유럽의 저가항공사 비교연구 - kyungnam.ac.krfocus on the operations, activities and the...

지역산업연구Ⅰ제35권 제2호Ⅰpp.245～268

유럽의 저가항공사 비교연구- 이지젯과 라이언에어를 중심으로 -

11) 조성우(Cho, Sung-Woo)*

국문요약

본 연구의 목적은 같은 산업에 속한 서로 다른 기업의 경영성과(재무적 혹은 비재무적 성과)

를 평가하는 것이다. 유럽내에 위치한 대표적인 저가항공사(이지젯과 라이언에어)를 평가하기

위하여 벤치마킹 기법을 이용하여 기업을 평가하였다. 재무적 성과를 파악하기 위해 기업의 손

익계산서와 대차대조표를 이용하였으며, 비재무적 성과를 평가하기 위해 각 기업의 운영전략을

분석하고 SWOT 분석방법을 도입하였으며, 주식정보를 세밀하게 분석하였다.

두 기업이 전략적인 강점을 가지고 있는 영역이 달라 어떤 기업이 더 효과적인 운영을 하고

있다라고 단정 짓기는 어렵다. 하지만 재무적, 비재무적 성과 그리고 기업의 운영전략 등을 종

합적으로 고려해 보았을 때, 이지젯이 라이언에어보다 전반적인 운영에 있어 효과적으로 수행

하고 있다고 판단할 수 있다. 본 연구는 기업이 같은 산업군에 속한 경쟁 기업을 분석하여 운

영전략을 수립하려 할 때 실질적인 도움이 되는 프레임웍을 제공하고 그리고 학교에서 학생들

이 기업을 분석할 때 활용할 수 있는 교육 자료가 될 수도 있을 것으로 사료된다.

본 연구의 분석에 사용된 자료는 대부분이 두 저가항공사의 연차보고서를 기반으로 하고

있다. 기업마다 보고서 양식이 상이하여 분석에 필요한 자료가 불충분하거나 비교가 쉽지 않은

형태로 자료가 제공되기도 한다. 따라서 때로는 타 기관에서 제공하는 자료를 활용하는 경우도

발생하는데 이런 경우는 편의가 발생할 수도 있음에 유의해서 분석해야 한다.

│주제어│ 저가항공사, 이지젯, 라이언에어, 벤치마킹기법, 비교연구

Ⅰ. Introduction

Recently, the world could be represented by a dynamic and tumultuous society. Revolutionary

changes, such as the global population, which has been increasing in a rate of about 1% per year for the

last 10 years1) have caused increments in the demand of commodities and services in the UK2).

Therefore, it is critical to consider the trend since it could provide us an overview of the current world

* 군산대학교 물류학과 조교수([email protected])1) U.S. Census Bureau, Total mid-year population for the world, International database, 2009.2) Nationwide, Consumer Confidence Index in Partnership with TNS-R, 2009.

246 지역산업연구｜제35권 제2호｜2012.12

requirements in terms of transportation services.

Since the demand for services has been increasing, the transportation companies, such as the airlines,

have had to emphasize continuous improvement of their activities performance and maximize their

operational and financial efficiencies in order to meet the increasing consumer demand (Barrett, 2000).

To promptly meet the needs of the times, low cost carriers (LCCs) emerged after the wave of airlines

deregulation (Evangelho et al., 2005).

The main purpose of this research is to assess the performance of two different companies working on

the same area of business, in this case will be airlines, in order to analyze and compare their financial and

non-financial performances. In the financial assessment, the analysis will be based on the income

statements and the balance sheets of the companies. In the non-financial evaluation, we will principally

focus on the operations, activities and the competitive advantages of each enterprise (Han et al., 2011).

As we mentioned before, the two companies chosen for this benchmarking assessment are airlines,

which are relative leaders in there area of business (LCCs). SKYTRAX, which is the world airline star

rating program, has catalogued Ryanair as a 2 star low cost airline and has catalogued easyJet as a 3 star

low cost carrier, both in a scale of 0 to 5 stars3). This comparative study will be very helpful for

managers in certain LCCs, policy makers, potential investors, and potential employees.

Ⅱ. Company Overview

1. Ryanair

Ryanair was the Europe's first and largest low fares airline. The Ryan family founded it with a share

capital of just ₤1 and a staff of 25. They launched the first route in July 1985 with daily flights on a

15-seaters Bandeirante aircraft, operation daily from Waterford in the southeast of Ireland to London

Gatwick airport. Interestingly, Ryanair's first cabin crew recruits had to be less than 5ft. 2in. tall in

order to be able to operate in the tiny cabin of the aircraft.

Ryanair has been one of the World's favorite airlines with 36 bases and more than 950 low fare routes

across 26 countries, connecting 151 destinations. By the end of September 2009, the company was

operating a fleet of 202 new Boeing 737-800 aircraft with firm orders for a further 110(before taking

account of planned disposals), "which will be delivered over the next 2.5 years. Ryanair currently

3) Skytrax, Official low-cost airline star ranking, 2010.

유럽의 저가항공사 비교연구 - 이지젯과 라이언에어를 중심으로 -｜ 조성우 247

employs a team of more than 7,000 people and expects to carry approximately 66 million passengers in

2009" (History of Ryanair, 2009).

