easyJet Annual Report and Financial Statements: Value Creation and Sustainability, Exams of Communication

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ANNUAL REPORT AND ACCOUNTS 2019

resilient

focused

data driven

Who we are

easyJet makes travel easy, enjoyable

and affordable for customers, whether

it is for leisure or business.

We use our cost advantage and leading

positions in primary airports to deliver

low fares and operational efficiency,

seamlessly connecting Europe with

the warmest welcome in the sky.

Our well-established business model

provides a strong foundation to drive

profitable growth and long-term

shareholder returns.

We are proud to have been awarded

Best Low-Cost Airline in Europe at the

Skytrax World Airlines Awards 2019.

‘Our Promise’ is that we will be:

SAFE AND RESPONSIBLE

ON OUR CUSTOMERS’ SIDE

IN IT TOGETHER

ALWAYS EFFICIENT

FORWARD THINKING

AT A GLANCE

easyJet’s value creation framework is the foundation for who we are and

what we do. This provides context for how our wider purpose drives our

business model and strategic plan, both of which are underpinned by our

responsible and sustainable way of doing business and our core values.

our value creation

framework

SEAMLESSLY CONNECTING EUROPE WITH THE WARMEST WELCOME IN THE SKY easyJet makes travel easy, enjoyable and affordable, whether it is for leisure or business

PURPOSE-DRIVEN, VALUE CREATION BUSINESS MODEL

OUR SUSTAINABILITY STRATEGY

OUR PLAN

OUR PURPOSE

Our purpose defines who we are and guides our actions and decisions.

OUR BUSINESS

MODEL

Our well-established business model provides a strong foundation for delivering long-term value to all of our stakeholders.

OUR STRATEGY

Our strategic priorities are a plan of action designed to move us closer to fulfilling our purpose.

OUR PROMISE

We have a set of values which support and guide Our Strategy.

OUR SUSTAINABILITY

FRAMEWORK

Our sustainable growth is supported by a responsible way of doing business.

Number one or number two in primary airports

Winning our customers’ loyalty

Value by efficiency

The right people

Innovating with data

Safe and responsible

On our customers’ side

In it together Always efficient

Forward thinking

Safety is our number one priority

Honest and fair with our customers and suppliers

A responsible and responsive employer

A guardian for future generations

A good citizen

DETAILS CAN BE FOUND ON PAGE 12

DETAILS CAN BE FOUND ON PAGE 12

DETAILS CAN BE FOUND ON PAGE 19

DETAILS CAN BE FOUND ON PAGE 15

DETAILS CAN BE FOUND ON PAGE 48

22 easyJet plc Annual Report and Accounts 2019easyJet plc Annual Report and Accounts 2019

CHAIRMAN’S LETTER

2019 has been a challenging year for easyJet with a tough start in the first half. This was followed by success from our self-help initiatives over the summer, with decisive management actions ensuring a record summer profit performance. The strength of our offering has ensured that customer demand has remained strong in spite of uncertain times for consumer confidence and continued disruption at airports. In 2019 the Group increased the number of passengers flown by 8.6% to 96.1 million passengers (2018: 88.5 million). Our strong business model and robust balance sheet mean we are well positioned to succeed in the years ahead.

RESULTS

easyJet has faced a challenging year, with consumer confidence having been impacted by the ongoing uncertainty around the UK’s exit from the EU. This uncertain demand environment and the annualisation of some one-off benefits we experienced last year were the main factors behind the significant reduction in our profits this year. However, the measures we have taken to increase late yields and manage costs have enabled us to meet revised stock market expectations and to stabilise and reposition our business for this new environment. A discussion of the current dynamics influencing our industry can be found in the Market Review on page 14. Revenue for the full year increased by 8.3% to £6,385 million (2018: £5,898 million). Despite a difficult disruption environment, our Operational Resilience programme ensured that costs remained under control. This resulted in headline profit before tax of £427 million (2018: £578 million) and basic headline earnings per share of 88.7 pence (2018: 118.3 pence). Total profit before tax of £430 million (2018: £445 million) and non-headline items of a £3 million gain (2018: £133 million cost) led to basic total earnings per share of 88.6 pence (2018: 90.9 pence).

