Airline Revenue Management: A Comparison of EasyJet and British Airways

This report compares the commercial performance of low-cost carrier EasyJet and full-service network carrier British Airways in terms of revenue management. It includes financial metrics such as gross profit margin, net profit margin, and operating profit margin for the last five years. Recommendations for improving commercial performance are also provided.

AIRLINE REVENUE
MANAGEMENT

Table of Contents
INTRODUCTION......................................................................................................................3
MAIN BODY.............................................................................................................................3
Comparison of commercial performance of low-cost carrier (EasyJet) and full-service
network carrier (British Airways)..........................................................................................3
Recommendations and conclusion.............................................................................................5
REFERENCES...........................................................................................................................7

INTRODUCTION
Airline revenue management is gaining greater importance in modern time where
management of these airline businesses are resorting to manage its revenue and costs in such
a way which leads to make them both competitive and profitable in the market. Such a
management initiatives is helpful for the airline companies to increase their revenue either
providing low cost carrier services or full service network carrier, where in the former case,
companies resort to providing low cost service by charging less price for airline tickets and
compromising on providing services while in the latter case services are provided to the
fullest by charging comparatively higher fares. Therefore, in the present report, the
comparison between two airline’s commercial performance will be done for the last five
years where the one will be low cost and the other will be full service network carrier and the
airlines that will be selected for this purpose will be easyJet and British Airways respectively.
Both airlines are based in UK.
MAIN BODY
Comparison of commercial performance of low-cost carrier (EasyJet) and full-service
network carrier (British Airways)
For the purpose of comparing the commercial performance of these two airlines, the various
ratios have been calculated to determine the management of revenue and costs within these
airlines. In the following section of the report, various financial metrics will be used to
determine and compare the commercial performance.
Charts showing key financial metrics of easyJet and British Airways for the last five
years from 2016 – 2020
Firstly, gross profit margin will be calculated which depicts the relationship between gross
profit and direct costs of operation of a concern.
EasyJet
Year 2016 2017 2018 2019 2020
Sales
revenue
4669 5047 5898 6385 3009
Gross profit 913 915 1224 1050 (267)
Gross profit
margin
19.55% 18.13% 20.75% 16.44% -8.87%
British Airways
Year 2016 2017 2018 2019 2020
Sales
revenue
94571 94005 101127 76559 58161
Gross profit 13781 17393 19637 4491 1013
Gross profit
margin
14.57% 18.50% 19.42% 5.87% 1.74%

From the above calculated gross profit margin, it can be concluded that the profitability of
both the airline have been increased initially and then reduced since last two years. However,
British airways has positive profitability against negativities in easyJet’s profitability in 2020.
British airways due to being full-service carrier and charging higher fares is making
reasonable profit by controlling its overhead costs (Bondoux and et.al., 2020). In the earlier
years, easyJet is having higher ratio which indicates that it has better pricing policy than
British Airways in covering their costs.
Now, net profit margin will be calculated to determine how these airlines are managing its
indirect costs and generating net profit by recovering such costs against their respective
revenues.
EasyJet
Year 2016 2017 2018 2019 2020
Sales
revenue
4669 5047 5898 6385 3009
Net profit 437 305 358 349 (1079)
Net profit
margin
9.36% 6.04% 6.07% 5.46% -35.86%
Operating
profit
422 584 466 (778)
Unusual
expenses
(3) 7 114 1 439
Interest
expenses
17 28 29 60 70
Operating
profit margin
- 8.36% 9.90% 7.29% -25.86%
British Airways
Year 2016 2017 2018 2019 2020
Sales
revenue
94571 94005 101127 76559 58161
Net profit 4892 8452 10453 (636) (11941)
Net profit
margin
5.17% 8.99% 10.34% -0.83% -20.53%
Operating
profit
5538 9344 11801 (1936) (6273)
Unusual
expenses
55 -3 504 802 6903
Interest
expenses
306 360 475 722 2156
Operating
profit margin
5.86% 9.94% 11.67% -2.53% -10.78%
In the above tables, net profit margin and operating profit margin has been determined
for the two airlines where it has been found that net profit margin of EasyJet has been
reducing continuously due to increasing non-operating expenses which includes unusual

