RNS Number : 5486J
easyJet PLC
05 December 2018
 

5 December 2018

 

easyJet plc ("the Company")

 

Annual Report and Accounts 2018

 

As required under Listing Rule 9.6.1 R, the Company announces that a copy of the Annual Report and Accounts for the year ended 30 September 2018 has been submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/NSM.  

 

This document is also available to view on the Company's website. The direct link to download the 2018 Annual Report and Accounts is http://2018annualreport.easyjet.com.

                                                                                                                

In compliance with DTR 6.3.5 R, the following information is extracted from the 2018 Annual Report and Accounts and should be read together with the Company's Results Announcement issued on 20 November 2018 which can be found at http://corporate.easyjet.com/investors/regulatory-news

 

Together these constitute the information required to be communicated to the media in unedited full text through a Regulatory Information Service. This information is not a substitute for reading the full

2018 Annual Report and Accounts.

 

For further details please contact easyJet plc:

 

Institutional investors and sell side analysts: 

 

Stuart Morgan

Investor Relations

+44 (0) 7977 402036

Michael Barker

Investor Relations

+44 (0) 7985 890 939

 

Media:  

 

Flic Howard-Allen

Corporate Communications

+44 (0) 7860 794 444

Anna Knowles

Corporate Communications

+44 (0) 7985 873 313

Edward Simpkins

RLM Finsbury

+44 (0) 7947 740 551

 

 

Statement of Directors' Responsibilities

 

The following responsibility statement is extracted from the Statement of Directors' Responsibilities on page 110 of the 2018 Annual Report and Accounts and is repeated here solely for the purpose of complying with DTR 6.3.5 R. The statement relates to the full 2018 Annual Report and Accounts and not the extracted information presented in this announcement or the Results Announcement.

 

The Directors are responsible for preparing the Annual Report, the Directors' remuneration report and the accounts in accordance with applicable law and regulations.

Company law requires the Directors to prepare accounts for each financial year. Under that law the Directors have prepared the Group and Company accounts in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and the Company for that period.

In preparing these accounts, the Directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      make judgements and accounting estimates that are reasonable and prudent;

·      state whether applicable IFRS as adopted by the EU have been followed, subject to any material departures disclosed and explained in the accounts; and

·      prepare the accounts on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company. This enables them to ensure that the accounts and the Directors' remuneration report comply with the Companies Act 2006 and, as regards the Group accounts, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of, amongst other things, the financial and corporate governance information provided on the easyJet website (http://corporate.easyjet.com/). Legislation in the United Kingdom governing the preparation and dissemination of accounts may differ from legislation in other jurisdictions.

The Directors consider that the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's and the Company's position and performance, business model and strategy.

Each of the Directors, whose names and functions are listed on pages 61 and 63, confirm that, to the best of their knowledge:

·      the Group and Company accounts, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group and Company; and

·      the strategic report, included in the Annual Report, includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

In accordance with section 418 of the Companies Act 2006, each Director in office at the date the Directors' report is approved, confirms that:

·      so far as the Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and

·      he/she has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

The Annual Report on pages 1 to 110 was approved by the Board of Directors and authorised for issue on 19 November 2018 and signed on its behalf by:

JOHAN LUNDGREN Chief Executive      ANDREW FINDLAY Chief Financial Officer

Principal Risks and Uncertainties

 

The risks and uncertainties set out below are extracted from the pages 39 to 48 of the 2018 Annual Report and Accounts and are repeated here solely for the purpose of complying with DTR 6.3.5 R.

 

The risks and uncertainties described below are considered, at this point in time, to have the greatest effect on easyJet's strategic objectives. This categorised list is not intended to be exhaustive, and the ordering of the risks is not an indication of exposure. Whilst easyJet can monitor risks and prepare for adverse scenarios, the ability to affect the core drivers of many risks is not within the group's control, for example adverse weather, pandemics, acts of terrorism, changes in government regulation and macroeconomic issues.