2. easyJet

Sterlios Haji-loannou founded easyJet in 1995, and he and his family remain major shareholders in

easyJet PLC. Stelios separately owns easyGroup IP licensing Ltd., the company that owns the "easy"

brand and licenses it to the airline but also other companies. There are no "cross-shareholdings" between

easyJet and these other easyGroup licensee companies. easyJet PLC operates independently from the

other companies, although some "cross-marketing" agreements do exist on arms length terms. The

airlines is headquartered in Hangar 89 at London Luton airport, Luton, Bedfordshire, England.

easyJet carries more passengers than any other United Kingdom based airline, operationg domestic

and international scheduled services on 387 routes between 104 European and North African airports.

The airline primarily offers low cost point-to-point services but sometimes operates full service charter

flights on behalf of other companies (easyJet information, 2009).

Ⅲ. Financial Analysis

The financial analysis for both companies will be performed covering three years (2007, 2008, and

2009). All the figures have been consolidated from the financial and annual reports published by easyJet

and Ryanair in their websites. The financial analysis will be conformed by the horizontal, vertical and

trend analysis of the income statements and the balance sheets of both companies(Cooper and

Kleinschmidt, 1995). Finally, we use a ratio analysis to make the financial performance comparison

easier.

1. Horizontal analysis

The horizontal analysis is the company's financial data comparison of two or more years. It is very

useful to observe changes in the amount of money spent or gain in a particular account throughout the

time. This kind of analysis also helps to identify the company's financial trends by showing the changes

among years in percentages, which gives a very good overview of the significance of the financial shifts

248 지역산업연구｜제35권 제2호｜2012.12

(Income statement)

Ryanair easyJet

2007 2008 2009 2007 2008 2009

(Operating Revenue) % % % %

Passengers revenue 1278.6 1524.6 19.2 1868.0 22.5 1626.0 1995.7 22.7 2150.5 7.8

Ancillary revenue 246.9 334.3 35.4 476.6 42.6 171.2 367.1 114.4 516.3 40.6

Net revenue 1525.5 1858.9 21.9 2344.7 26.1 1797.2 2362.8 31.5 2666.8 12.9

(Operating Expenses) % % % %

Staff costs 154.5 195.4 26.5 246.5 26.1 204.1 263.2 29.0 306.6 16.5

Depreciation 97.8 120.5 23.1 204.1 69.4 34.2 46.9 37.1 59.8 27.5

Fuel & Oil 472.8 542.0 14.6 1001.8 84.8 425.5 708.7 66.6 807.2 13.9

Navigation charges 135.8 177.1 30.7 228.3 28.6 141.8 195.7 38.0 232.3 18.7

Airport charges 186.6 271.4 45.5 353.3 30.2 461.9 609.4 31.9 737.4 21.0

Other operating expenses 71.5 83.5 16.8 110.8 32.7 129.6 143.2 10.5 149.6 4.5

Net operating expenses 1203.8 1491.0 23.9 2270.9 52.3 1625.2 2271.8 39.8 2617.7 15.2

(Gross Profit) 321.7 369.9 14.4 78.8 -79.9 172.0 91.0 -47.1 49.1 -46.0

(Other financial incomes/expenses) 14.1 67.2 376.1 217.6 223.8 29.9 19.2 -35.8 5.6 -70.8

that have been carried out in the company (Kim and Lee, 2007).

The following table shows the income statement and horizontal analysis of each company:

Ryanair seems to have a relatively steady behavior in this area through the year with an increment of

21.9 per cent from 2007 to 2008 and with an increment of 26.1 per cent from 2008 to 2009, mainly

propelled by the growth on revenues coming from the sales of ancillary services.

easyJet, opposite to Ryanair, shows a variable trend on their operating revenues through the years

with an increase of 31.5 per cent from 2007 to 2008 and with an increase of 12.9 per cent from 2008 to

2009. Although there was growth in revenue in 2009, it is quite clear that the positive trend shown in

previous years dropped due to the difficulty in the external economic conditions.

The operating expenses are the costs for running the business. Ryanair has had a positive trend in its

operating expenses through the years with an increment of 23.9 per cent from 2007 to 2008 and with

an increment 52.3 per cent from 2008 to 2009. However, since these increments in the operating

expenses are not consistent with the revenue growth, this could see directly reflected in the company's

profit. Otherwise, easyJet shows very stable revenue trend. The figures are well aligned to its behavior

in terms of revenue and it might be a good signal for the company.

<Table 1> Income statement (Ryanair and easyJet)

(₤ Millions)


(Income statement)

Ryanair easyJet

2007 2008 2009 2007 2008 2009

(Lost)/Profit before tax 307.1 300.6 -2.3 143.8 -147.8 201.9 110.2 -45.4 54.7 -50.4

Tax on profit 10.5 33.03 213.7 9.0 -127.3 49.6 27.0 -45.6 16.5 -161.1

Net(Lost)/Profit 297.0 267.6 -9.9 134.8 -150.4 152.3 83.2 -45.4 71.2 -14.4

Source: Annual reports 2007-2009

The gross profit represents the sales (revenue) less cost of the goods or services sold. In this area,

Ryanair shows a very variable trend with a growth of 14.4 per cent in 2008 compared with the previous

year. In 2009, the figure dramatically dropped mainly due to the increase of its operating expenses.

easyJet, unlike Ryanair, shows a clear negative trend on its gross profit with drops of -47.1 per cent

from 2007 to 2008. These drops in gross profit are mainly driven by the increase in the price of oil

during 2008.

