2007/082006/072005/062004/052003/042002/03Key Documents

Jet2 plc Company Reports

Business and Financial Review

The Group comprises two principal operating businesses, Aviation and Distribution, which trade in separate market segments.

2010/11 performance

The Group’s financial performance for the year to 31 March 2011 is reported in line with International Financial Reporting Standards (IFRS), as adopted by the EU, which were effective at 31 March 2011.

Summary Income Statement








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Note 1: stated excluding specific IAS 39 fair value movements.

Underlying Group profit before tax increased from £19.1m to £25.9m in the year ended 31 March 2011, reflecting an improved trading environment for the Group’s Aviation operations and a year of investment in Fowler Welch, the Group’s logistics business.  Overall turnover increased by 25%, with growth in both businesses, including the establishment of an additional base for Jet2.com at East Midlands airport and business wins in Fowler Welch.  Underlying EBITDA of £64.2m (2010: £52.6m) is up 22% on last year, driven by both overall business growth and improved load factors in the Aviation operations.

The Group’s effective tax rate for the year of 34% (2010: 30%) is higher than the headline corporation tax rate as a result of the impact of the acquisition of our new North West property on our deferred tax liabilities.

The Group generated net cash inflows of over £54m in the year, resulting in a positive net cash position, including money market deposits, of £106.8m (2010: £52.2m) as at 31 March 2011.  The Group’s cash generation was principally driven by the Aviation division which saw an increase in forward bookings in the latter part of the year, reflecting the 26% expansion of the summer programme.  Capital expenditure increased from £32.1m to £68.0m, driven by both a significant increase in long term aircraft maintenance expenditure, with an above average number of engines falling due for overhaul, and the acquisition of “the Hub”, Fowler Welch’s new North West distribution centre.

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Note 1: stated excluding specific IAS 39 fair value movements.
Note 2: placement of money market deposits of £8.5m are presented as cash.

The Group’s balance sheet continued to strengthen, driven by both profit performance and cash generation from advance bookings.  The resultant increase in shareholders’ equity, the improved cash position and the increase in non-current assets are the principal changes in the balance sheet from the previous year end.  The business continues to be funded in part by customer payments received in advance of flights and holidays taken.  The deferred revenue growth reflects stronger customer forward booking performance for the forthcoming summer relative to the previous year.

Summary Balance Sheet





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Note 1: stated excluding money market deposits.

Segmental performance
The Aviation division comprises the Group’s leisure airline, tour operation and associated commercial activities, trading under the Jet2.com and Jet2holidays brands.  The Company operates 24 Boeing 737-300 aircraft, including eight Quick Change aircraft, twelve Boeing 757-200 aircraft, and two Boeing 737-800 aircraft from its home base of Leeds Bradford International Airport, and Belfast, Blackpool, East Midlands, Edinburgh, Glasgow, Manchester and Newcastle airports.

Jet2.com added two leased Boeing 757-200 aircraft and two leased Boeing 737-800s to the fleet towards the end of the financial year to enable the development of Glasgow as a new base and the expansion of East Midlands, Manchester, and Newcastle operations.
The Aviation division is supported by a number of revenue streams.  Seat only sales represent the majority of aviation revenues, sold direct over the Internet, via the high street and online travel trade.  Seats are also sold in the form of allocations to third party tour operators.  The business also derives significant revenues from its whole plane passenger charters and its contract with Royal Mail for the overnight transportation of UK first class mail, utilising the Group’s Quick Change aircraft.  An increasing proportion of airline seats are now sold as part of a holiday package by the Group’s ATOL bonded tour operator Jet2holidays.

During the year ended 31 March 2011 we carried over 3.6 million scheduled and charter passengers, with more than 5% of these having purchased a Jet2holidays package.