 

The risks and uncertainties described below are considered, at this point in time, to have the greatest effect on easyJet's strategic objectives. This categorised list is not intended to be exhaustive, and the ordering of the risks is not an indication of exposure. Whilst easyJet can monitor risks and prepare for adverse scenarios, the ability to affect the core drivers of many risks is not within the Group's control: for example adverse weather, pandemics, acts of terrorism, changes in government regulation and macroeconomic issues.

SAFETY FIRST

 

RISK DESCRIPTION

CONTEXT AND MITIGATION

MAJOR SAFETY INCIDENT

A major safety incident (such as a hull loss) could adversely affect easyJet's operational and financial performance and its reputation.

The impact of such an incident would be heightened if easyJet failed to react promptly and deal with the incident effectively.

easyJet's number one priority is the safety and security of its customers and people.

The Safety Committee (a committee of the Board) provides oversight of the management of easyJet's safety processes and systems. See pages 76 to 77 for further details.

The easyJet Safety Board, chaired by the Chief Executive and including the Chief Operating Officer and AOC Accountable Managers, is responsible for directing overall safety policy and governance. The Safety Board meets every month to review safety performance.

Functional Safety Action Groups from across the airline are chaired by the appropriate senior manager and are responsible for the identification, evaluation and control of safety-related risks.

easyJet operates a Safety Management System using leading software systems (SafetyNet and RiskNet). These are used to:

·      report incidents and identify hazards;

·      investigate events and take appropriate risk-mitigating actions;

·      collect and analyse safety data (enabling potential areas of risk to be projected); and

·      enable learning from easyJet and industry events/incidents to be captured and embedded into future risk mitigations.

A Safety Policy is published that promotes the incident reporting process and supports this safety culture.

easyJet has an emergency response process and performs regular crisis management exercises.

Hull (all risks) and liabilities insurance (including spares) is held.

easyJet has an industry-leading fatigue risk management system and has implemented the European Aviation Safety Agency (EASA) Flight Time Limitations regulations.

 

SAFETY FIRST CONTINUED

 

RISK DESCRIPTION

CONTEXT AND MITIGATION

SECURITY THREAT OR ATTACK Failure to identify or prevent a major security-related threat or attack, or react immediately and effectively, could adversely affect easyJet's reputation and its operational and financial performance.

Such an incident has the potential to impact upon easyJet's business, regardless of the location or target.

The threat of further security-related attacks (regardless of where they may occur) may impact the future demand for air travel.

A Security Decision Group, comprising the Chairman of the Board, the Chief Executive, appropriate members of the AMB and other senior management, determines whether easyJet should continue to operate in countries or areas affected by security-related incidents or conflict.

As part of that process the easyJet Security team works to provide the Security Decision Group with the most timely, credible and reliable information upon which to base operational decisions. easyJet adheres to all recommendations and guidelines provided by the authorities.

The Director of Safety, Security and Compliance and the Head of Security work with authorities and governments around easyJet's network to assess whether security measures are effective and compliant with regulatory requirements. A significant amount of work is carried out with the aim of enhancing:

·      early identification of developing and emerging security risks;

·      the active management of security risks;

·      the methods for reducing the impact of any security-related incident; and

·      the Group's security culture and awareness.

COMMERCIAL AND OPERATIONAL

 

RISK DESCRIPTION

CONTEXT AND MITIGATION

COMPETITION, CAPACITY AND INDUSTRY CONSOLIDATION easyJet's success in the highly competitive European short-haul aviation market is built on our key competitive advantages: our network, cost base, brand, digital innovation and efficient and robust capital structure. Failure to retain these advantages could have an adverse financial impact.

Excess capacity in our markets may arise due to a decrease in demand for air travel and/or an acceleration of growth by competitors, driven for example by low fuel prices. This could have an adverse financial impact.

Industry consolidation could affect the competitive environment in a number of markets. Whilst also an opportunity, consolidation could result in the loss of market positions (relative market share) with adverse financial impacts.

easyJet's ability to respond quickly to changes in the competitive environment is fundamental to ensuring that profitability is sustainable. Failure to respond quickly could result in adverse market positions or the inability to capture opportunities to grow the business.

easyJet maintains a strong focus on each of its competitive advantages. There are initiatives to drive cost control and improve efficiency in targeted areas. easyJet is also developing commercial and digital enhancements, and continues to invest in its brand.