DIVIDENDS

easyJet’s dividend policy is to pay shareholders 50% of headline earnings after tax, reflecting the Board’s confidence in the long-term prospects of the business. I am pleased to recommend to shareholders a dividend of 43.9 pence per share for the 2019 financial year (2018: 58.6 pence per share).

HOLIDAYS

Last year easyJet identified a significant opportunity to develop a financially meaningful holidays business, to better serve the easyJet generation. Around 20 million customers per year fly with easyJet to Europe’s largest leisure destinations, but only 0.5 million book accommodation with us. We will launch in the UK before Christmas, selling holidays for winter 2019 and summer 2020.

OUR BOARD

easyJet’s Board has been further strengthened this year by the appointment of two new Independent Non-Executive Directors. Dr Anastassia Lauterbach and Nick Leeder were both appointed

to the Board on 1 January 2019. Both bring different perspectives on technology and data and in-depth knowledge of a range of businesses. Adèle Anderson stepped down from the board on 7 February 2019 and I would like to reiterate my thanks to Adèle for her important contribution. Further details of these changes are included in the Governance report on page 66.

OUR PEOPLE

I would like to extend my thanks to all of easyJet’s employees, but especially to the wonderful crew, who continue to provide the warmest welcome in the sky. The inclusive culture and people at easyJet are vital to our success. There have been a number of changes to the Airline Management Board over the course of the year which are detailed in the Governance report on page 72. Details of how we engage with our stakeholders can be found on page 15.

SUSTAINABILITY

In the past year we have seen increased debate about climate change. As an airline this is our most significant sustainability impact and challenge. This is why we announced in November 2019 that we would become the world’s first major airline to operate net-zero carbon flights across its whole network. We are doing this by offsetting the carbon emissions from the fuel used for all of our flights. We recognise that this is an interim measure, but at the moment we believe it’s the best way we have to remove carbon from the atmosphere. At the same time, we will continue to support the development of new technologies to decarbonise aviation for the longer-term, on top of all the other initiatives we are taking to reduce carbon.

THE FUTURE

As ever there will be challenges to face during the coming year. We continue to believe that easyJet’s well-established business model and solid financials provide a strong foundation to weather these challenges, and to drive profitable growth and long-term shareholder returns.

JOHN BARTON

Non-Executive Chairman

focused on

delivering

long-term value

www.easyJet.com^3

STRATEGIC REPORT

(^) CHAIRMAN’S LETTER

FLIGHT

COMPLETION RATE

FEWER

CANCELLATIONS

99.4% 46 %

www.easyJet.com 5

Our growth is targeted in the areas where we see long

term returns, within our core business as a low-cost

European point-to-point airline.

• Our network strategy of focusing our capacity on

slot-constrained primary airports is improving

resilience through the cycle and driving revenue per

seat and profitability, as we take market share from

legacy carriers.

• Our new Holidays initiative is focusing initially on the

19.5 million leisure customers who flew easyJet last

year but booked accommodation elsewhere. The

Holidays team is targeting the needs of the easyJet

generation with an all-new offering and website.

We have identified that this represents a significant

growth opportunity with low capital requirements.

• Our late yield initiative has enabled us to optimise

pricing for super late bookings, in instances where

we saw a wide pricing gap relative to our

competitors, whilst still maintaining our

commitment to offer great value.