The net (lost)/profit is the money gain or lost after paying all the expenses and taxes. It is also called

"the bottom line". Ryanair manifests a dramatically negative trend through the years with a decrease of

-9.9 per cent from 2007 to 2008 and with a drastic drop of -150.4 per cent in 2009, which caused a loss

of ₤134.83 Million at the end of 2009; these decreases are mainly driven by the record high oil prices

which caused the fuel bill to rise by ₤371 Million. easyJet, as well as Ryanair, shows a negative trend on

the net profit with decreases of -45.4 per cent in 2008 and of -14.4 per cent over 2008. Despite this

negative trend, easyJet still shows a black-ink balance for three consecutive years, which might be an

example of the easyJet's prominent management in difficult times.

2. Trend analysis

The trend analysis is a comparison of a company's financial figures over time and it is given by

selecting a base year. It can be expressed as:

In this study, we take 2007 as the base year and we calculate the percentage trend through the years

for the income statements of both companies. The analysis could be assessed by the figure from 2007 to

250 지역산업연구｜제35권 제2호｜2012.12

(Income statement)

Ryanair easyJet

2007 2008 2009 2007 2008 2009


Passengers revenue 1278.6 1524.6 119.2 1868.1 122.5 1626.0 1995.7 122.7 2150.5 132.3

Ancillary revenue 246.9 334.3 135.4 476.6 142.6 171.2 367.1 214.4 516.3 301.6

Net revenue 1525.5 1858.9 121.9 2344.7 126.1 1797.2 2362.8 131.5 2666.8 148.4

(Operating Expenses)

Staff costs 154.5 195.4 126.5 246.5 126.1 204.1 263.2 129.0 306.6 150.2

Depreciation 97.8 120.5 123.1 204.1 169.4 34.2 46.9 137.1 59.8 174.9

Fuel & Oil 472.8 542.0 114.6 1001.8 184.8 425.5 708.7 166.6 807.2 189.7


Airport charges 186.6 271.4 145.5 353.3 130.2 461.9 609.4 131.9 737.4 159.6

Other operating expenses 71.5 83.5 116.8 110.8 132.7 129.6 143.2 110.5 149.6 115.4


(Gross Profit) 321.7 369.9 114.4 78.8 20.1 172.0 91.0 52.9 49.1 28.5

2009 because the business breakdown of each company shows clearer than any other years.

After taking a look at both income statement trends, we can notice some remarkable figures. Almost

all items show growth through the years. In the first place we see that both companies have

substantially increased their net revenues for the last three years. Nevertheless, it is obvious that

easyJet's positive trend in this area is greater that Ryanair's, with growths of 131.5% from 2007 to

2008 and of 148.4% from 2008 to 2009. We are able to identify that easyJet's business strategy is

working better that Ryanair's, which is reflected in their net revenues.

On the other hand, it is clear that easyJet has performed better Ryanair in managing their operations

because easyJet does not manifest any loss in their items while Ryanair shows loss in the net profit line,

although both companies do show negative trends in their net profits. easyJet keeps its margin in the

profit side at 54.6% in 2008 and with 46.7% in 2009 while Ryanair dropped dramatically to the loss

side with a -50.4% in 2009, which is an example of easyJet's strength in the harsh circumstances.

<Table 2> Trend analysis (Ryanair and easyJet)

(₤ Millions)


(Income statement)

Ryanair easyJet

2007 2008 2009 2007 2008 2009

(Other financial incomes/expenses)

14.1 67.2 476.1 217.6 323.8 29.9 19.2 64.2 5.6 18.7

(Lost)/Profit before tax 307.6 300.6 97.7 143.8 -42.8 201.9 110.2 54.6 54.7 27.1

Tax on profit 10.5 33.0 313.7 9.0 -27.3 49.6 27.0 54.4 16.5 -33.3

Net(Lost)/Profit 297.0 267.6 90.1 134.8 -50.4 152.3 83.2 54.6 71.2 46.7

(Income statement)

Ryanair easyJet

2007 2008 2009 2007 2008 2009


Passengers revenue 1278.6 1524.6 1868.0 1626.0 1995.7 2150.5

Ancillary revenue 246.9 334.3 476.6 171.2 367.1 516.3

Net revenue 1525.5 1858.9 100 2344.7 100 1797.2 2362.8 100 2666.8 100

(Operating Expenses)

Staff costs 154.5 195.4 10.5 246.5 10.5 204.1 263.2 11.1 306.6 11.5

Depreciation 97.8 120.5 6.5 204.1 8.7 34.2 46.9 2.0 59.8 2.2

Fuel & Oil 472.8 542.0 29.2 1001.8 42.7 425.5 708.7 30.0 807.2 30.3


Airport charges 186.6 271.4 14.6 353.3 15.1 461.9 609.4 25.8 737.4 27.7

Other operating expenses

71.5 83.5 4.5 110.8 4.7 129.6 143.2 6.1 149.6 5.6


3. Vertical analysis

The vertical analysis is a technique in which each entry of a statement is represented as a proportion

of the total account. This kind of analysis is very helpful to compare businesses of any size with each

other. In the current paper, we perform the vertical analysis based on the income statements and the

balance sheets of both companies. For the income statement assessment, the net revenue will be taken

as the total accountfigure and for the balance sheet, the total assets, liabilities and equity will be

taken as the total accountfigure.

