EasyJet 2011 Annual Report Download - page 97

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Fuel price risk management
easyJet is exposed to fuel price risk. The objective of the fuel price risk management policy is to provide
protection against sudden and significant increases in jet fuel prices, thus mitigating volatility in the income
statement in the short term. In order to manage the risk exposure, forward contracts are used in line with
Board approved policy to hedge between 65% and 85% (2010: between 50% and 80%) of estimated
exposures up to 12 months in advance, and to hedge between 45% and 65% (2010: between 20% and 50%)
of estimated exposures from 13 up to 24 months in advance. In exceptional market conditions, the Board may
accelerate or limit the implementation of the hedging policy.
Market risk sensitivity analysis
Financial instruments affected by market risk include borrowings, deposits, trade and other receivables, trade
and other payables and derivative financial instruments. The following analysis illustrates the sensitivity of such
financial instruments to changes in relevant foreign exchange rates, interest rates and fuel prices. It should be
noted that the analysis reflects the impact on profit or loss after tax for the year and other comprehensive
income on financial instruments held at the reporting date. It does not reflect changes in revenue or costs that
may result from changing currency rates, interest rates or fuel prices. Sensitivity is calculated based on all other
variables remaining constant. The analysis is considered representative of easyJet’s exposure over the 12 month
period.
The currency sensitivity analysis is based on easyJet’s foreign currency financial instruments held at each
balance sheet date taking into account forward exchange contracts that offset effects from changes in
currency exchange rates. The increased sensitivity in the US dollar and euro rate represents sterling weakening
against each variable currency with the -10% sensitivity reflecting stronger sterling.
The interest rate analysis assumes a 1% change in interest rates over the reporting year applied to end of year
financial instruments.
The fuel price sensitivity analysis is based on easyJet’s fuel related derivative financial instruments held at the
end of each reporting period.
The impact of a 1% increase in interest rates and a 10% increase in the fuel price is disclosed. A corresponding
decrease results in an equal and opposite impact on the income statement and other comprehensive income
in both reporting periods.
Sensitivities are calculated based on a reasonably possible change in the rate applied to the value of financial
instruments held at each balance sheet date.
Currency rates
At 30 September 2011
US dollar
+10%
£ million
US dollar
-10%
£ million
Euro
+10%
£ million
Euro
-10%
£ million
Interest
rates
1% increase
£ million
Fuel price
10%
increase
£ million
Income statement impact: gain / (loss) 19 (15) 3 (3) (2) –
Impact on other comprehensive income:
increase / (decrease) 108 (89) (40) 25 – 84
Currency rates
At 30 September 2010
US dollar
+10%
£ million
US dollar
–10%
£ million
Euro
+10%
£ million
Euro
-10%
£ million
Interest
rates
1% increase
£ million
Fuel price
10%
increase
£ million
Income statement impact: gain / (loss) 13 (15) (4) 5 1 –
Impact on other comprehensive income:
increase / (decrease) 43 (52) (14) 20 – 47
The market risk sensitivity analysis has been calculated based on spot rates for the US dollar, euro and jet fuel
at close of business on 30 September each year.
easyJet plc
Annual report
and accounts 2011
GovernanceCorporate responsibility
Business review Performance and risk
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