“WE HAVE THE

AMBITION,

EXPERIENCE AND

DIVERSITY NEEDED

TO BECOME A

MAJOR PLAYER IN

THE HOLIDAY

MARKET”

Garry Wilson, Chief Executive Officer of easyJet Holidays

focused

61m

FLOWN BY LEGACY

CARRIERS FROM OUR

EXISTING TARGET

AIRPORTS – A MAJOR

GROWTH

seats OPPORTUNITY

19.5m Customers

WHO FLEW WITH EASYJET FOR

LEISURE BUT BOOKED

ACCOMMODATION ELSEWHERE

OUR CEO REVIEW CONTAINS FURTHER INFORMATION

ON OUR CUSTOMER-FOCUSED STRATEGY

• PAGE 21

6 easyJet plc Annual Report and Accounts 2019

AIRCRAFT

TECHNICAL

FAULTS DETECTED

BEFORE THEY

INTERRUPTED

OPERATIONS

data driven

NEW

DATA

TOOLS

CREW

PAIRINGS

PROACTIVELY

SPLIT

At easyJet, we put data to work for the benefit

of our customers and employees.

We have designed prediction models which allow our operations team to intervene early when crew duty hour limits are likely to disrupt our schedule, enabling us to create highly resilient rosters and schedules. This is critical to crew wellbeing, reducing out-of-hours travel to cover duties while also enabling greater roster stability and minimising customer disruption. We are equipping all of our aircraft with ‘big data’ servers, which allows us to capture, store and interrogate the aircraft data after every flight. Looking for patterns in this data enables us to intervene early, before an aircraft potentially develops a technical fault and impacts upon our operation. Data from our maintenance systems is also being used to predict when we are most likely to find faults and need extended maintenance downtimes. This allows us to ensure we have the right spare parts and personnel available, and have standby aircraft ready if necessary. Congestion in European airspace has had a huge impact on our operations, especially during summer 2018 and 2019. We have developed data tools allowing us to predict which flights are most likely to experience delays and impact upon our flying programme. These data tools recommend where to intervene to reduce these delays and help to shape how we build our future schedules in a more resilient way. The use of data has been fundamental to our success in reducing the impact of disruption. These are early successes in building a data driven operation and we have a full pipeline of data projects for the future.

• CEO REVIEW PAGE 25 – RISK MANAGEMENT 37 – SUSTAINABILITY 48

FURTHER INFORMATION ON OUR

FOCUS ON DATA CAN BE FOUND

8 easyJet plc Annual Report and Accounts 2019

• www.easyJet.com

We continue to invest in the core strengths of our network,

operational efficiency and customer service.

focusing on our strengths

56

2018: 51

1,

2018: 979

£139m

2018: £107m

unparalleled

network

NUMBER ONE

OR TWO IN PRIMARY

AIRPORTS^1

15%

low-cost

model

£(326)m

2018: 396M

strong

balance

sheet

68%

2018: 66%

no.1 or 2

customer

loyalty

11.4%

2018: 14.6%

value by

efficiency

96.1m

2018: 88.5M

driving

revenue

growth

NEW GENERATION

AIRCRAFT REDUCE

EMISSIONS AND FUEL

CONSUMPTION^3

NUMBER ONE AIRLINE

BRAND IN THE UK,

FRANCE & SWITZERLAND 2,

HEADLINE ROCE 8

PASSENGERS 6

RETURNING CUSTOMERS 6, 7

NET (DEBT)/CASH^4

ROUTES OPERATED 2 COST SAVINGS

1. As at 30 September 2019 – airports where easyJet is the number one or number two carrier based on short-haul capacity
2. As at 30 September 2019
3. A320neo vs previous generation A
4. Includes lease liabilities upon adoption of IFRS 16 in FY 2019
   5. Millward Brown brand tracker
   6. In the year ended 30 September 2019
   7. Percentage of seats booked by customers who made a booking in the preceding 24 months
   8. 2019 post IFRS 16, 2018 using adjusted capital employed and restated

STRATEGIC REPORT

(^) FINANCIAL REVIEW

www.easyJet.com^11

STRATEGIC REPORT

(^) HIGHLIGHTS

Our robust business model makes it easy, affordable and sustainable

to travel, which drives growth and returns for our shareholders.

OUR PURPOSE: OUR RESOURCES:

our business model

FINANCIAL CAPITAL

easyJet has a strong capital base, with a market capitalisation of £4.6 billion^1 and very low net debt position of £326 million at 30 September 2019^2 (2018: £396 million net cash). easyJet’s credit ratings are amongst the strongest in the world for an airline.

