CONTEXT AND MITIGATION

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.

CONTEXT AND MITIGATION

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.

CONTEXT AND MITIGATION

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.

CONTEXT AND MITIGATION

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.

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).

CONTEXT AND MITIGATION

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.

CONTEXT AND MITIGATION

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.

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.

CONTEXT AND MITIGATION

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.

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.

CONTEXT AND MITIGATION

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.

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).

CONTEXT AND MITIGATION

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.

CONTEXT AND MITIGATION

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.

CONTEXT AND MITIGATION

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.

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.