The Network Development Forum, a cross-functional panel of senior managers, including members of the AMB, approves the allocation of assets around the network in the context of expected market conditions. easyJet also aims to have an agile response to any structural changes in market conditions.

Competitor and consolidation activity is monitored in detail by the Network team, enabling strategic decision making on key market positions. easyJet's rapid and targeted response to the Air Berlin insolvency demonstrates the success of this approach.

Fleet framework arrangements, together with the Group's leasing policy, provide easyJet with significant flexibility in respect of scaling the fleet according to business requirements.

 

COMMERCIAL AND OPERATIONAL CONTINUED

 

RISK DESCRIPTION

CONTEXT AND MITIGATION

CONTINUITY OF SERVICES

easyJet is dependent on a number of key IT systems and processes.

A loss of critical systems or access to facilities, including the website and Operations Control Centre, could lead to significant disruption to operations and could have an adverse reputational and financial impact.

easyJet has entered into agreements with third-party service providers

for services covering a significant proportion of its operations and cost base. Failure to adequately manage third parties may adversely affect easyJet's reputation and its operational and financial performance.

Critical systems identified through our Business Resilience Criticality Matrix are hosted either across two data centres, or at third-party provider locations. Recovery arrangements, including failover protocols between the two data centres, are in place for all locations holding critical systems.

An IT Incident Management team is in place to respond rapidly to any unforeseen incidents that may arise.

Continuity arrangements exist for critical IT systems and for loss or denial of access to critical facilities. These plans include relocation of staff to alternative locations.

easyJet continues to enhance all elements of resilience activity, and has a programme of work with dedicated expertise and a view to adopting a more integrated model.

There is a defined and centralised procurement process which ensures a competitive and robust selection of suppliers and a supplier relationship management framework covering key principles such as defined ownership and accountability, governance and communication. In addition, a new contracts database and e-sourcing tool have been introduced during the year, providing additional functionality to improve the procurement and supplier management processes.

In the event of switching strategic suppliers, project management and transition plans are agreed, taking into account previous lessons learned to help ensure an acceptable level of performance is maintained. This was demonstrated by the transition of ground handling at our largest base, Gatwick Airport, from Menzies to DHL during the year.

Where easyJet is affected by industrial action or other service interruption by a key supplier, internal and external resources are deployed to manage this as effectively as possible. See the significant network disruption risk outlined on page 43 for further detail.

CUSTOMER EXPERIENCE

Reliability, including on-time performance (OTP), is a key element of the customer experience.

Unreliable operational performance and inability to react to customer expectations as a result of routine and ongoing disruption will negatively impact customer satisfaction and financial performance, including the payment of EU 261 claims.

This year there has been a one percentage point decrease in OTP, driven by an increase in disruption events.

There has been a significant increase in French Air Traffic Control (ATC) strikes compared to the 2017 financial year, resulting in widespread network disruption. easyJet, along with other airlines, has made a proactive challenge to the European Commission to seek to protect overflight rights in France in the event of ATC strikes.

There is also continued focus on the EU 261 claims management process which has been further strengthened during the year by increasing the size of the team handling legal claims and the introduction of a claims management system.

To provide the appropriate level of focus and oversight of risk response measures, easyJet has initiated a key strategic project, Operational Resilience, and as part of this, all aspects of the operation, schedule and disruption are under review. This includes how we manage customers before, during and after disruption. The project is prioritising the following themes:

·      aircraft and crew standby;

·      Operations Control Centre reporting on the day of operations, including customer communication;

·      airport performance and strategic supply chain; and

·      EU 261 management (see the significant network disruption risk outlined on page 43 for further detail).

 

COMMERCIAL AND OPERATIONAL CONTINUED

 

RISK DESCRIPTION

CONTEXT AND MITIGATION

ENVIRONMENTAL

Climate change has the potential to affect easyJet's operations and broader business in a number of ways.

In particular, climate change is likely to lead to more volatile weather, including greater frequency and intensity of storms. This could disrupt easyJet's operations, such as a reduction in

the handling capacity of airports and loss of ground transport access. Any increase in cancelled or delayed flights would also increase disruption costs and reduce revenue.