PEOPLE

easyJet has a highly skilled workforce of over 15,000 people, including nearly 4,000 pilots and over 9,000 cabin crew members.^5 The employee engagement score of 8 out of 10 on our employee listening platform Peakon reflects our strong culture, which is unique in the airline industry.

SLOTS AND BRAND

easyJet has a valuable portfolio of slot pairs at slot-constrained primary airports, as well as flying rights across Europe and AOCs^6 in the UK, Switzerland and Austria. easyJet has a strong brand and has been named the best low-cost airline in Europe at the Skytrax World Airlines Awards 2019.

AIRCRAFT

easyJet operates a modern fleet of Airbus A320 family aircraft, of which 70% are owned outright. We are investing in new generation aircraft which are more fuel efficient^3 and environmentally friendly,^4 leading to lower operating costs and lower carbon emissions over time.

SUPPLIERS

easyJet partners with key suppliers to deliver many of its operational and commercial activities. Our partners are carefully selected and significant emphasis is placed on managing these relationships, with the aim of extracting incremental innovation and performance. Currently, our top 300 suppliers are responsible for around 97% of our spend.

TECHNOLOGY AND DATA

easyJet is aiming to become the world’s most data-driven airline. We are seeing significant benefits already from operational resilience processes and predictive maintenance. Our revenues are benefiting from data projects in late yield initiatives and differential seat pricing.

OVER

15,

EMPLOYEES^5

2018: 14,

700M

VISITS TO ALL DIGITAL

PLATFORMS

2018: 615m

331

AIRCRAFT^5

2018: 315

88%

CAPACITY AT SLOT-

CONSTRAINED AIRPORTS^7

2018: 89%

CREDIT RATING

bbb+

/Baa

85%

SUPPLIER

PAYMENTS ON TIME

2018: 87%

SEAMLESSLY CONNECTING EUROPE WITH THE WARMEST WELCOME IN THE SKY. WE MAKE TRAVEL EASY, ENJOYABLE AND AFFORDABLE FOR CUSTOMERS, WHETHER IT IS FOR LEISURE OR BUSINESS, THROUGH OUR UNIQUE AND SUSTAINABLE BUSINESS MODEL.

1. Based on share price of £11.50 at 30 September 2019
2. With the adoption of IFRS 16, leases are now on the balance sheet
3. 15% fuel saving A320neo vs previous generation A
4. Around 50% quieter on takeoff and landing than previous generation aircraft
5. As at 30 September 2019
6. Air operator certificates
7. Based on level 2 and level 3 airports as updated by IATA on 10 November 2018 and defined within IATA Worldwide Slot Guidelines as at 1 August 2019

BUSINESS MODEL

12 easyJet plc Annual Report and Accounts 2019

DEMAND The airline industry is a cyclical one, with demand for flights driven by economic growth. Low-cost carriers such as easyJet continue to take market share from legacy carriers. The aviation industry has been affected by a number of geopolitical events in recent years, such as terror attacks and extreme weather events. These have both short-term and long-term consequences for demand and the structure of the industry. The UK’s decision to leave the EU has led to considerable uncertainty for people booking flights, as well as operational challenges for airlines. The outcome of the Brexit process may continue to affect GDP and the propensity to travel.

HOW WE ARE RESPONDING

Our dense, Europe-focused network enables economies of scale and allows us some flexibility, to move capacity in response to local demand. easyJet’s Brexit preparations are extensive and have addressed both operational and financial issues. Further details can be found on page 18.

FUEL Fuel is one of the biggest costs which airlines face and one of the most volatile. Fuel represented 24% of easyJet’s cost base for the 2019 financial year. During the year the average price of Brent crude oil fell by 6% from $70 to $66. The price of jet fuel is strongly correlated to the price of crude oil.

ENVIRONMENTAL AND SOCIAL Environmental factors are a major issue for the airline industry, affecting both passenger demand and operating parameters. Customers are increasingly aware of their carbon footprint and are considering alternatives to air travel, which accounts for around 3% of global carbon emissions.

