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

Jet2 plc Company Reports

Chairman's Statement

I am pleased to report on the Group's trading for the year ended 31 March 2012. Turnover grew by 26% to £683m (2011: £543m) and profit before tax amounted to £28.1m (2011: £26.2m). Earnings per share increased 31% to 16.01p (2011: 12.20p).

In consideration of the Group's current trading performance, the Board recommends a final dividend of 0.89p per share (2011: 0.83p). If approved at the Annual General Meeting to be held on 6 September 2012, this dividend will be payable on 19 October 2012 to shareholders on the register at the close of business on 14 September 2012. The associated ex dividend date will be 12 September 2012.

The significant growth in turnover reflects expansion in both Jet2.com, the Group's Leisure Airline, and Jet2holidays, our package holiday business, which more than doubled its passenger numbers in the year. Profits in the Leisure Airline fell, despite capacity and load factor growth, mainly due to increased jet fuel prices which we were not able to pass on to our customers. Jet2holidays, which goes from strength to strength, recorded a profit before tax of £2.5m on the back of a 140% increase in turnover. Our important and long-established Distribution & Logistics business, Fowler Welch, improved operating margins after a year of investment and restructuring in 2010/11 and returned a profit before tax of £3.9m.

Capital expenditure for the year was £47.3m (2011: £68m), which related principally to long term maintenance spend on aircraft and engines, the acquisition of five 737-300 aircraft, and investment in refrigerated trailers and site infrastructure at Fowler Welch. Net cash flow from operating activities amounted to £94.5m (2011: £113.8m), reflecting principally lower growth in Jet2.com forward bookings, in line with lower 2012 capacity increases.

As at 31 March 2012, the Group's cash balance, including money market deposits, was £152m (2011: £106.8m), at which point Jet2.com and Jet2holidays had received circa £180m (2011: £135m) of advance payments from customers in respect of future trips.

Leisure Airline & Package Holidays

Times are tough and money is short, but it seems that our Northern UK customers are still keen to take their family holidays and visit great leisure cities.

Over the past year we have carefully concentrated on building our services to high volume leisure destinations, focusing on commercial and political risk-free Mediterranean and Canary Island resorts and leading leisure break cities. Over 60 summer routes are now operated to Spain alone; the number one destination for UK holiday makers.

In the year to 31 March 2012, Jet2.com operated 145 routes from our eight Northern bases, to 49 destinations. We flew 4.3 million scheduled service passengers and sold over 200,000 package holidays. We expect to increase our passenger numbers by approximately 10% and to double the number of package holidays sold in the current financial year. On 31 March 2011 we opened our eighth base at Glasgow airport, flying seven routes for that summer. This has now grown to 14 routes for summer 2012. We also added an additional aircraft to both our East Midlands and Newcastle bases and our first two 189 seat 737-800s into Manchester, enabling capacity growth.

Our high volume, seat-only business gives us a great platform on which to develop our package holiday product. Jet2holidays packages together the flight, transfer and hotel into one great value product, with over 65% of these packages sold on an "all inclusive" (which includes all meals and beverages) or "half board" basis.

Our average package holiday price is around £500 per person, a relatively large family purchase for a sophisticated product which engenders a connection with the customer and hopefully loyalty to the brand.

The certainty of spend that a fully inclusive package holiday gives is very attractive in these difficult times. Our product continues to evolve with the introduction of new family friendly hotels and free child places. We directly contract, and therefore have a relationship with, over 1,200 hotels. We have holiday reps in resorts – great service is an essential ingredient in growing our customer focused business.

Our flights offer "friendly low fares" with family friendly departure times, allocated seating, a 22kg baggage allowance and loyalty points for free flights – we want a flight with Jet2.com to be a great start to the leisure break.

Our research tells us that whether a customer buys a seat-only or takes a package holiday with us they generally return very satisfied and are likely to recommend us to their family and friends. This enables us to grow repeat business from our existing customers, as well as welcoming new customers through recommendation.

We devote great effort to knowing and better understanding our customers, their needs and their future travel intentions. Using a bespoke data management system, we've created a single customer view that enables us to target and personalise our direct marketing campaigns and ensure they are timely and relevant. Using the latest e-mail and print technology, as well as a programme of intelligent data mining and modelling, we've enhanced all of our direct customer communications to ensure they resonate, and we've seen the success of this investment with much improved conversion rates.

And, whilst a customer's previous travel history is always a great indicator of what they may do next, we've gone a step further by enriching our data with a robust insight programme. This captures customer feedback on their booking, ground and in-flight experience, as well as destinations, hotels and future travel plans, all of which is used to help us further refine and enhance our customer proposition.

Whilst the summer leisure business thrives, the winter has grown progressively quieter as the economy has tightened. This has resulted in 80% of our leisure travel turnover occurring in the seven months from April – October. Ski destinations provide important winter utilisation for our aircraft. However, volumes in this sector have decreased, so our strategy of reducing our ski flight frequencies and concentrating on weekend flights has proved sensible. We are pleased to introduce Grenoble as our fourth dedicated ski destination for this winter.