Changes in wind patterns and jet stream disruption as a result of climate change are also recognised as having the potential to increase en route turbulence.

The nature of airline operations means that easyJet is a significant emitter of greenhouse gases, in particular carbon dioxide. Aviation is already part of the EU's Emissions Trading System

(EU ETS), and easyJet expects to be part of the future global scheme for aviation emissions, CORSIA. If the cost of carbon permits in the future significantly increases, or the cost of more efficient technologies (such as new aircraft) significantly increases, easyJet faces a material financial risk. Future policy measures and regulation to tackle the impact of aviation on climate change could impact easyJet's business if they impose limitations and cost on how easyJet operates and the services it can provide. Linked to this, increased compliance costs and any costs associated with potential distortions to the aviation market could affect easyJet.

 

easyJet takes its environmental and climate change related responsibilities seriously and continues to develop its disclosures on this matter to reflect developing legal and regulatory requirements and increased stakeholder interest.

easyJet recognises the need to transition to a lower carbon economy and we continue to work towards ensuring that aviation plays its part in achieving this. easyJet was an early advocate for aviation being part of the EU ETS.

easyJet's business model supports fuel efficiency and minimising carbon emissions, through means such as investment in efficient aircraft, use of fuel efficiency measures and operating flights with a high load factor. easyJet is a short-haul operator, which has a lower carbon impact per passenger kilometre than the major European airlines whose operations include a significant amount of long-haul flights. By operating 'point-to-point' flights rather than encouraging customers to transfer, we make customer journeys more efficient.

easyJet started to operate a new generation of Airbus A320 family aircraft in 2017. These aircraft are 15% more fuel efficient than previous generation aircraft. As at 30 September 2018, 13 A320neo aircraft were in operation, with a further 87 to be delivered by August 2022. Two of the larger A321neo aircraft were also in the fleet at this date, with a further 28 to be delivered by October 2020.

More volatile weather can have an adverse impact on the customer experience (see the customer experience risk outlined on page 41).

Operational efficiency measures include: the continual review of flight plans to ensure the optimal routings and cruise levels are used; maximising the use of external power, rather than the aircraft auxiliary power unit, when on the ground; use of only one engine when taxiing on the ground; and climb, descent and landing techniques that improve efficiency.

In 2013 easyJet established a public target to reduce its carbon emissions per passenger kilometre. The target was strengthened in 2015 and is currently a 10% reduction in carbon emissions per passenger kilometre by 2022 from its 2016 financial year performance.

In the 2018 financial year easyJet's carbon emissions per passenger kilometre were 78.46 grams (g). This is a reduction from 78.62g per passenger km in the prior financial year and down by 1.9% from the 2016 baseline.

By engaging with key stakeholders, easyJet's Regulatory Affairs Group seeks to reach a common understanding on the drive to impose policy measures and regulation to address the impact of aviation on climate change. The group co-ordinates easyJet's role in influencing future and existing policy and regulations which affect the airline industry and will work with industry bodies to assist in this, as appropriate. The group includes Country Directors and senior representation from Legal, Regulatory, Fleet, Airport and Public Affairs teams.

 

COMMERCIAL AND OPERATIONAL CONTINUED

 

RISK DESCRIPTION

CONTEXT AND MITIGATION

SIGNIFICANT NETWORK DISRUPTION

Widespread, sustained disruption to easyJet's network could be caused by a single event or factors which occur for a prolonged period. Examples include forces of nature (such as extreme weather or volcanic ash), terrorism, air traffic management restrictions, strikes, epidemics/pandemics, or the closure of a key airport/runway.

Significant, sustained disruption to the network could adversely affect easyJet's reputation and its operational and financial performance.

There are processes in place, and clear roles and responsibilities within teams across the business, to plan for and manage significant disruption.

This includes a Business Disruption team brought together to manage both expected and on-the-day/unexpected disruption events and to determine and initiate the required action. The Business Disruption team includes senior managers from relevant business areas, including the Operations Control Centre and Customer Services.

Board policy is to maintain a liquidity buffer which allows the Group to better manage the impact of downturns in business or temporary curtailment of activities (see the financial risk outlined on page 44).