SUPPLY AND AIRSPACE MANAGEMENT European short-haul capacity increased by 3.6% in total and by 5.3% in easyJet’s markets during 2019. The Air Traffic Control environment in Europe has continued to worsen, with delay minutes rising from 14.1 million in 2015 to 24.5 million by 2019, according to Eurocontrol data.

FOREIGN EXCHANGE easyJet is exposed to foreign exchange rate movements, particularly Sterling against the US dollar and the Euro. Sterling has fallen in value since the UK voted to leave the EU in the 2016 referendum. Sterling’s depreciation continues to impact negatively upon easyJet’s costs and capital expenditure. A strong US dollar increases the price of fuel, one of easyJet’s biggest costs. A strong Euro typically has a net benefit for easyJet’s European operations. See page 30 for details of the impact from foreign exchange on our results for the 2019 financial year.

Market dynamics

HOW WE ARE RESPONDING

easyJet continues to hedge fuel costs in order to mitigate against the risk of major volatility in fuel prices.

HOW WE ARE RESPONDING

easyJet is now the world’s first major airline to operate net-zero carbon flights. Our first comprehensive Sustainability Report begins on page 68 and contains further details of this and all of our Sustainability initiatives.

HOW WE ARE RESPONDING

easyJet is taking steps to address the difficult ATC environment and the rising costs of disruption. Our Operational Resilience programme is proving very successful and further details can be found on page 23.

HOW WE ARE RESPONDING

We hedge foreign exchange exposures in order to mitigate against volatility.

MARKET REVIEW

The key factors which influence easyJet and all operators

within the European airline industry

14 easyJet plc Annual Report and Accounts 2019

WHO THEY ARE HOW WE ENGAGE

STAKEHOLDER ENGAGEMENT

Our stakeholders are an important part of our operations and are

referenced throughout this report. Details of our key stakeholders

and how we engage with them are set out below.

our stakeholders

CUSTOMERS

We flew 96 million passengers in 2019. They include individuals who book flight-only trips with us for leisure or business, as well as those who also book holidays.

SUPPLIERS

Our current fleet of 331 aircraft is supplied by Airbus. The fleet is maintained by specialist suppliers. Ground handling agents manage the logistics operations at airports, such as baggage handling and aircraft loading and unloading. We have a strategic partnership with DHL to provide these services at Gatwick, Bristol and Manchester. We have a number of critical technology suppliers.

COMMUNITIES

We operate out of 30 bases across Europe and fly from 159 airports. Our head office is based at London Luton Airport, where we have a training academy for crew. We opened our first European pilot training centre near Milan in 2019.

EMPLOYEES

We have 15,000 employees across eight countries in Europe, including 4,000 pilots and 9, cabin crew.

SHAREHOLDERS

As a company listed on the London Stock Exchange, our shares are publicly traded. Our major shareholders are set out on page 117.

REGULATORS AND GOVERNMENTS

Our three pan-European airlines are regulated by Austrocontrol (Austria), the Civil Aviation Authority (UK) and the Federal Office of Civil Aviation (Switzerland). We engage with governments, policy makers, Air Traffic Control operators, airline associations and tourism bodies.

• Our crew interact with customers on a daily basis, providing the warmest welcome in the sky.
• When customers need extra support, our customer services teams help with special assistance requests or arrangements when their travel is disrupted.
• We also regularly survey our customers to find out about their experiences.
• We aim to have an open, constructive and effective relationship with all suppliers, as we believe they are integral to the Group’s success.
• We have an established supplier relationship management framework, which provides a toolkit and guidance for easyJet managers who lead relationships with key partners.
• Our IT supplier relationship management process is designed to ensure that third-party services and associated risks are regularly reviewed and assessed.
• In addition to Peakon, our employee engagement platform, we have country and base teams which manage and interact with staff on a daily basis.
• We have a number of employee representative groups across Europe. We also engage with 20 trade unions across eight countries.
• Moya Greene engages with employees through her role as the Employee Representative Director.
• Community engagement is typically coordinated by local management teams. In the community around our head office, we support Luton Town Football Club’s community sport programme and the ‘Love Luton’ economic development campaign.
• We have an active engagement programme with institutional investors through our Investor Relations department. Shareholders can also attend our AGM and ask questions.
• We engage with our major shareholders on a regular basis around specific issues.
• Our regulatory affairs team engages with regulators on a regular basis. We also engage with governments in all markets where we have bases, at both a national and regional level.
• Our operations team engage with Air Traffic Control operators and airline associations. We also work with business and tourism bodies across our network.