The Aviation division saw improved financial performance, despite the eruption of the Eyjafjallajӧkull volcano in April and May 2010, which impacted profitability by circa £3m.  In particular we saw increased customer demand for both flights and packages in the summer months, enabling higher load factors to be achieved across the network.  Our seventh UK base, East Midlands, contributed profitably to this performance with an initial programme of seven routes.  Winter performance suffered as a consequence of reduced demand for ski trips and by the cancellation of all flying to Tunisia and Egypt from February onwards.  Aviation PBIT increased by 84% to £23.4m with a 28% increase in revenue to almost £400m.  Overall, costs increased by 25%, reflecting a combination of business growth, increasing fuel costs and the continued weakness of sterling.

During the year, Jet2.com continued its careful development of the scheduled airline network, expanding the programme from Newcastle and Manchester, largely by adding flights to tried and trusted Jet2.com destinations.  New destinations added to the network in 2010 were Madeira, Monastir, Bergerac, Kos, Gran Canaria and Reus.  Thirty five new routes were added in total from our Northern bases, including seven winter routes.

Overall scheduled airline seat capacity was increased by 7% in the year ended 31 March 2011.  This careful route and capacity management, coupled with some improvement in customer demand, resulted in load factors increasing to 85% (2010: 80%), with yields also increasing to £52.42 from £48.69 in the previous year.

Load factor performance was underpinned by the ongoing development of the airline’s yield management system and by the sale of seat allocations to third party tour operators, particularly on newer routes.  The loyalty programme continues to prove popular with our customers, with over 330,000 customers now having earned points towards free Jet2.com flights.

Retail revenues continue to be a very important source of income for the leisure airline business, allowing low fares to be maintained.  Retail revenue per passenger increased from £21.12 to £25.39 in 2010/11, this being generated from a number of sources including hold baggage charges for a sector leading 22kg weight allowance, online seat assignment, extra leg room seats, onboard sales, and commissions on car hire.  Customers can both pre-order hot meals and watch the latest movie releases onboard.  Using our customer information analytics capability, we are able to target customers through pre-departure communications in a very tailored way to generate additional retail sales. 

The business devotes considerable in-house IT resources to develop its airline and holidays reservation systems improving the booking experience for customers and optimising retail revenues.  In the last quarter of the year, unique visitors to the Jet2holidays.com site increased by 50% year on year with a 31% increase in Jet2.com site visitors.  The Jet2.com reservation system has also been enhanced to offer customers the opportunity to acquire bundles of optional retail products at discounted pricing.  We provide the travel trade with a bespoke link to the Jet2.com reservation system to facilitate flight bookings.

Jet2.com’s passenger and freight charter operations increased revenues by 9% in the year.  The passenger charter activity provides flights for many different end users, including tour operators, specialist holiday providers, the MOD, and in support of promotional, sporting and other events, enabling the business to improve utilisation of aircraft outside peak periods.  We operated over 800 passenger charter flights during the year including taking over 2,000 Fulham supporters to the Europa Cup final in Hamburg in May 2010 and 20 Hajj flights to Jeddah in October and November.  The Royal Mail contract, for which night mail flights are undertaken every weekday from six UK airports, continues to be serviced with industry leading punctuality, enabling Royal Mail to meet its universal service obligation. 

Jet2.com continued to improve its environmental efficiency during the year by means of its wide-ranging fuel and operational efficiency programme.

This programme looks at all aspects of the airline’s operation which can influence or directly impact upon the fuel, operational and environmental efficiency of its flying activities.

Further details of this scheme are included on page 21 of the Directors’ Report, but the combined effects of all the elements of this scheme have led to a saving by the airline of over 20,000 tonnes of carbon emissions in the year.

The scheme is ongoing and further gains from its application can be expected in future years.

Another two Boeing 757 aircraft were fitted with fuel efficient winglets during the year. In addition, a Boeing 737-800 aircraft with winglets came into the fleet in February 2011, with another arriving after year end in May 2011.  These additions will further contribute to the airline’s carbon saving targets.