<Table 3> Vertical analysis (Ryanair and easyJet)

(₤ Millions)

252 지역산업연구｜제35권 제2호｜2012.12

(Income statement)

Ryanair easyJet

2007 2008 2009 2007 2008 2009


(Gross Profit) 321.7 369.9 19.8 78.8 3.1 172.0 91.0 3.9 49.1 1.8

(Other financial incomes/expenses)

14.1 67.2 3.6 217.6 9.3 29.9 19.2 0.8 5.6 0.2

(Lost)/Profit before tax 307.6 300.6 16.2 143.8 -6.1 201.9 110.2 4.7 54.7 2.1

Tax on profit 10.5 33.0 1.8 9.0 0.4 49.6 27.0 1.1 16.5 -0.6

Net(Lost)/Profit 297.0 267.6 14.4 134.8 -5.8 152.3 83.2 3.5 71.2 2.7

Both firms have marked positive trends in their operating expenses ratios, with increments of 1.3%

in 2008 and 16.7% in 2009 for Ryanair, while easyJet has presented increments of 5.7% in 2008 and

2.1% in 2009. In both cases these increases are mainly caused by the increment in the oil prices during

2008.

In the gross profit area Ryanair shows a negative trend, which means that its operating expenses have

been increasing more than its revenues during the last three years, while easyJet manifests a negative

trend in its gross profit through the years. The only difference to mark in this area is that easyJet has

been keeping a relatively steady negative trend, however Ryanair dropped dramatically in 2009 with a

ratio of 3.1% (18% less than 2007).

Taking about the net loss or net profit, there are forceful figures in favor of easyJet. easyJet has kept

their net profit ratios in the profit side with a -5.8% ratio. However before 2009, Ryanair was

performing better than easyJet in this area, with a ratio of 19.5% in 2007 and 14.4% in 2008 against

ratios of 8.5% in 2007 and 3.5% in 2008 of easyJet, which make us think that Ryanair did not take

proper decisions to avoid the effect of the global crisis and the increase in oil prices in 2008.

After taking a look at both balance sheets, we are able to see that companies have relatively steady

trends on their non-current assets. In the first place, we can see ratios of Ryanair which are 58.6%,

62.3% and 60.2% in 2007, 2008 and 2009, respectively, which confirm its strength as non-current

asset based company, supporting its strength with its property, plant and equipment with figures near

to 55% of the total assets. Otherwise, easyJet also shows up as a non-current asset based company,

although in less proportion than Ryanair, with ratios of 53.6%, 54.3% and 59.6% in 2007, 2008 and

2009 respectively, which manifest a positive trend during the last three years, mainly propelled by the

acquisition of GB airways in 2008. Finally, as well as Ryanair, easyJet shows to have its strength as a


(Balance sheet)

Ryanair easyJet

2007 2008 2009 2007 2008 2009

Non-current assets % % % %

Property, plant and equipment

1,966.9 2,453.8 56.6 2,904.9 57.1 935.8 1,102.6 35.6 1,612.2 43.9

Intangible assets 32.0 32.1 0.7 37.3 0.7 311.4 440.4 14.2 447.1 12.2

Other non-current assets 277.0 213.4 4.9 74.2 1.5 102.8 116.5 3.8 123.7 3.4

Total non-current assets 2,275.8 2,699.2 62.3 3,064.2 60.2 1,350.0 1,680.8 54.3 2,190.8 59.6

Current assets

Restricted cash 176.5 200.3 4.6 232.4 4.6 15.9 23.3 0.8 24.3 0.7

Cash and cash equivalents

918.3 1,007.5 23.2 1,261.8 24.8 719.1 632.2 20.4 788.6 21.5

Other current assets 459.0 396.9 9.2 395.7 7.8 193.4 426.1 13.8 359.5 9.8

Total current assets 1,605.6 1,635.2 37.7 2,206.8 39.8 1,166.4 1,415.0 45.7 1,482.2 40.4

Total assets 3,381.4 4,334.4 100 5,091.1 100 2,516.4 3,095.8 100 3,673.0 100

Liabilities

Current liabilities 762.3 1,066.7 24.6 1,099.2 21.6 621.3 909.8 29.4 1,062.2 28.9

Non-current liabilities 1,387.0 1,553.7 35.8 2,059.1 40.4 742.7 907.8 29.3 1,303.5 35.5

Total liabilities 2,149.3 2,602.4 60.5 3,158.4 62.0 1,364.0 1,817.6 58.7 2,365.7 64.4

Total equity 1,732.1 1,714.0 39.5 1,932.8 38.0 1,152.4 1,278.2 41.3 1,307.3 35.6

Total liabilities and equity 3,881.4 4,334.4 100 5,091.1 100 2,516.4 3,095.8 100 3,673.0 100

non-current asset based company in its property, plant and equipment with figures near to 40%, which

is less than the 55% of Ryanair, however this is caused by the goodwill generated by easyJet's

purchasing of GB airways in 2009, which is reflected in the intangible assets area.

