3rd Year Final Project

SID: 7154843
THE IMPACT OF THE GLOBAL FINANCIAL CRISIS FROM 2008
ON THE AIRLINE INDUSTRY
-INCLUDING A COMPARATIVE STUDY BETWEEN LUFTHANSA AND EASYJET-
TUDOR DANIEL MIHAILOV
BSc (HONS) Aviation Management

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DECLARATION OF ORIGINALITY
This project is all my own work and has not been copied in part or in whole from any other source except
where duly acknowledged. As such, all use of previously published work (from books, journals, magazines,
internet, etc.) has been acknowledged within the main report to an item in the References or Bibliography
lists.
I also agree that an electronic copy of this project may be stored and used for the purposes of plagiarism
prevention and detection.
COPYRIGHT ACKNOWLEDGEMENT
I acknowledge that the copyright of this project and report belongs to Coventry University.
Digitally Signed: Date:
26th
April 2019

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SYNOPSIS
In September 2008, the world was about to get hit by a financial recession which was set to lay its hand on
all the industries. The aviation industry was no exception from this, and the world’s airlines reported profit
losses. Since 2008, there have been many articles and books written on this subject but none of them discuss
compile the major impacted areas like demand, fuel prices, labour and financings like this research does.
Nonetheless, there is no research paper available online that argues the comparison between a major
European full-service carrier and a major European low-cost carrier.
This study focuses on the impact that the financial crisis had over the aspects mentioned above of the
aviation industry and the impact that the recession had over Lufthansa and EasyJet, as well as drawing a
comparison between the impact over the two carriers.
The report is structured following the main 4 topics:
• Impact of the financial crisis on the airline industry
• Impact of the financial crisis on Lufthansa
• Impact of the financial crisis on EasyJet
• A comparative study between the effects over the two carriers
Each section of the study will be structured based on the 4 key areas mentioned above however, chapter 2
does not include last bullet point.
Analysis of various articles, books as well as financial reports help provide the basis of the analysis and the
ideas elaborated in the following chapters.
Full ethical approval for this research has been granted by Coventry University.

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TABLE OF CONTENTS
SYNOPSIS
TABLE OF CONTENTS
LIST OF FIGURES
LIST OF TABLES
ACKNOWLEDGEMENTS
CHAPTER 1. INTRODUCTION .......................................................................................... 8
1.1 Introduction .............................................................................................................................. 8
1.2 Research Aim .......................................................................................................................... 10
1.3 Research Objectives ................................................................................................................ 11
1.4 Research Structure ................................................................................................................. 12
CHAPTER 2. LITERATURE REVIEW ................................................................................. 13
2.1 Introduction ............................................................................................................................ 13
2.2 Outline of the Recession’s Impact on the Airline Industry ....................................................... 13
2.2.1 Alliances, Consolidations and Niche Players ........................................................................ 15
2.2.2 Impact on Passenger and Freight Demand .......................................................................... 15
2.2.3 Impact on Fuel Prices ........................................................................................................... 17
2.2.4 Impact on Labour ................................................................................................................ 18
2.2.5 Impact on Airlines Financing ................................................................................................ 19
2.3 Impact on Lufthansa ............................................................................................................... 21
2.4 Impact on EasyJet ................................................................................................................... 21
2.5 Literature Review Conclusions ................................................................................................ 22
CHAPTER 3. RESEARCH APPROACH ............................................................................... 24
3.1 Introduction ............................................................................................................................ 24
3.2 Research Overview ................................................................................................................. 24
3.2.1 Research Philosophy ........................................................................................................... 25
3.2.2 Research Approach to Theory Development ....................................................................... 26
3.2.3 Research Methodological Choice ........................................................................................ 26
3.2.4 Research Strategy & Data Collection Methods .................................................................... 27
3.2.5 Research Time Horizon ........................................................................................................ 28
3.3 Triangulation of the Research Data ......................................................................................... 28
3.4 Research Approach Conclusions ............................................................................................. 28