In order both to save costs and improve customer service, we brought customer handling in-house at Manchester for summer 2010, with Blackpool and Newcastle following for summer 2011.  We are also now undertaking all the passenger handling operations for our customers at Alicante airport, our fourth self handling base in Spain, the others being Malaga, Murcia and Palma. 

Jet2holidays, the package holiday arm of the Aviation business, grew significantly with almost 98,000 package holidays customer departing in the year, all on Jet2.com flights, a 52% increase on the previous year.  In order to improve the product range, pricing and the quality of the offering to our customers, the vast majority of accommodation is now secured directly with carefully chosen hotels by our in-house contracting team.

The Jet2holidays.com website is continually being developed to improve the quality of both the customer and the trade booking experience. This has resulted in significantly higher conversion levels year on year.  The business also introduced a more sophisticated yield management tool in order to facilitate much more tailored holiday pricing.  During the year, we secured a distribution agreement with both the Co-operative Travel Group and TUI to sell Jet2holidays through their retail outlets.  Our in-house call centre and direct bookings made through online travel trade sites are also important elements of the distribution mix. 









Operating expenses1



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Aviation EBITDA1



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  Note 1: stated excluding specific IAS 39 fair value movements.




Number of owned aircraft at 31 March



Number of leased aircraft at 31 March



Passenger numbers



Load factor



Net ticket yield



Retail revenue per passenger



Average hedged price of fuel (US$ per tonne)



Percentage of estimated annual fuel requirement hedged for the next financial year



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Advance sales made at year end date




The Group’s distribution business, Fowler Welch, is one of the UK’s leading logistics providers serving UK retailers, importers and manufacturers.  The business operates from 12 strategically located distribution centres and offers a range of logistics solutions including storage, case pick-to-order and national distribution of both temperature-controlled and ambient products.

In May 2010, the business completed the purchase of a 500,000 sq. ft. freehold distribution centre on 22 acres of land in Heywood, Greater Manchester.  The acquisition of these premises increased our stockholding capacity within our ambient business from circa 17,000 to 50,000 pallets.  Further space is available at this site for the development of temperature-controlled storage, enabling the provision of a chilled distribution facility in the North West should customers require it.

The company has built its reputation around a flexible service offering that meets the strict time-sensitive and multi-temperature supply chain requirements of UK retailers.  On a daily basis, Fowler Welch collects suppliers’ products, which are then consolidated with product picked from stock holding in the Company’s warehouses before delivery.  This activity has increased in the year to approximately 1.5 million cases of various fast moving consumer goods handled on a weekly basis.

Overall, Fowler Welch operating profit reduced by £4.6m year on year principally as a result of costs incurred during relocation to the Hub and weakness in the container market, leading to closure of the Felixstowe site.  The switch to the Hub during the year impacted profitability by circa £2m as a result of both one-off dual running costs and the step–up in the cost base associated with this larger facility.  Elsewhere in the network, operational efficiency was impacted by the reduced availability of subcontractors and increased short term vehicle hire costs. 

The container market proved challenging throughout the financial year, with reduced import volumes seen across all ports and overcapacity in the marketplace which led, inevitably, to a softening of distribution rates and a significant downturn in the trading position of our container operations.  Since the year end, the decision has been taken to close our Felixstowe site whilst retaining significant customer volumes which will be serviced through our Kent, Spalding and Alconbury operating bases.

Distribution revenue increased by 18% in the year through a combination of growth with existing customers and substantial new business wins.  In particular, we continued to increase the volume of deliveries for Tesco’s smaller store formats from our Washington site, and have added ambient delivery volumes with both Asda and Morrisons.  Fowler Welch also gained considerable new business and volume growth from a number of leading food producers.