A current asset is the opposite of a non-current asset; therefore is represents the value of all assets

that can be easily converted to cash within one year. Ryanair has had a very steady trend during the last

three years with ratios of 41.4% in 2007, 37.7% in 2008 and 39.8% in 2009. This figures are mainly

formed by the cash and cash equivalents of the company, which means that Ryanair as an airline has its

value in its non-current assets rather than in its current assets. On the other hand, easyJet has been

working with a similar trend to Ryanair in its current assets with ratios about 40%~50%, which are

figures close to Ryanair's (37%~41%). We are able to identify that both Ryanair and easyJet have very

similar strategy in managing their assets through the above information.

<Table 4> Vertical analysis - Balance sheet (Ryanair and easyJet)

(₤ Millions)


254 지역산업연구｜제35권 제2호｜2012.12

A liability is defined as a debt arising from the past transactions or events, which normally are the

result of receiving goods or services from 3rd party companies. Once again both companies show very

similar strategies in this areas with ratios of about 60% during the last three years. This percentage for

both companies seems to be too high, but since their current liabilities, which are the debts to be paid

within the current fiscal year, have been around 30% through the years and the current assets have been

about 40%, this places both companies in a healthy position so that they have high debt paying

capabilities.

The equity is the capital invested by shareholders or owners in a company for the medium to long-

term in return for shares of the ownership. Taking about the equity, both companies manifest negative

trends in their ratios through the years. In the first place, Ryanair shows small drops in their ratios with

45.8% in 2007, 41.3% in 2008 and 38.0% in 2009. Similarly, easyJet also has a negative trend, but it

is much more evident than Ryanair's with ratios of 45.8%, 41.3% and 35.6% in 2007, 2008 and 2009

respectively, which might be caused by the shareholders' fund being broadly flat year on year.

4. Ratio analysis

The ratio analysis is the quantitative assessment of the figures in the financial statements of a

company for a given period of time. There are a lot of different ratios to perform and analyze(Watson,

1995), however we assesses services companies (airlines) in the current study. Therefore, we will perform

and evaluate ratios that give us a general overview of the companies' performances in terms of liquidity,

profitability, efficiency and investment.

The liquidity ratio or acid testis the relationship between current assets and the current

liabilities; in other words, it is an easy way to measure a company's ability to pay its short-term debts.

<Table 5> Current ratio of Ryanair and easyJet

Current ratio (Acid test)

2007 2008 2009

Ryanair 2.11 1.53 1.84

easyJet 1.88 1.56 1.40



After taking a look at the current ratios of both companies during the three years of the study, it is

quite clear that Ryanair and easyJet have healthy figures with ratios at or above 1.40, which means that

they have a good market credibility from the point of view of the creditors. However, Ryanair in this

analysis seems to be slightly better than easyJet with a higher ratio in 2009 (1.84 against 1.40 of

easyJet) and also with a better trend through the years.

The operating margin is a measurement of what percentage of the company's net revenue is left over

after paying for their operating expenses.

Pr

<Table 6> Operating ratio of Ryanair and easyJet

Operating ratio

2007 2008 2009

Ryanair 21.09 19.79 3.15

easyJet 9.57 3.85 1.84


Regarding the operating ratio, it is evident that Ryanair has been performing better than easyJet in

this section. Ryanair has gotten operation ratios of 21.09%, 19.79% and 3.15% in 2007, 2008 and

2009 respectively, and although both companies have remarkably negative trends, Ryanair has been

always above the operating ratios of easyjet. It means that Ryanair is making more income per found of

sales compared to easyJet.

Asset turnover is defined as the amount of revenue or sales made for every pound of asset in the

company.

256 지역산업연구｜제35권 제2호｜2012.12

<Table 7> Efficiency ratio of Ryanair and easyJet

Asset turnover

2007 2008 2009

Ryanair 0.39 0.43 0.46

easyJet 0.71 0.76 0.73


In the asset turnover part, it is remarkable that easyJet is using its assets much better than Ryanair.

easyJet is making more money for each pound in assets and although Ryanair also shows a positive

trend during the last three years, the ratios of easyJet are almost twice those of Ryanair. This better

management of assets is reflected in its revenues.

The P/E ratio represents the relationship between the company's current share price and the earnings

per share. In other words, this ratio shows how much the investors are willing to pay per each unit of

income.

Pr

<Table 8> Investment ratio of Ryanair and easyJet

Asset turnover

2007 2008 2009

Ryanair 0.96 1.09 -1.56

easyJet 16.20 20.91 17.77


In the analysis of the P/E ratios of both companies, we are able to see that there are contrasting

figures. In the first place, Ryanair seems to have been more attractive than easyJet during 2007 and

2008 since the investors had to pay less money per unit of income, however, in 2009. Ryanair delivered

loss to their investors, so this fact might generate distrust in the potential investors. esayJet's figures

during the three years of the study would suggest that it was less attractive than Ryanair as the

investors had to pay more for each unit of income, but since easyJet has not delivered lost to their

investors, this could generate a confidence symptom which would explain why the easyJet's investors


would be willing to pay a higher price per each unit income.