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CHAPTER 4. RESULTS .................................................................................................... 30
4.1 Introduction ............................................................................................................................ 30
4.2 Airline Industry Figures ........................................................................................................... 31
4.2.1 Travel Demand .................................................................................................................... 31
4.2.2 Air Freight Demand ............................................................................................................. 31
4.2.3 Airlines’ Fuel Costs ............................................................................................................... 32
4.3 Lufthansa’s Results ................................................................................................................. 33
4.4 EasyJet’s Results ..................................................................................................................... 36
4.5 Results Conclusions ................................................................................................................. 39
CHAPTER 5. DISCUSSION OF RESULTS ........................................................................... 40
5.1 Introduction ........................................................................................................................... 40
5.2 Discussion of Objectives ......................................................................................................... 41
5.3 Lufthansa and EasyJet Comparative Study ............................................................................. 42
5.4 Discussion of Results Conclusions .......................................................................................... 47
CHAPTER 6. CONCLUSIONS ........................................................................................... 48
6.1 Summary ................................................................................................................................. 48
6.2 Critical Reflections .................................................................................................................. 48
6.3 Further Research .................................................................................................................... 49
6.4 Conclusive Key Findings .......................................................................................................... 50
REFERENCES ................................................................................................................... 52
LIST OF APPENDICES
Appendix 1 – CU Ethics Approval Certificate .................................................................................................. 56
LIST OF FIGURES
Figure 1: Hub-and-spoke operation (Transport Geography 2019) ................................................................... 8
Figure 2: Point-to-point operation (Transport Geography 2019) ..................................................................... 9
Figure 3: Scheduled airline financial results (Morrell 2013:7) ........................................................................ 14
Figure 4: Global GDP by year (IMF 2009:1) ..................................................................................................... 15
Figure 5: Freight level evolution according to years (Aircargo News 2018) ................................................... 17
Figure 6: Fuel price compared to airlines net profit (IATA 2018:1) ................................................................ 18
Figure 7: Jet fuel and crude oil prices (IATA 2009:10) .................................................................................... 22

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Figure 8: Research onion (Saunders et al 2016) ............................................................................................. 25
Figure 9: Deductive method (Social Research Methods 2006) ....................................................................... 26
Figure 10: Inductive method (Social Research Methods 2006) ...................................................................... 26
Figure 11: Triangulation of data ..................................................................................................................... 28
Figure 12: Premium travel vs Economy travel demand (IATA annual reports) ............................................... 31
Figure 13: Air cargo demand (IATA annual reports) ....................................................................................... 32
Figure 14: Airline’s industry total fuel costs evolution (IATA annual reports) ................................................ 32
Figure 15: Lufthansa’s passenger revenue (Lufthansa annual reports) .......................................................... 33
Figure 16: Lufthansa’s salaries costs (Lufthansa annual reports) ................................................................... 34
Figure 17: Lufthansa’s fuel cost (Lufthansa annual reports) ........................................................................... 34
Figure 18: Lufthansa’s EBITDA (Lufthansa annual reports) ............................................................................. 35
Figure 19: Lufthansa’s annual profit (Lufthansa annual reports) .................................................................... 35
Figure 20: EasyJet’s total revenue (EasyJet annual reports) ........................................................................... 36
Figure 21: EasyJet’s salaries cost (EasyJet annual reports) ............................................................................. 37
Figure 22: EasyJet’s fuel cost (EasyJet annual reports) ................................................................................... 38
Figure 23: EasyJet’s EBITDAR (EasyJet annual reports) ................................................................................... 38
Figure 24: EasyJet’s profit for the year (EasyJet annual reports) .................................................................... 39
Figure 25: GDP to travel demand evolution ................................................................................................... 41
Figure 26: Revenue comparison (Lufthansa/EasyJet annual reports) ............................................................. 43
Figure 27: Salaries cost comparison (Lufthansa/EasyJet annual reports) ....................................................... 44
Figure 28: Fuel cost comparison (Lufthansa/EasyJet annual reports) ............................................................ 45
Figure 29: EBITDA comparison (Lufthansa/EasyJet annual reports) ............................................................... 45
Figure 30: Profit comparison (Lufthansa/EasyJet annual reports) .................................................................. 46
LIST OF TABLES
Table 1: Project structure ............................................................................................................................... 12
Table 2: Data collection methods ................................................................................................................... 27
Table 3: Reflection on objectives ................................................................................................................... 49

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ACKNOWLEDGEMENTS
I would like to take this opportunity to express my appreciation and thankfulness to my project supervisor,
Neil Wilson.
He was a fantastic supervisor which I had a very good relationship with. He was very prompt in expressing
his feedback on my work and this was highly appreciated and helpful.
Neil provided great support during the writing of this project and professional mentoring, which was very
welcomed.
Also, acknowledgements go to the industry professionals for writing the high-quality articles that were used
in this report, as well as the two airlines for making public their annual reports.

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CHAPTER 1. INTRODUCTION
1.1 Introduction
The aviation industry is a significant driver of the world’s economy, with an annual contribution of $2.7
trillions to the world’s GDP, which translates into 3.6% of it (Aviation Benefits n.d.). Out of all this, $896.9
billions are a direct contribution in the tourism industry. According to a website, the aviation industry is one
of the biggest supporters of tourism and by its rapid growth, tourism around the world is expanding faster
and faster (Aviation Benefits n.d.a).
In 2017, ICAO stated that the airline industry transported 4.1 billion passengers, which is 7.2% more than
2016. The region with the highest growth was Asia/Pacific with a 10.7% growth in 2017, followed by Middle
East with 9%, Europe with 8.6%, Latin America with 7.4%, Africa with 7.2% and North America with 4.1%
(ICAO 2017).
There are two main types of carriers in the airline industry. Full-service carriers (FSC) and low-cost carriers
(LCC). More recently there appeared a number of hybrid carriers which are a combination of both above,
but this is not the focus of the research.
Full-service carriers or “legacy” carrier identify by the fact that they operate a hub-and-spoke type of
operation, which means that a main airport (hub) is fed with traffic from several smaller airports (spokes).
The visual representation can be seen below.
Figure 1: Hub-and-spoke operation (Transport Geography 2019)