Overall our vehicle fleet increased 15% to 391 vehicles, with additional vehicles being added to the majority of sites, reflecting increased volumes and a reduction in subcontractor availability.  Driver numbers increased to 596 from 497 in the previous year.  The trailer fleet remained static at circa 600 as we improved the tractor to trailer ratio.  We have taken the decision to purchase a significant proportion of our refrigerated trailer fleet in the future and commenced this programme with a purchase of 30 trailers in January 2011.  









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Warehouse space – sq. ft.



Number of tractor units in operation



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During the year, the company focused its infrastructure investment on the Hub, which included the establishment of a fuel bunkering facility, vehicle wash, further loading bays and the implementation at this site of the Manhattan warehouse management system.  The Hub was fully operational in time for Christmas after which the previous leasehold Stockport site was decommissioned.  Significant work was undertaken in the remainder of the year to maximise the operational efficiency of this site.

Fowler Welch continues to maximise CO2 efficiency through a combination of investment in vehicle telemetry, which has increased overall fleet visibility and control thereby reducing empty running; increased deployment of double deck trailers; and further optimisation of vehicle journey length.  Our fleet replacement programme for both tractor and trailer units carefully evaluates the marketplace to ensure the optimum fuel efficient equipment is procured including EURO VI specification tractor units, further improving the business’s carbon footprint.

The business has continued to promote a culture of green action and awareness across all activities. For example, the division has made substantial investments in new warehouse doors and loading bays which deliver increased thermal efficiency and lower energy costs for chilled warehouse operations.  Ongoing driver training continues across all sites, encompassing regular defensive driver assessments that in turn deliver fuel efficiency improvements.  

The additional warehousing capacity and the company’s growing reputation as a quality, low cost end-to-end service provider, offering national as well as regional solutions, will enable the business to continue to grow organically through existing and new customer relationships.  Following the investment in the last 12 months, profitability in our Distribution business is expected to improve in the year to 31 March 2012.

Principal risks and uncertainties

The Group’s strategy is to grow its business through a combination of organic expansion and, if appropriate, carefully planned acquisitions in areas related to its existing businesses and markets.  The principal risks and uncertainties facing the business include the following:


The Group is impacted by competitor activity in both of its business areas.  In the Distribution business, the market has seem some consolidation as smaller players either exit the market or are taken over.  The loss of a substantial customer is the largest financial risk facing the company.  This risk is mitigated by Fowler Welch-Coolchain’s focus on service levels and cost control, both of which are critical to success in this sector.

The leisure airline sector continues to be an intensely competitive market.  Headline fare price competition remains very strong at every base from which Jet2.com flies.  The Group will continue to focus on customer driven scheduling on popular routes in order to maximise both its load factor and retail revenue on its aircraft.  The operation will continue to benefit from non-scheduled flight aircraft utilisation through its passenger and freight charter activities and from a broad distribution base for its scheduled seats via the web, through travel agencies, via tour operator seat allocations and its in-house tour operation.

Fuel prices

The cost of fuel will continue to be a very significant element of the Aviation cost base, and the effective management of fuel price variation through hedging will continue to be important to the business.
The Group’s fuel price risk management strategy aims to limit the exposure of the Aviation division to sudden and significant increases in oil prices, whilst ensuring the business remains competitive.
The Distribution division is not directly affected by such price rises since contracts allow for increases to be passed on to its customers.

Economic conditions

Ultimately, economic conditions will have an impact on the level of consumer demand for the Group’s airline services.  Whilst we believe that UK consumers regard their summer holiday as a very important element of the household budget, it is clear that there was a reduction in discretionary travel in 2010/11, and consumer uncertainty has increased in 2011/12.  To mitigate this risk, the Group will continue to plan its flying programme carefully to take account of trends in demand.  Expanding the Jet2holidays offering also enables the Group to increase revenues from our Jet2.com customers.

Political Risks

The Aviation business can be impacted by political uncertainty, both directly through reduced demand for travel to countries to which Jet2.com flies, and indirectly through the impact of such political uncertainty on fuel prices and exchange rates.  This risk is mitigated through careful management of the route network and through the Group’s approach to hedging fuel and foreign exchange risk.

