Ryanair and easyJet Case Study
I.INTRODUCTIONThis report outlines the analysis of two low-cost airlines performance in Europe, namely easyJet PLC and Ryanair Hldgs during their financial year between 2006 and 2008. It examines the companies' portfolio, future prospects and competitors to analyse the threats and opportunities facing their business. In conclusion, there is a recommendation whether to invest on easyJet and/or Ryanair's shares.
II.FINANCIAL AND NON-FINANCIAL RATIO ANALYSISIn terms of the completed financial analysis, there are several findings as follows:•Profitability Ratios highlight the operating performance from the generated profit. (Atrill & McLaney, 2008)Operating Profit MarginFigure 1. Operating Profit Margins (%)The graph shows that easyJet's operating profit margins declined sharply, reaching only 3.85% from 10.16% and this is moderately low, compared to the three-year average of 7.09%. Unlike easyJet, Ryanair has more stable profit margins, 21.01% on average. According to the figures, Ryanair seems more vigorous in generating higher profit from its sales, which was partially due to hotels, car rentals and other non-flight products selling. On the other hand, easyJet seems had been negatively affected by intense competition among its rivals as well as the price pressures.
Return on Capital EmployedFigure 2. Return on Capital Employed (%)The ROCE shows the performance of business in generating profit to its long-term capital suppliers. (Atrill & McLaney, 2008) The highest ROCE ratio, 10.41% in 2007 specifies that easyJet had a better performance by fully using its assets in generating revenues. However, the ROCE slid dramatically to only 4.46%, which indicates a weak performance because its return on assets was probably below its cost of capital. In terms of overall ROCE, Ryanair had a higher margin, 11.19%, than easyJet, 7.73%. From this figure, it is suggested that easyJet should operate at Ryanair's significant discount.
Return on Shareholders' FundFigure 3. Return on
II.FINANCIAL AND NON-FINANCIAL RATIO ANALYSISIn terms of the completed financial analysis, there are several findings as follows:•Profitability Ratios highlight the operating performance from the generated profit. (Atrill & McLaney, 2008)Operating Profit MarginFigure 1. Operating Profit Margins (%)The graph shows that easyJet's operating profit margins declined sharply, reaching only 3.85% from 10.16% and this is moderately low, compared to the three-year average of 7.09%. Unlike easyJet, Ryanair has more stable profit margins, 21.01% on average. According to the figures, Ryanair seems more vigorous in generating higher profit from its sales, which was partially due to hotels, car rentals and other non-flight products selling. On the other hand, easyJet seems had been negatively affected by intense competition among its rivals as well as the price pressures.
Return on Capital EmployedFigure 2. Return on Capital Employed (%)The ROCE shows the performance of business in generating profit to its long-term capital suppliers. (Atrill & McLaney, 2008) The highest ROCE ratio, 10.41% in 2007 specifies that easyJet had a better performance by fully using its assets in generating revenues. However, the ROCE slid dramatically to only 4.46%, which indicates a weak performance because its return on assets was probably below its cost of capital. In terms of overall ROCE, Ryanair had a higher margin, 11.19%, than easyJet, 7.73%. From this figure, it is suggested that easyJet should operate at Ryanair's significant discount.
Return on Shareholders' FundFigure 3. Return on
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