Ⅳ. Non-Financial Analysis

In the non-financial section, we will analyze the operational performance of Ryanair and easyJet. This

kind of analysis is critical since it will help us know the competitive advantages that these companies

have and then compare them (Park and Lee, 2010). In the current study, we assess six performance

indicators, which were selected due the impact that they have on the companies' efficiency and

performance. The following non-financial criterion will be explained and then analyzed: Fleet, Routes

and airports served, load factor, available seat mile (ASM), operated aircraft utilization, and

passengers/Employee ratio.

1. Fleet

The fleet of an airline refers to the quantity and type of aircrafts that the company owns to perform

their operations. The following charts shows the information about the fleets of both companies.

<Figure 1> The number of aircraft (Ryanair and easyJet)

After observing the fleet chart, we are able to see that both companies are very similar in terms of

fleet because both have owned almost the same quantity of aircraft during the three years of this study,

and even in 2009 they finished with the same number of aircraft in service (181). The only substantial

different that we can note, is the fact that while Ryanair just possesses one type of aircraft (Boeing

737-800), easyJet owns two different models (Airbus A320 and Boeing 737-700), which would be a

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competitive advantage for Ryanair as this standardization of its fleet might help them to save costs in

their training and maintenance programs.

2. Routes and airports served

This sub section is crucial for the airlines because the routes and airports served dictate their physical

area of operation - the wideness of their transportation network. The served routes and airports are also

important for the potential customers.

• Ryanair: 876 routes and 143 airports served.

• easyJet: 422 routes and 114 airports served.

Ryanair seems to be superior to easyJet from the perspectives of the routes and airports, with are

almost twice the number of routes, and 29 more airports. The business strategy of each company can be

identified through the ratios between routes and airports served by each airline. We are able to see that

the ratio of Ryanair is approximately 8:1, whereas that of easyJet is about 4:1. The difference is due to

their operational strategy.

In general, the low-cost airlines concentrate on point-to-point flights, whereas the full-fare airlines

tend to concentrate on hub-and-spoke traffic. However, we are able to classify two characteristic

according to the number of round-trips and occupied secondary airports, average route length, average

flight duration. For example, Ryanair flew an average of approximately 1.83 round-trips per route per

day with an average route length of 491 miles and an average flight duration of approximately 1.2

hours. Therefore Ryanair uses the hub-and-spokesystem and easyJet uses the point-to-pointsystem.

3. Load factor

The load factor refers to how much of an airline's passenger carrying capacity is used. In other words,

it is the passengers flown as a percentage of the total seats available seats available. The following figure

shows the load factor of both companies through the year.


<Figure 2> The load factor (Ryanair and easyJet)

It is very clear that easyJet is much more efficient than Ryanair in filling their aircrafts with higher load

factors during the three years of the current study and also with a growing trend as against a negative

trend of Ryanair. This means that easyJet is doing a better job of using its assets to generate revenue.

4. Available seat miles(ASM)

ASM is a means to measure the capacity of an airline for carrying passengers. In numbers, this is

equal to the total number of available seats multiplied by the number of miles flown. It is a crucial

performance indicator for the airline as this represents the actual capacity of the company as a

passengers' carrier.

From this perspective, Ryanair is leading with higher ASM through the years, which is obvious

because it has almost twice the number of routes than easyJet has. However, the competitive advantage

shown by Ryanair would need to be complemented with high load factors and high aircraft utilization in

order to take advantage of it.

<Figure 3> Available seat miles (Ryanair and easyJet)

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5. Operated aircraft utilization

The concept refers to the average number of hours that an aircraft is airborne. It is calculated by

dividing the total of flown hours by the number of service days in a predetermined time span.

<Figure 4> Aircraft utilization (Ryanair and easyJet)

According to the figure, easyJet shows better performance. While Ryanair manifests an aircraft use of

about 9 hours/day, easyJet is more efficient by keeping its aircraft aloft approximately 11 hours every

day. This is also another example of how easyJet is using its assets much better than Ryanair.

6. Passengers/employee ratio

This ratio measures how effective the airline employees are in generating passenger bookings. The

dimension can be seen as an asset turnover ratio because it is talking about how well is an asset

(employees) are used to generate revenue (passenger bookings).

<Table 9> Passengers/employee ratio of Ryanair and easyJet

Passengers/employee ratio

2007 2008 2009

Ryanair 9,527 8,603 8,852

easyJet 6,556 7,155 N/A



We can see that Ryanair is much more efficient than easyJet in using its employees to generate

passenger bookings. This means a better utilization of their human resources, which is a definite

advantage. This could suggest more employee-company engagement.

Ⅴ. Value Analyses of the Companies

1. Company potential

In the company potential section, we will apply the SWOT (strength, weakness, opportunity, and

threat) analysis in order to compare the performance of Ryanair and easyJet.

<Table 10> SWOT analysis on Ryanair

Strengths

• Mature company with almost 25 years in the business showing continued growth, which is translated in experience to face risks and new challenges.

• Strong liquidity through time with current asset ratios above 1.5 during the years of this study. This would give confidence to its creditors.

• An average of about 14% in its operating margin during the last three years, which has helped them to generate more money per each pound of sales.