In addition, easyJet holds business interruption insurance which provides some cover for very significant shock events such as extreme weather, air traffic management issues and loss of access to key airports. The policy would allow us to claim in the event of a very substantial number of cancellations.

SINGLE FLEET SUPPLIER

easyJet is dependent on Airbus as its sole supplier for aircraft.

There are significant cost and efficiency advantages of a single fleet; however there are three main associated risks:

·      supply chain issues which may cause delay to the delivery of new aircraft;

·      technical or mechanical issues that could ground the full fleet, or part of the fleet, which could cause a negative reputational impact; and

·      valuation risks which crystallise when aircraft exit the fleet. The main exposure at this time is with the older A319 fleet, as easyJet is reliant on the future demand for second-hand aircraft.

The Board considers that the efficiencies achieved by operating a single fleet type outweigh the risks associated with easyJet's single fleet strategy.

The Airbus A320 family (which includes the A319, A320 and A321) is one of the two primary fleets used for short-haul travel, the other being the Boeing B737 family. There are approximately 8,000 A320 family aircraft operating, with a proven track record for safety and reliability.

The introduction of the A320neo in part mitigates this risk as the aircraft is equipped with a different engine type. Airbus has already delivered 13 A320neos to easyJet as at 30 September 2018 and two A321neos, with a total of 130 aircraft with the new engine option scheduled to be in the fleet by the end of 2022.

easyJet continues to work closely with Airbus to ensure full visibility of the delivery schedule for new aircraft. In the event that there are material delays appropriate mitigation is put in place; for example short-term wet lease arrangements are used to minimise any operational impact.

easyJet operates a rigorous established aircraft maintenance programme. Maintenance schedules are designed in line with manufacturer recommendations and approved by the relevant regulatory body (the Civil Aviation Authority, Austro Control or the Federal Office of Civil Aviation).

To mitigate any potential valuation risks, easyJet regularly reviews the second-hand market and has a number of different options when looking at fleet exit strategies. Sale and leaseback facilitates the exit of aircraft from the fleet by transferring residual value risk, and also provides flexibility in managing the fleet size. In December 2016, 10 A319 aircraft were sold, and a further 10 A319 aircraft in October to November 2017, under sale and leaseback arrangements.

 

 

FINANCIAL

 

RISK DESCRIPTION

CONTEXT AND MITIGATION

DELIVERY OF STRATEGIC INITIATIVES

The business continues to undertake a number of initiatives to support its strategy.

Ongoing strategic initiatives include:

·      rewarding and recognising our customers' loyalty;

·      transforming our Holidays business;

·      creating a compelling business offer;

·      investing in resilience to manage disruption more effectively; and

·      becoming the most data-driven airline in the world.

These complex, large-scale programmes have been initiated and are managed through the Project Management Office.

Failure to successfully execute these initiatives in a timely manner, or to deliver the planned business benefits and/or cost savings, could result in financial underperformance.

 

A project management framework, which sets out approval processes, governance requirements, key ongoing processes and controls, is followed by all projects and programmes, and reviews are undertaken to ensure continuous improvement in this approach.

Each strategic initiative has an executive sponsor from the AMB and its own steering group which provides oversight and challenge to the project, monitors progress against programme objectives and ensures that decisions are made at the appropriate level. These key strategic initiatives are managed by experienced programme managers, complemented by appropriate subject matter specialist resource where appropriate.

A Project Management Office is in place to oversee delivery of projects and programmes, including the allocation of support resource, budget tracking and realisation of benefits. With an increase in the number of strategic initiatives, the AMB has approved additional headcount for the 2019 financial year to strengthen both the portfolio and programme management capability.

The AMB meets twice monthly. The executive sponsor provides routine updates and can use this as an escalation channel for any issue resolution. The Board also receives updates on key strategic initiatives including any risks or issues associated with their delivery.

In addition, our Internal Audit function provides independent programme assurance over our most significant initiatives, drawing upon independent subject matter expertise where appropriate.

