EasyJet 2013 Annual Report Download - page 41

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39
www.easyJet.com
Strategic report
OPERATIONAL RISKS
Risk description and potential impact Current mitigation
Impact of mass disruption
A number of factors could lead to widespread disruption
to easyJet’s network, including forces of nature (extreme
weather, volcanic ash, etc), union activity and strike action,
acts of terrorism and epidemics/pandemics. Any widespread
disruption could adversely affect easyJet’s reputation and its
operational and financial performance.
If widespread disruption occurred during the peak summer
months then easyJet’s financial results would be significantly
adversely impacted.
Processes are in place to manage widespread disruption.
Crisis management exercises are performed regularly and
a business continuity programme is also in place.
easyJet has a strong financial balance sheet. Board policy is
to maintain target liquidity at £4 million per aircraft. This allows
the business to better manage the impact of downturns in
business or temporary curtailment of activities (e.g. fleet
grounding, security incident, extended industrial dispute at
key supplier).
Single fleet risk
easyJet is dependent on Airbus as its sole supplier for aircraft,
with two aircraft types (A319 and A320).
There are significant cost and efficiency advantages of a single
fleet, however there are two main associated risks:
• technical or mechanical issues that could ground the full
fleet or part of the fleet which could cause negative
perception by the flying public; and
• valuation risks which crystallise on the ownership exit of the
aircraft. The main exposure at this time is with the ageing
A319 fleet, where easyJet is reliant on the future demand
for second-hand aircraft.
The efficiencies achieved by operating a single fleet type are
believed to outweigh the risks associated with easyJet’s single
fleet strategy. The risks/rewards of a single fleet were
considered again during the recent fleet decision process.
The Airbus A320 family (which includes the A319) and
Boeing 737 family are the two primary fleets used for short-haul
travel. There are approximately 5,000 of each fleet operating
globally with a proven track record for reliability.
easyJet operates a rigorous established aircraft
maintenanceprogramme.
To mitigate the potential valuation risks, easyJet constantly
reviews the second-hand market and has a number of different
options when looking at fleet exit strategies. easyJet’s targeted
fleet mix is a 70:30 split between owned and leased. This
facilitates the exit strategy of older A319s and protects residual
values, as well as providing flexibility in managing the fleet size.
IT system failure
easyJet is dependent on a number of key IT systems and
processes operated at London Luton airport and other
key facilities.
A loss of systems and access to facilities, including the
website, could lead to significant disruption and could have
an adverse operational, reputational and financial impact.
Key systems are hosted across two data centres in two distinct
locations with failover arrangements between them.
A business continuity programme, including disaster recovery
arrangements, is in place. This is reviewed continuously to
identify areas for improvement and to ensure that arrangements
are adequate and appropriate.
An experienced IT team are in place to respond rapidly to any
unforeseen incidents that may arise.
Alternative sites are available should there be a need to
relocate critical staff at short notice due to a loss of facilities.