expenses and interest expenses both (Selc̣uk and Avṣar, 2019). In case of British Airways,
initially net income has increased and become negative in last two years due to increase in
unusual expenses and interest expenses both. Net profit margin is the best financial metric for
comparing a concern’s total costs with its profit. Company with higher net profit margin can
keep greater money with it. However, in the case of both EasyJet and British Airways, net
profit margin has become negative where easyJet has much worst scenario than British
Airways indicating poor management of costs and revenue in it (Shihab and et.al., 2019).
Unusual expenses are out of the control of the management, but interest expenses which is
increasing in case of both the companies can be reduced to some extent by reducing the
amount of borrowed funds in the overall capital structure of the business.
Unusual costs are much higher in case of British airways than easyJet which indicates
the company’s nature of operation as it is in the industry of full - service carrier resulting in
higher costs for this airline business to meet their expenses associated with providing
additional services.
Operating profit margin represents the relationship between operating income and
operating expenses of the business (Vinod, 2021). Here, operating profit margin are better in
earlier years in case of easyJet but has become worst or negative in the recent year 2020.
Also, British Airways is having positive operating margin in the initial years but has
experienced negative operating returns since last two years. However, British Airways has
better scenario than EasyJet in 2020. The reason for the poor scenario in case of EasyJet can
be regarded as the problem for the company in recovering its operating costs due to offering
low cost carrier services. Its low - cost services allow it to charge low fares in order to attract
more and more customers and can have frequent demand for their airline services. This
strategy can make it impossible for EasyJet to increase their airfares and they have option of
resorting to low fares only. Accordingly, this results in poor operating margins for this airline
company.
Alternatively, in case of full - service network carrier like British airways resorts to
providing better and more additional services at a comparatively higher fare. These services
are a source of attracting more customers and choosing their carrier services over other
players in the market. Accordingly, these additional services costs additionally to the
company and they experience high operating costs and low operating income accordingly as
the case seen for British airways where operating income is reducing with higher expenses
incurred in terms of unusual expenses and interest expenses (Papen, 2020). These interest
expenses are charge against the borrowed funds that the company may had borrowed for
meeting their higher operating expenses. But operating margins of British airways are better
than that of EasyJet as they are in a condition of recovering their high operating costs against
their comparatively high fares charged from the customers.
Recommendations and conclusion
From the above report it has been concluded that the revenue income almost all airline
companies whether it is low cost or full - service network carrier has reduced in the last two
years that is, 2019 and 2020 due to the emergence of pandemic. This is due to the reason of
less travellers and tourists as there was a lockdown condition all around the world. Low cost
carrier has suffered more due to having lower margins for covering their fixed costs in the
times of lockdowns as against full - service carrier who are better off in recovering their fixed

costs against high fares. There are few recommendations that can be made for better
commercial performance of both low cost and full - service carrier:
 British airways can by giving up some services like entertainment and flight – food
reduce their operating costs and can increase their revenue by investment these
amounts towards promoting their airlines among frequent flyer’s segment (Bondoux
and et.al., 2020).
 Airlines can improve their revenue generating abilities by resorting to customer’s
satisfaction and taking follow up of those customers who have recently flew with the
company’s services. They are a source of information that provide knowledge about
how company is serving for better customer experience.
These suggestions are helpful in improving commercial performance of both low cost and
full service carriers in a modern customer oriented market.

REFERENCES
Bondoux, N., and et.al., 2020. Reinforcement learning applied to airline revenue
management. Journal of Revenue and Pricing Management, 19(5), pp.332-348.
Selc̣uk, A. M. and Avṣar, Z. M., 2019. Dynamic pricing in airline revenue
management. Journal of mathematical analysis and applications, 478(2), pp.1191-
1217.
Shihab, S. A. M. and et.al., 2019. Autonomous airline revenue management: A deep
reinforcement learning approach to seat inventory control and overbooking. arXiv
preprint arXiv:1902.06824.
Vinod, B., 2021. Airline revenue planning and the COVID-19 pandemic. Journal of Tourism
Futures.
Papen, A., 2020. Competitive impacts of continuous pricing mechanisms in airline revenue
management (Doctoral dissertation, Massachusetts Institute of Technology).