• Standardized fleet. This provides them the possibility of saving in training and maintenance programs.

• High and growing figures in ASM, which is translated in more passengers' carrying capacity.

• Efficient use of it human resources.

Weaknesses

• Operating expenses in growth has caused critical drops in its net profits through the years and finally a loss in 2009.

• Low figures in its asset turnover ratios during the three years of the study. This is evidence of inefficient use of its assets to generate revenue.

• Poor load factor and aircraft utilization numbers, which also shows inefficient use of its assets.

Opportunities

• Increasing globalization means more people travelling every day. With wide variety of routes and high ASM, Ryanair processes the ability and the capacity to get more customers, which could be translated in increasing revenues for the company.

• Having a better use of its human resources, Ryanair have the possibility of developing new business strategies at a cheaper cost than its competitors.

Threats

• Increase in and fluctuation of oil prices, which impact directly in the operating costs of the company.

• World uncertainties caused by the global financial crisis affect some industrial sectors such as tourism. This might cause less air transportation demand.

• Operating expenses will potentially increase if the firm does not improve the efficiency with which is uses its assets.

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<Table 11> SWOT analysis on easyJet

Strengths

• Consistent positive trend in it net revenues during the three years of the study.• Making a profit even in difficult times.• Strong liquidity through time with current asset ratios during the three years of this study.

This would give confidence to its creditors.• Good figures in its asset turnover ratios during the three years of the study. This is

evidence of efficient use of the assets to generate revenue.• Pretty good load factor and aircraft utilization numbers, which generators high efficiency in

the use of its assets.• A 'point to point' based system instead of a 'hub' based system. Therefore, there is no point

where easyJet might be particularly vulnerable.

Weaknesses

• Poor figures in its profitability ratios with an average of about 5% in its operating margin during the last three years, which means they are generating too little money per each pound of sales.

• Fleet is not standardized. This might incur expensive maintenance and training programs.• ASM figures are not so high, which is translated in lower passenger carrying capacity.

Opportunities

• As with Ryanair increasing globalization means more people travelling every day, so with a 'point to point' based system, easyJet might have more flexibility than its competitors.

• Potential cost savings if easyJet continues with its fleet standardizing program, which they are expecting to complete by 2012.

Threats

• As with Ryanair, the increasing and variable oil prices might impact directly in the operating costs of the company.

• Also as pointed out for Ryanair, the world financial crisis slow down in sectors like tourism might cause drops in the air transportation demand.

• Potential drops in its load factor and aircraft utilization if they do not attract new customers by increasing its ASM.

2. Investors potential

The present study analyzes both companies from the perspective of a potential investor in this

subsection. Since both firms trade in different markets - Ryanair in NASDAQ and easyJet on the

London stock exchange - most of the data has been compiled from a common financial information

source, which is Reuters(http://www.reuters.com/finance/stocks).


<Figure 5> Share price (Ryanair and easyJet)

There is a lot of variation in the stock price of both companies as we can see in the previous charts.

Therefore, an investor must utilize another indicators in order to assess whether to invest or not in a

company. The following table shows the stock fundamentals, which represents some of the most

important figures in the context of the stock market that can be used by the investors in order get a

better feel of the company performance.

Market value is the value of a company obtained by multiplying the total of its issued shares by the

share price. Ryanair possesses much more market value than easyJet (almost 4:1), which can be seen by

an investor as an advantage for Ryanair since they can finance their activities more easily than easyJet.

P/E ratio was already explained and discussed in the financial section. It is clear that the P/E ratio has

changed substantially in the 'stock fundamentals' table, however it is quite evident that easyJet is still

more attractive for the investors than Ryanair.

The net profit margin is a measurement of what percentage of the company's net revenue is left over

in the company as net profit (after paying for their operating expenses, other financial expenses and

taxes; operating margin, n.d.). An investor would feel more attracted to invest in Ryanair than in

easyJet because Ryanair has a ratio of 3.76% against the 1.65% of easyJet. This means that Ryanair is

able to make almost 3 times more profit than easyJet per each pound of revenue.

264 지역산업연구｜제35권 제2호｜2012.12

Stock Fundamentals

Ryanair easyJet

Market Value(£)* 4,609,554,689 1,625,170,000

P/E Ratio 39.07 43.70

Operating Margin(%) 6.63 1.90

Net Profit Margin(%) 3.76 1.62

Return on Equity 4.00 3.68

Return on Assets 1.69 1.22

Return on Investment 2.07 1.92

<Table 12> Stock fundamentals (Ryanair and easyJet)

* Due Ryanair trades in the New York Market (NASDAQ) and its market is given in US Dollars, this research

has translated its market value into sterling pounds at an exchange rate of $1.655 US Dollars per Sterling

Pound in this particular analysis. It was based on the exchange rate of the bank of England in 26 November

2009.

Return on equity measures how much profit a company is able to make with the money that its

shareholders have invested. In this aspect, the two companies are performing very similar. Therefore,

there should not be much difference to invest in one company or another from the perspective of an

investor.

The return on invest ratio measures efficiency of an investment. In other words, it is how fast an

investor recovers the money invested in a company. In this area both companies have almost the same

performance. Maybe Ryanair could have a little advantage over easyJet with a ratio of 2.07 against 1.92

of easyJet but in general terms, there would not be solid arguments to say that Ryanair is more efficient

in this sector.