 

FINANCIAL RISK

easyJet is exposed to a variety of financial risks which could give rise to adverse pressure on the financial performance of the Group, such as costs, revenue and cash flow. These include:

·      market risk - significant/sudden increases in jet fuel prices, currency fluctuations or interest rate changes which have not been adequately protected through hedging;

·      counterparty risk - non-performance of counterparties used for depositing surplus funds (for example money market funds, bank deposits) and hedging; and

·      liquidity risk - misjudgement of the level of liquidity required, resulting in inability to meetcontractual/contingent financial obligations or the inability to fund the business when needed.

The Finance Committee (a committee of the Board) oversees the Group's treasury and funding policies and activities.

See page 85 for further details.

Its responsibilities include:

·      maintaining a treasury policy setting out Board-approved strategies for foreign exchange and fuel hedging, along with liquidity, interest rate management, and counterparties' limits; and

·      reviewing and reporting on compliance with Board treasury policies.

The policy is to hedge revenue and costs within a percentage band for a rolling 24-month period.

Board policy is to maintain a liquidity buffer including cash, revolving credit facilities (provided by a group of relationship banks) and business interruption insurance cover. This allows the Group to better manage the impact of downturns in business or temporary curtailment of activities. The policy is to maintain a minimum liquidity buffer at or above £2.6 million per 100 seats.

A strong balance sheet supports the business through fluctuations in economic conditions and the Group has access to diverse sources of funding to support liquidity requirements.

 

PEOPLE

 

RISK DESCRIPTION

CONTEXT AND MITIGATION

ATTRACTION AND RETENTION OF TALENT

easyJet's current and future success is reliant on having the right people with the right capabilities at the right time.

Increased competition in the recruitment market may impact easyJet's ability to attract and retain key, as well as diverse, talent. This could adversely affect the delivery of strategic objectives.

easyJet has a comprehensive recruitment strategy for all employees including head office, engineering, pilots and cabin crew. In addition, easyJet has developed a coherent employment brand to attract and retain top talent across Europe. easyJet continually improves talent acquisition methods to ensure we stay ahead of the market. In the year, we have attracted talent at all levels of the business, including enhancing the AMB (see pages 64 to 66).

easyJet has created a strategy which utilises the apprenticeship levy to build future capabilities. This year we took on 14 engineering apprentices, as well as broadening our offering of apprenticeships by opening up opportunities within our cabin crew, Operations Control Centre, leadership and people management roles.

A focus this year has been on the development of a strategy to increase the diversity of our employee population to ensure it reflects that of our customer base. This builds on the existing Amy Johnson initiative, which aims to attract more female pilots.

easyJet aims to develop talent from within. There are a range of talent development programmes in place for individuals who have been identified for fast-tracking into broader or more senior roles. Alongside this, there is an annual succession planning process to ensure there are clear successors for all AMB and key business leadership roles and associated risks are proactively managed.

See pages 53 to 54 for further details of how easyJet attracts, retains and develops a diverse workforce.

easyJet conducts annual salary benchmarking to ensure remuneration is competitive across all markets and levels.

In 2018, easyJet launched a new employee listening platform called Peakon. Data and feedback from this platform will provide us with regular insight on levels of engagement within critical talent populations, enabling us to take action where required. One of the themes arising from the Peakon trial has resulted in the launch of Project Home - a suite of investment initiatives to enhance our head office environment into a more engaging and inspiring place for employees to perform at their best.

INDUSTRIAL ACTION

easyJet, and the aviation industry in general, has a significant number of employees who are members of trade unions. Industrial action taken by easyJet employees could impact on easyJet's ability to maintain its flight schedules.

This could adversely affect easyJet's reputation, as well as its operational and financial performance.

Each of the European countries in which easyJet operates has localised employment terms and conditions. As such its pilots and crew are members of 20 trade unions across eight countries. There are also an additional 11 consultative bodies, including five works councils and a European Works Council, that operate under EU legislative guidance.

easyJet seeks to maintain positive working relationships with all trade unions and other representative bodies and has a framework in place for consulting and engaging with trade unions and consultative bodies.

In the event of industrial action or expected disruption, easyJet has processes to mitigate the impact to our operations. The Operations team also has specific procedures to deal with such events (see the significant network disruption risk outlined on page 43).