Environmental Risks

As has been evidenced in 2010/11, the Aviation business is at potential risk from the force of nature, such as extreme weather conditions and volcanic activity.  The business mitigates against this risk by establishing and regularly updating a carefully planned response to be implemented by a team of experts should there be significant disruption to our flying activity.  The Group maintains prudent levels of liquid funds to enable the business to continue to operate through a period of sustained disruption to the flying programme.

Government policy

It is stated UK and EU policy to apply additional taxes to the aviation industry, and it is foreseeable that the tax burden will continue on the road haulage sector also. It is clear that the increases in Airline Passenger Duty had an impact on flights to Egypt prior to the subsequent political uncertainty which caused Jet2.com to suspend flying to Sharm el Sheikh and Herghada.   Further increases in Airline Passenger Duty are planned and the EU Emissions Trading Scheme is due to commence in 2012. There is a continuing risk that the imposition of these taxes, at levels in excess of the economic cost of emissions, may result in reduced passenger demand. 

Treasury management

Liquidity Risk

Liquidity risk reflects the risk that the Group will have insufficient funds to meet its financial obligations as they fall due. As at the year end, the Group had significant cash balances together with a range of unutilised banking facilities.  The Group’s objective is to manage liquidity risk by maintaining cash balances in appropriately liquid form, together with continuity and flexibility of funding through the use of bank facilities, whilst seeking to match long term assets with long term liabilities wherever possible. 

Fuel, currency and carbon hedging

The Group utilises foreign exchange and fuel forward contracts to hedge its exposure to movements in US dollar and euro exchange rates and to Jet Fuel prices arising as a result of its aviation activities.  The Group’s treasury policy permits the use of such instruments to manage fuel price and currency risk only.  The Board reviews and agrees this policy for managing each of these risks at least annually; these policies have been consistent during the year.  It is the Group’s policy that no trading in financial instruments shall be undertaken.
Details on derivative transactions outstanding at the year end relating to forward currency contracts, cross currency swaps and aviation fuel swaps are detailed in note 22 to the Consolidated financial statements.  
The policy in relation to fuel and foreign currency hedging is summarised below:

Aviation fuel price risk

The Group’s policy is to forward cover future fuel requirements up to 100% and up to three years in advance. The magnitude of the aviation fuel swaps held is given in note 22 to the Consolidated financial statements.  As at 31 March 2011 the Group had substantially hedged its forecasted fuel requirements for the 2011/12 year and a proportion of its requirements for the subsequent two years in line with the Board’s policy

Foreign currency risk

The Group has significant transactional foreign currency exposure, the most significant being the US dollar and the euro.  
Transactional currency exposures primarily arise as a result of purchases in foreign currency undertaken in the ordinary course of business, in particular related to expenditure on aviation fuel, aircraft maintenance, air traffic control, airport charges and hotel accommodation. The Group’s policy is to cover all material transactional risks for a minimum period of six months using forward foreign exchange contracts.  As at 31 March 2011, the Group had hedged substantially all of its forecast foreign exchange requirements for the current year.  The magnitude of the foreign currency exchange risk is given in note 22 to the Consolidated financial statements.
Structural currency exposures exist where the Group has a small euro exposure in respect of net overseas investment. However, as these exposures are not material, no hedging has taken place.
The Group has also begun to hedge its carbon exposure in the run-up to the start of the EU Emissions Trading Scheme which commences in 2012.  It has acquired approximately 80% of its requirement for 2012.

Capital risk management

The Group’s objective when managing capital is to safeguard the Group’s ability to continue as a going concern whilst providing returns for shareholders. The Group maintains a conservative approach to dividend policy, ensuring funds are retained to support further business growth.

Andrew Merrick
Group Finance Director

29 July 2011