After assessing the stock fundamentals of both companies, it is hard to determine a winner because

both have very similar figures. It is true that Ryanair seems to be performing a little bit better than

easyJet, which might indicate that Ryanair is a better company in which to invest. However taking in

account there are other factors beyond the scope of this analysis and also knowing that the stock market

is changing every day. There are no strong arguments to define in which company is the better

investment.


Ⅵ. Conclusion

In this study, we have been evaluating Ryanair and easyJet in terms of how well they perform in their

different areas: finance, operations and so on. Thus, we could identify that each of them has its own

strengths and weaknesses.

First of all, Ryanair has shown a relatively good performance in its finance indicators with better

figures in 2007 and 2008, but unfortunately these figures changed drastically showing non-healthy

results in 2009. In the non-financial sector, Ryanair has also manifested good performance with a huge

fleet and a wide transportation network (routes and airports served). However according to the author's

opinion, these competitive advantages have not been used properly in order to generate net profit.

easyJet has not shown too much growth in its finance indicators but, opposite to Ryanair, its finance

indicators have been steady through the years. Furthermore, easyJet has effectively performed from the

perspective of operation by utilizing a relatively huge fleet, great figures in its routes, and airports

served, which has been the results of its 'point to point system' business strategy. This strategy in

easyJet would imply that they have a very marked path based on its business strategy.

In summary, the two companies show similar performances that is, it is not easy to determine which

is better. However it is obvious that a steady and controlled process is critical in any sort of business or

process because something which can be controlled is able to be improved and we could identify the fact

that easyJet have achieved better performance than Ryanair. easyJet has had more steady operations and

less variability in their key financial indicators through the years. This makes us to conclude that easyJet

is working better and, therefore, is a healthier and more efficient firm.

The present paper is mainly based on the annual reports of both companies, however some

information was insufficient and comparisons were not available in the annual reports in several

occasions. For example, the annual reports were not helpful in the case of the 'investors potential'

section. We had to search and exploit third party sources for that reason, which ones show too many

contradictions between each other.

논 문 투 고 일 : 2012-11-03 논문 최종심사일 : 2012-11-20 논문게재확정일 : 2012-12-10

266 지역산업연구｜제35권 제2호｜2012.12

참고문헌

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Development,” Journal of Product Innovation Management, 12(5), 374-391.

Evanbgelho, F., Huse, C. and Linhares. A.(2005), “Market entry of a low cost airline and impacts on the Brazilian

business travelers,” Journal of Air Transport Management, 11, 99-105.

Han, J. H., Park, N. K. and Lee, J. H.(2011), “Enhancement of Global Competitiveness through Benchmarking of

a Global Firm: Focusing on Hyosung Power & Industrial Systems PG`s Introduction of Toyota

Production System,” Korea Business Review, 15(2), 1-34.

Kim, H. K. and Lee, H. H.(2007), “Phenomenological study of the evolutionary process and factors affecting the

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웹 사 이 트

easyJet, easyJet plc annual report and accounts, 2007-2009, http://coporate.easyJet.com/investors/results-centre,

accessed 21 November 2010.

Ryanair, Ryanair annual report, 2007-2009, http://www.ryanair.com/ir/investor/dow nload, accessed 21 November

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accessed 28 November 2010.


ABSTRACT

A Comparative Study of the Representative Low Cost Carriers(LCCs) in Europe- easyJet and Ryanair -

4)Cho, Sung-Woo*

The main purpose of this paper is to assess the performance of two different companies

working on the same area of business, in this case will be airlines, in order to analyze and compare

their financial and non-financial performances. The two firms(easyJet and Ryanair) selected for this

benchmarking assessment are both leading companies in the low cost carriers (LCCs) industry in

Europe. In the financial assessment, the analysis will be based on the income statements and the

balance sheets of the companies. In the non-financial evaluation, the study will principally focus on

the operations, activities and the competitive advantages of each enterprise.

In the current study, we have been evaluating easyJet and Ryanair from the perspective of how

well they perform in their different area such as financial, non-financial performances and some

critical activities. As a result, the two companies show similar performances that is, it is not easy to

determine which is better. However, we were able to reach a rational conclusion that easyJet is

working better and, therefore, is a healthier and more efficient firm than Ryanair. easyJet has had

more steady operations and less variability in their key financial indicators through the years of the

study.

│key word│ Low-Cost Carriers(LCCs), easyJet, Ryanair, Benchmarking Assessment,

Comparative Study

* Assistant Professor, Department of Logistics, Kunsan National University, Korea

268 지역산업연구｜제35권 제2호｜2012.12

저/자/소/개

1. 주저자

조성우(Cho, Sung-Woo) : [email protected]

성균관대학교에서 경제학 석사, 경영학 박사학위를 취득했으며, 영국 리

버풀 대학교에서 경영학 석사(전공 : Operations and Supply Chain

Management)학위를 취득하였다. 관심분야는 국제물류, 물류경영, 공급

사슬관리, 환경물류 등이다.

유럽의 저가항공사 비교연구 - kyungnam.ac.krfocus on the operations, activities and the...

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