impact the full year pre-tax result by +/- £0.4 million
• One cent movement in the £/CHF will impact the full year pre-tax result by +/- 0.3 million
Fuel
requirement US dollar
requirement Euro surplus CHF surplus
Six months ending 31 March 2017
83% at $664/ metric tonne
79% at $1.53/£ 78% at €1.36/£ 73% at CHF1.42/£
Full year ending 30 September 2017
81% at $617/ metric tonne
74% at $1.52/£ 82% at €1.35/£ 71% at CHF1.41/£
Full year ending 30 September 2018
47% at $510 / metric tonne
50% at $1.43/£ 47% at €1.27/£ 47% at CHF1.35/£
As at 14 November 2016 39
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H1 forward bookings
H1 2017 (October 2016 to March 2017) as at 12 November 2016
H1 bookings in line with prior year
% seats sold*
40
93%
50%
90%
49%
Oct Nov Dec Jan Feb Mar H1
Winter 2016 Winter 2017
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Profit after tax
*Favourable / (adverse)
£ m FY 2016 FY 2015 Change*
Profit before tax 495 686 (27.9%)
Tax charge (68) (138) 51.1%
Profit after tax 427 548 (22.0%)
Effective tax rate 13.7% 20.1% 6.4ppt
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Revenue per seat
*Favourable / (adverse)
£ per seat FY 2016 FY 2015 Change*
Seat revenue 57.43 61.54 (6.7%)
Non-seat revenue 1.03 0.94 9.7%
Total revenue 58.46 62.48 (6.4%)
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H2 Performance
*Favourable / (adverse)
Reported £m H2 2016 H2 2015 Change*
Total revenue 2,898 2,919 (0.8%)
Fuel (652) (683) 4.5%
Operating costs excluding fuel (1,587) (1,426) (11.1%)
EBITDAR 659 810 (18.5%)
Ownership costs (140) (131) (8.5%)
Profit before tax 519 679 (23.6%)
PBT margin 17.9% 23.3% (5.4ppt)
Seats (m) 45.3 42.8 5.8%
Constant currency £ per seat H2 2016 H2 2015 Change*
Total revenue 62.38 68.16 (8.5%)
Fuel (14.22) (15.94) 10.8%
Operating costs excluding fuel (32.42) (33.32) 2.8%
EBITDAR 15.74 18.90 (16.7%)
Ownership costs (3.12) (3.10) (1.2%)
Profit before tax excluding prior year revaluations 12.62 15.80 (20.2%)
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Cost per seat excluding fuel – key drivers
*Favourable / (adverse)
Cost per seat excluding
fuel £
Variance at constant currency*
£
Variance at constant currency*
%
Weighted variance at constant currency*
£ Drivers
Navigation 4.21 0.19 4.7% 0.5% • Decrease in average sector length • Price benefits in France and Germany
Maintenance 2.97 0.17 5.3% 0.5% • Reduction in number of leased aircraft in the fleet combined with savings from new maintenance contract
Crew 6.78 0.15 2.2% 0.4%
• Efficiency gained from upgauging our fleet • Decrease in average sector length • Improved crew scheduling • Offset by pay increases
Overheads 5.04 0.14 2.8% 0.4%
• Small absolute increase in cost diluted by 6.1% capacity increase • Lower levels of selling expenses and wet leasing • Offset by higher disruption costs
Airports and ground handling 15.86 (0.22) (1.5%) (0.6%)
• Increases in airport and ground handling costs at Gatwick • Regulated airports price increases • Offset by savings from renegotiated airport and ground handling contracts
Ownership ex revaluations* 3.50 (0.03) (0.7%) (0.1%)
• Increase in depreciation due to new aircraft purchased • Offset against decreasing lease costs due to a decrease in the number of leased aircraft
38.36 0.40 1.1% 1.1%
Net exchange (gains)/losses (0.05)
Total CPS excluding fuel 38.31
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Increasing proportion of A320’s
FY 2016 FY 2015 Change
A319 (operating lease) 45 49 (4)
A319 (owned / finance lease) 99 99 0
A319 Total 144 148 (4)
A320 (operating lease) 18 18 0
A320 (owned / finance lease) 95 75 20
A320 Total 113 93 20
Total fleet 257 241 16
Operating lease 25% 28% (3ppt)
Number unencumbered 156 114 42
Percentage of A320s in fleet 44% 39% 5ppt
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Currency impact
Average effective Euro rate for revenue for FY 2016 was €1.28 (FY 2015: €1.29)
Average effective Euro rate for costs for FY 2016 was €1.27 (FY 2015: €1.35)
Revenue Costs
FY 2016 FY 2015 FY 2016 FY 2015
Sterling 50% 49% 27% 27%
Euro 39% 40% 35% 32%
US dollar 1% 1% 32% 35%
Other (principally Swiss franc) 10% 10% 6% 6%
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ROCE calculation – including 7x lease adjustment
Reported £m FY 2016 FY 2015
Earnings before interest and tax – reported 498 688
Interest element of operating lease payments 34 38
Earnings before interest and tax - adjusted 532 726
Tax 20% 20%
Normalised operating profit after tax (NOPAT) 426 581
Average shareholders’ equity – reported 2,481 2,211
Average net cash – reported (324) (429)
Average capitalised leases 759 833
Average capital employed 2,916 2,615
Return on capital employed – 7x basis 14.6% 22.2%
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