www.easyJet.com

STRATEGIC REPORT

(^) FINANCIAL REVIEW

STRATEGIC REPORT

(^) STAKEHOLDER ENGAGEMENT

There were no non-headline charges relating to Tegel, which is now fully integrated into the underlying business (2018: charge of £40 million).

TOTAL PROFIT

Total profit before tax fell to £430 million (2018: £445 million), including a £3 million positive impact (2018: £133 million adverse) from non-headline items. Headline profit before tax fell to £427 million (2018: £578 million). Headline profit per seat fell to £4.07 (2018: £6.07). The tax charge for the year was £81 million (2018: £87 million). The effective tax rate for the period was 18.9% (2018: 19.7%). Basic earnings per share fell to 88.6 pence (2018: 90.9 pence) after the impact of non-headline items. Basic headline earnings per share fell by 25% to 88.7 pence (2018: 118.3 pence). Subject to approval by shareholders, the Board is recommending that the dividend per share decreases by 25% to 43.9 pence (2018: 58. pence), in line with the Company’s stated dividend policy of a payout ratio of 50% of headline profit after tax.

FLEET

easyJet’s fleet is a major component of its business model and a competitive advantage. easyJet’s total fleet as at 30 September 2019 comprised 331 aircraft (2018: 315 aircraft) with the increase driven by the addition of new aircraft from the A320 family. The average gauge of the fleet is now 175 seats per aircraft, an increase from 172 seats at 30 September 2018. The average age of the fleet increased slightly to 7.4 years (2018: 7.0 years). During the year easyJet’s asset utilisation across the network decreased slightly to an average 10.9 block hours per day (2018: 11.1 hours). easyJet is pleased to announce that it has reached an agreement with Airbus which ensures continued delivery of aircraft from 2024 and executes some fleet flexibility. Specifically, the agreement includes:

• The exercise of 12 purchase options resulting in 12 firm orders of A320neo aircraft for delivery in 2024 under the existing 2013 agreement
• The deferral of delivery dates of nine A320neo aircraft and three A321neo aircraft resulting in 2021 deliveries reducing by 12 aircraft, and being deferred to delivery dates starting from 2023

The agreement secures valuable delivery slots in 2024 at a list price of $1,368.4m for the 12 new firm orders of A320neo aircraft. Under the terms of the 2013 agreement between easyJet and Airbus, the actual cost of the aircraft is subject to a substantial discount from the list price. Following this agreement, easyJet have 13 purchase options and 58 purchase rights remaining. The agreement also allows the fleet to meet the planned fleet size for 2021 and is a key demonstration of easyJet’s fleet flexibility which means the airline is able to either increase or decrease the fleet growth programme as well as increase or decrease deployed capital.

FLEET AS AT 30 SEPTEMBER 2019:

Owned Leased Total % of fleet

Changes since Sept 2018

Future deliveries

Purchase options

Unexercised purchase rights

A319 69 56 125 38% (7) – – –

A320 180 seat 17 23 40 12% (35) – – – A320 186 seat 109 20 129 39% 36 – – –

A320 neo 31 – 31 9% 18 79 25 58

A321 neo 6 – 6 2% 4 24 – – 232 99 331 16 103 25 58

Percentage of total fleet 70% 30%

Headline cost per seat excluding fuel decreased by 0.8% at constant currency 2 to £43.11 (2018: £43.43). This cost performance was driven by:

• Investment in operational resilience, which drove decreases in cancellations and delays over three hours despite experiencing the drone issue at Gatwick as well as summer thunderstorms across many markets
• Lower navigation costs due to reduction in Eurocontrol rates
• Favourable impact of IFRS 16 in relation to maintenance costs offset by increased underlying costs of maintenance
• Fleet up-gauging from A319ceo to A320neo and A321neo albeit this has been somewhat lower than planned due to Airbus delivery delays
• Established strategic relationships with key suppliers, particular airports and ground handling agents, to drive long-term cost efficiencies
• Lower de-icing costs due to relatively benign weather

Partially offset by:

• Annualisation of previously agreed crew pay deals
• Price increases from both regulated and non-regulated airports
• Ownership costs reflecting new aircraft year on year and the impact of IFRS 16 accounting changes. The net impact of IFRS 16 is an £8 million decrease in headline costs
• The cost impact of the drones at Gatwick relating to customer welfare costs. The incident affected around 82,000 customers and led to over 400 flights being cancelled.

Fuel cost per seat increased by 8.4% to £13.48 (2018: £12.44) and by 4.3% at constant currency^2 , driven by a higher hedged fuel price compared to the prior year, partially offset by a continued investment into more fuel efficient aircraft.

NON-HEADLINE ITEMS

easyJet incurred a net benefit of £3 million in non-headline items during the 2019 financial year (2018: £133 million cost). Non-headline items are material non-recurring items or items which do not reflect the trading performance of the business. These costs are separately disclosed and further detail can be found in the notes to the accounts. These include:

• £2 million gain as a result of the sale and leaseback of ten A aircraft in the period (2018: charge of £19 million)
• £2 million gain from the retranslation of balance sheet monetary assets and liabilities (2018: nil)
• £2 million credit related to the commercial IT platform programme (2018: £65 million charge)
• £4 million charge for ongoing organisational and legal costs associated with easyJet’s Brexit-mitigation programme (2018: £7 million)
• £1 million credit related to fair value adjustments (2018: £1 million charge)

www.easyJet.com^17

STRATEGIC REPORT

(^) CHIEF EXECUTIVE’S REVIEW

HEDGING

Details of hedging arrangements as at 30 September 2019 are set out below:

Fuel requirement US Dollar requirement Euro surplus CHF Surplus Six months to 31 March 2020

Percentage of anticipated requirement hedged 74% 70% 68% 76%

Average rate $632 / metric tonne $1.36 €1.11 CHF 1. Full year ending 30 September 2020

Percentage of anticipated requirement hedged 68% 66% 67% 73%

Average rate $655 / metric tonne $1.36 €1.11 CHF 1. Full year ending 30 September 2021

Percentage of anticipated requirement hedged 45% 46% 52% 52%

Average rate $643 / metric tonne $1.31 €1.10 CHF 1.

1. Unit fuel calculated as the difference between latest estimate of 2020 fuel costs less 2019 fuel cost per seat multiplied by 2020 seat capacity
2. Based on rates as at 30 September 2019 of US$ to £ Sterling 1.28, Euro to £ Sterling 1.15. Currency, capital expenditure and fuel increases are shown net of hedging impact

BALANCE SHEET

easyJet’s business model and strategy are underpinned by sector-leading balance sheet strength. easyJet is committed to its investment grade rating, with a BBB+ (stable) rating from Standard & Poor’s and a Baa1 (stable) rating from Moody’s.

Of easyJet’s 331 aircraft on the balance sheet at 30 September 2019, the 232 owned aircraft are unencumbered, representing 70% of the total fleet (unchanged year-on-year).

Over the next four years easyJet’s gross capital expenditure, including the impact of new IFRS accounting standards is expected to be as follows:

Year 2020 2021 2022 2023

Gross capital expenditure (£ million) 1,350 950 1,200 1,

easyJet’s funding position is strong with net debt at 30 September 2019 of £326 million, which comprised cash and money market deposits of £1,576 million (2018: £1,373 million) and borrowings of £1,902 million (2018: £977 million).