 

REGULATORY AND LEGAL

 

RISK DESCRIPTION

CONTEXT AND MITIGATION

IMPACT OF BREXIT

easyJet has made or is in the process of finalising the changes needed to its operating model to ensure that it is as robust as possible to any Brexit outcome, including the set-up of the Austrian AOC and new UK AOC. However, the outcome of the Brexit negotiations remains unknown and could impact easyJet.

This has the potential to impact our existing safety approvals, pilot licensing arrangements, ownership model, Group tax profile, engineering and maintenance supply chain, and makeup of our crew establishment.

Brexit could, at the most extreme, lead to a halt to flying between the EU and the UK, although not only do we think this highly unlikely but if this were to occur we think it would only last for a short period of time. However, this outcome would have both revenue and cost impacts, and could also lead to a deterioration of consumer confidence resulting in longer term financial underperformance.

easyJet has established a cross-functional Brexit programme which has implemented a structured approach to the identification and management of all risks related to Brexit.

The programme has already made changes to the current operating model and operating licences to protect our flying rights, regardless of the outcome of the national negotiations.

easyJet's focus is now on the management of risks associated with the outcome of the negotiations around the Withdrawal Agreement. If a deal is agreed and ratified between the UK Government and EU27, a transition arrangement will be put in place until at least December 2020 effectively removing any impact on our operation.

If the outcome of the negotiations results in 'no deal' and the UK leaves the EU without a Withdrawal Agreement in place, both the UK and EU have made it clear in their notices of no deal preparation that they will ensure that connectivity is maintained between the EU and the UK through what the EU has called a 'bare bones' aviation agreement. easyJet is finalising its Brexit preparations to ensure that its network is robust to a no deal outcome and the UK being outside both the single market and EASA. These include:

·      the transfer of all relevant pilot and cabin crew for EU27 crew from the UK to EU27 countries, in particular Austria;

·      being ready to implement EU27 based safety approvals (for example for an EASA Part 145, the training organisation) to ensure these are in place to support easyJet Europe (our Austrian operating airline) after Brexit;

·      further investment in the recruitment of EU27 nationality pilots and cabin crew;

·      the preparation of mitigating actions to ensure easyJet remains EU majority owned and controlled;

·      reviewing our engineering and maintenance supply chains and supplier readiness, making changes where required to our spare part stock levels and locations to mitigate the risk of customs arrangements being put in place between the UK and the EU and any restriction on the use of UK-licensed parts on Austrian registered aircraft; and

·      ensuring easyJet's systems and contract structure is robust to a 'no deal' outcome.

Putting these mitigating actions in place will ensure easyJet can continue to operate its network in the event of a no deal Brexit.

In a more extreme scenario, and in the unlikely event that there is no  'bare-bones agreement', approximately 40% of the easyJet programme (flying between UK and EU) would be at risk. We have conducted stress testing in this scenario (which included benchmarking of our balance sheet) and this showed we have significant resilience to this outcome. This analysis has been presented to the Board.

Seats for the post-Brexit period went on sale in September 2018 and there were record breaking sales. This indicates that currently, consumer confidence post-Brexit is holding strong. However, easyJet closely monitors revenue performance including weekly review meetings involving senior managers including members of the AMB, to ensure appropriate tactical actions are taken in response to any identified trends.

 

REGULATORY AND LEGAL CONTINUED

 

RISK DESCRIPTION

CONTEXT AND MITIGATION

REGULATORY AND LEGAL COMPLIANCE

The airline industry is heavily regulated and there is a continual need to keep well informed and adapt (as required) to any legislative or regulatory changes across the jurisdictions in which easyJet operates.

Changes to government policy and/or increased regulation could have an adverse effect on easyJet.

Failure to comply with legislative and regulatory requirements, such as local consumer laws, new case law or policy changes in relation to customer compensation, environmental or airport regulation, in the jurisdictions in which easyJet operates, could have an adverse reputational and financial impact.

easyJet has an in-house team of legal experts to advise on legal issues and developments, and to monitor compliance with formal regulatory requirements. Where appropriate, this expertise is supplemented by specialist external support relevant to a specific area or jurisdiction.