Our innovative passenger charter sales group makes an important commercial contribution to winter aircraft utilisation. They organise shopping trips to New York, fly pilgrims to Jeddah for the Hajj and arrange flights for cruise, sports, ski and corporate charter customers from across Europe. This year we operated charters to destinations as far afield as Brazil, Canada, Florida and Sri Lanka.

The Company has flown night mail flights for Royal Mail since 1980, helping them to ensure First Class mail achieves next day delivery throughout the UK. Under our current contract, which commenced in 2004, we have operated 16 night mail flights each weekday night with our Boeing 737 "Quick Change" aircraft, which have been specially converted to be able to carry mail in containers, following the day's passenger flights. Our last flight under the present contract is in October 2014. Royal Mail is tendering the contract during this financial year, with the result expected in the first quarter of 2013.

We take a careful and considered view of expansion in our Leisure Airline business, especially in the current economic climate. However, we are certainly optimistic for our continued growth in the holiday market. We hope to renew our contract with Royal Mail but, should that not be possible, we believe that organic growth will compensate in terms of maintaining the current level of employment and profitability.

Distribution & Logistics

In both good times and hard times Fowler Welch, our important Distribution & Logistics business, is always busy ensuring that chilled and fresh foods are on supermarket shelves.

The business is one of the UK's leading, long established companies in this field. It operates from approximately 850,000 sq ft of owned temperature-controlled and ambient distribution centres in Spalding, Lincolnshire; Teynham, Kent; and Bury, Greater Manchester, with smaller sites at Washington, Tyne and Wear; Newton Abbot, Devon; Alconbury, Cambridgeshire; and Portsmouth, Hampshire. In Holland, our European operation is our gateway for produce and flowers from around the world.

Fowler Welch is a specialist business with long term relationships with leading supermarkets and their suppliers, for whom we are proud to provide a dependable and flexible logistics service.

Following a degree of reorganisation in the previous financial year, I am pleased to say that turnover for the year to 31 March 2012 grew by 6%. Continuing operating efficiencies have led to an improvement in operating margins, which is ongoing in the current year. Our container haulage operations have been successfully downsized – the Felixstowe site was closed and let out, with the business now being centred on a new site at Alconbury, Cambridgeshire. These operations are now making a positive contribution.

Our 50,000 pallet ambient consolidation centre ("the Hub") at Heywood near Bury, Greater Manchester had a difficult period of initial trading and operations when it was opened in 2010. The operations at the site have now been streamlined, resulting in a considerable improvement in operational and financial performance over the last 12 months.

This successful turnaround culminated with the award from ASDA of "carrier of the year" in February 2012; a great achievement. Considerable new business has been secured and in addition, there is a strong pipeline of new clients for the future.

A new, small distribution centre at Newton Abbot, Devon, was opened in July for TESCO, replicating a similar operation performed by Fowler Welch at its Washington, Tyne and Wear site. We transport TESCO's products in double deck trailers to Newton Abbot, where they are redistributed in smaller loads for delivery to TESCO express stores in the South West. This operation has consistently delivered high service levels, although we need to gain additional customers in order to build volumes and achieve significant profitability. Encouragingly, we believe that the region offers good potential for future further growth.

Our 25 acre Spalding distribution centre is the largest in our business, with a long history of service in this key produce area. The site specialises in the storing, picking and consolidation of fresh produce on behalf of importers and packers, as well as major food processors and manufacturers. During the year there was a substantial increase in warehouse capacity through redevelopment, and this is now fully occupied, following both contract wins and increased business from existing customers.

As a supplier to the fast moving consumer goods ("FMCG") sector, Fowler Welch has to react to significant changes in volumes constantly and sometimes within lead times of just a few hours. The business has a reputation for its ability to deliver in these circumstances and its IT systems play a vital part in facilitating the necessary speed of decision making. We are committed to continually investing in and developing our operational IT systems to ensure they are leading edge.

During the year, we both selected and implemented a new fleet management software solution and upgraded our warehouse management systems and associated hardware to ensure we have a robust and dependable IT infrastructure.

Fowler Welch is a great logistics business in a demanding but vital market place. Our ability to invest, coupled with excellent facilities and long industry experience, and a determined management team, puts the Company in good shape for future profitable growth.


We plan to grow each of our businesses in the year ahead. Fowler Welch has a number of business development opportunities throughout its network and is benefiting from recent wins in the North West. Jet2holidays is set for further growth in the current year, with forward bookings at encouraging levels. We have expanded Jet2.com's flying programme by 10% for summer 2012, although margins remain challenging in this sector.

We are encouraged both by these business opportunities and by the start we have made to the current year but in the current economic environment we are cautious in respect of profit growth.

Philip Meeson

23 July 2012