Borrowings as at 30 September 2019 include £578 million of lease liabilities, with the majority added as a result of the adoption of IFRS 16.

After allowing for the impact of aircraft operating leases, as previously adjusted (seven times operating lease costs incurred in the 12 months ending 30 September 2018), adjusted net debt as at 30 September 2018 was £738 million.

Liquidity per 100 seats was £3.6 million (2018: £3.9m), which represents comfortable headroom compared to our target of a liquidity buffer of £2.6 million per 100 seats, defined as cash plus undrawn revolving credit facilities and business interruption insurance.

Headline return on capital employed (ROCE) fell to 11.4% (2018: 14.6%), driven by the weaker performance in Q2. Total ROCE fell to 11.4% (2018: 11.7%). On a like-for-like accounting basis, total ROCE decreased to 10.0%.

BREXIT

easyJet is well prepared for the UK’s departure from the European Union and has been operating in a ‘No-Deal Brexit’ environment since March 2019.

Since March easyJet has been structured as a pan-European airline group with three airlines based in Austria, Switzerland and the UK. This ensures that easyJet will continue to be able to operate flights both across the EU and domestically within EU countries after the UK has left the EU, regardless of the Brexit outcome.

easyJet has made good progress in meeting the European ownership requirements and our equity capital is currently around the 50% threshold of qualifying nationals (EU member states plus Switzerland, Norway, Iceland, Liechtenstein, but excluding the UK). In the event that the UK were to leave the EU without a deal and if the European ownership of easyJet were to fall below 50% then easyJet could invoke the provisions within its Articles of Association

which allow for suspension of rights to attend and vote at shareholder meetings and/or sale of shares by non-qualifying nationals to qualifying nationals. Similar powers exist in the articles of association of other airlines, as well as in the articles of companies in other sectors which have national share ownership requirements. Whilst easyJet has no current intention of exercising these powers, the position will be kept under review pending the outcome of Brexit negotiations between the UK and the EU, along with other options. easyJet continues to closely monitor demand on all of our routes, in the event that political events may affect our customers’ propensity to travel. Having started our Brexit preparations early and with contingency plans in place, we are confident that easyJet will keep flying and that our operations will not be materially affected, whatever the outcome of the current political situation.

OUTLOOK

easyJet continues to see the current market environment as an opportunity to build and strengthen its network, operational resilience and customer experience for the long term. For the 2020 financial year easyJet plans to grow capacity at the lower end of our medium-term 3-8% guidance. Scheduled capacity growth in Q1 is currently around 2% and is expected to be less than 2% for the first half. Forward bookings for the first half of the 2020 financial year are reassuring. Bookings are slightly ahead of last year (recognising that the second quarter is a weak comparative). Revenue per seat for the first half of the 2020 financial year is expected to be up low to mid single digits year-on-year. This excludes the incremental revenues associated with easyJet Holidays. Disruption costs are expected to continue improving next year, driven by our Operational Resilience programme. A lower rate of capacity growth will make it more challenging to deliver lower costs per seat on an underlying basis. Headline cost per seat excluding fuel at constant currency for the 2020 financial year is expected to increase by low single digits, assuming normal levels of disruption. This guidance excludes the incremental costs associated with easyJet Holidays, which is expected to be at least breakeven for the financial year ending 30 September 2020. Capital expenditure for the 2020 financial year is expected to be c.£1.35 billion (including the effect of new IFRS accounting standards). Based on today’s fuel prices, unit fuel costs^1 for the year to 30 September 2020 are expected to result in a headwind of between £70 million and £140 million, due to easyJet’s advantaged hedging position. Total fuel bill is expected to be around £1.62 billion (includes £10 million of the headline foreign exchange impact) and this figure includes c.£25 million investment in carbon offsetting. The total expected headline foreign exchange impact^2 for the year to 30 September 2020 is expected to be a positive movement of around £40 million.

CHIEF EXECUTIVE’S REVIEW CONTINUED

18 easyJet plc Annual Report and Accounts 2019