This panel of external legal advisers, both in the UK and in key easyJet markets, is briefed to keep easyJet informed of any changes to, or new, legislation and to assist easyJet in developing appropriate responses to such legislation. This may include activities such as the implementation of mandatory training programmes, or clear policies and associated guidance.

The Regulatory Affairs Group coordinates easyJet's role in influencing future and existing policy and regulations which affect the airline industry and works with industry bodies, as appropriate. The group includes Country Directors and senior representatives from the Legal, Regulatory, Fleet, Airport and Public Affairs teams.

With the General Data Protection Regulation (GDPR) having become EU law on 25 May 2018, easyJet has a Data Protection Officer (DPO) and Data Privacy team in place, reporting to the Company Secretary & Group General Counsel. Key deliverables have been achieved for high-risk processing activities during the year and there is an ongoing programme for the 2019 financial year.

 

REPUTATIONAL

 

RISK DESCRIPTION

CONTEXT AND MITIGATION

CYBER AND INFORMATION SECURITY

A breach of our systems by internal or external threats could lead to financial loss, aircraft incident, operational disruption, and/or reputational damage.

Unauthorised access to customer or employee data could lead to financial, regulatory or legal damage, and/or loss of customer or employee trust.

The Information Security Steering Group is a subset of the AMB, chaired by the Company Secretary & Group General Counsel. It oversees any developments or changes in the threat landscape, and determines whether actions taken in response are appropriate. This group provides senior support to business initiatives to drive continuous adaption and improvement.

There is a dedicated Information Security team, comprised of experienced professionals, which continuously monitors threats and responds to incidents to minimise exposure and impact. In the year there has been a review, refresh and re-communication of a number of key policies and standards.

easyJet has a strong programme of communication and engagement to maintain employee awareness and education. This is achieved through a network of champions, online training materials, and periodic awareness campaigns.

easyJet is coming to the end of an initial three-year Information Security Remediation Programme, during which some projects have been, and continue to be, audited. This has resulted in additional proposed projects for the 2019 financial year to improve the effectiveness of controls.

As part of easyJet's GDPR programme, key deliverables have been achieved for high-risk processing activities. There is an ongoing programme for the 2019 financial year to ensure changes are fully embedded into ways of working (see the regulatory and legal compliance risk outlined on page 47).

easyJet continues to work closely with industry partners, such as Airbus, to manage the cyber risks associated with aircraft. In the year, there was a presentation to, and discussion with, the Board by Airbus on these risks and mitigations.

However, the nature of this risk and the ever-increasing sophistication of attacks by serious organised crime groups, terrorists, nation states and even lone parties means that, despite all the mitigation detailed above, easyJet will inevitably retain an element of vulnerability.

MAJOR SHAREHOLDER 

AND BRAND OWNER RELATIONSHIP

easyJet has two major shareholders (easyGroup Holdings Limited and Polys Holdings Limited) which, as a concert party, control approximately 33% of its ordinary shares.

Shareholder activism on their part could adversely impact the reputation of easyJet and cause a distraction to management.

easyJet does not own its company name or branding, which is licensed from easyGroup Ltd. The licence includes certain minimum service levels that easyJet must meet in order to retain the right to use the name and brand. The easyJet brand could also be impacted through the actions of easyGroup or other easyGroup licensees.

easyJet has an active shareholder engagement programme led by its Investor Relations team. As part of that programme easyJet engages with easyGroup Holdings Limited on a regular basis alongside its other major shareholders.

In addition, the Group has a relationship agreement with easyGroup and Polys Holdings in line with the controlling shareholder regime set out in the Financial Conduct Authority's Listing Rules.

Representatives from the Board and senior management take collective responsibility for addressing issues arising from any activist approach adopted by the major shareholder. The objective is to address issues when they arise and anticipate and plan for potential future activism.

The brand licence agreement with easyGroup provides for the regular meeting of senior representatives from both sides, attended by the Chief Financial Officer and the Company Secretary & Group General Counsel, to actively manage brand-related issues as they arise. Such meetings occur on a quarterly basis and have proved effective. easyJet also monitors compliance with brand licence service levels and has a right to take steps to remedy any instance of non-compliance.

 

 

 


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