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These carriers operate this type of network structure because it is believed to be the most efficient way of
connecting large amounts of destination spread over the surface of the globe.
The chosen full-service carrier for this research is Lufthansa. It is a German company established in 1926
with its main base at Frankfurt Airport. Lufthansa is also the founder of Star Alliance, which is one of the
three big airline alliances, with 28 members. It has been founded in 1997 (Star Alliance 2019).
According to Flight Global, they currently operate a mixed fleet of 293 aircraft with an outstanding order for
182 more. The average age of the fleet is 12.3 years (Flight Global n.d.).
In the past 5 years they had an overall load factor of 80%, which is strong for a FSC and transported over 330
million passengers (Flight Global n.d.a).
Such strong numbers combined with the plethora of information available online regarding the company,
makes them a great candidate for the chosen FSC for the research. Lufthansa is also a significant European
airline.
At the other end of the spectrum, there are the low-cost carriers. They identify themselves by operating a
point-to-point type of network, which means that all destinations are connected with each other. The visual
representation can be seen below. Also, they characterise themselves by a very high aircraft utilisation, with
4-5-6 legs each day and tight turnaround times of approximately 30 minutes.
Figure 2: Point-to-point operation (Transport Geography 2019)
The chosen LCC for this research is EasyJet, which is a British company established in 1995 by Sir Stelios Haji-
Ioannou. Its main base is London Luton Airport.

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The company currently operates an all Airbus fleet with a mix of A319’s and A320’s. Its current fleet consist
of 157 aircraft with an order of 120 more. The order is for 95 A320neo and 25 A321neo (Flight Global n.d.b).
In the past years, the company was able to sustain a strong 90%+ load factor, which is good for a LCC and
carried over 375 million passengers in the last 5 years (Flight Global n.d.c).
Their passenger revenue is consistently over £4 billions per annum and are still able to maintain an 8.2% net
margin on average, or £372 millions (Flight Global n.d.d).
With such financial performance and the multitude of information available online, EasyJet makes for a good
candidate as the chosen European LCC for the research.
In the years 2000’s, the aviation industry has encountered two major events that have shaken its bases.
The first one was in 2001. The 9/11 terrorist attacks, which led to multiple casualties and an induced fear in
the population that aviation is unsafe. That time, airlines’ fleets were grounded for days and profits were
highly affected by the drop significant demand decrease.
The second event happened no more than 7 years later, the global financial crisis from 2008. This was the
event that had tested once more the airlines’ capabilities of dealing with difficult times.
The recession started with the bankruptcy of the Lehman Brothers Bank, one of the biggest investment banks
in the USA. What happened next was a chain reaction from other banks pumping out significant amounts of
money to cover Lehman’s debts. This has triggered a meltdown in the US banking system, which spread over
to the rest of the world.
The aviation industry didn’t escape this meltdown’s effects. These effects will be discussed in the following
chapters and more in-depth analysis will be provided as to what were the main affected areas and what
changes did this crisis bring to the industry.
1.2 Research Aim
The aim of this research is to provide a better understanding of the impact that the global financial crisis
from 2008 had over the airline industry. The project will include an in-depth analysis of one of the Europe’s
biggest FSC and LCC, namely Lufthansa and EasyJet. This analysis will help define what were the main
financial and operational areas affected by the crisis within these two airlines.
The project will also include a comparative study which will examine the airlines performance before and
after the crisis, to determine by how much their performance was altered by the recession.

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1.3 Research Objectives
This research has various objectives, all of them being grounded in the overall aim of the project:
1. To critically review the existing literature already available online, regarding the effects of the
financial crisis on the airline industry.
2. To analyse the impact that the financial crisis had over the airline industry and determine the effect
over demand, fuel prices, labour costs and acquisition of new aircraft.
3. To analyse the financial performance of Lufthansa and EasyJet and produce charts in order to clearer
illustrate the situation before and after the crisis.
4. To create a comparative study between the impact that the recession had over Lufthansa and
EasyJet.
5. To produce conclusions and suggest further research based on the information elaborated in the
project.

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1.4 Project Structure
Chapter 1 Introduction
This chapter will provide a background of the study, including the project aim,
objectives and an introduction to the topic that will be discussed further on.
Chapter 2 Literature Review
This chapter will look at the literature review that is already available in on the
internet regarding the topic, and critically analysing it.
Chapter 3 Research Approach
This chapter explains the research approach of the project. This chapter is structured
upon the research onion created by Saunders. It will explain the reason for choosing
the specific option from each layer of the research onion.
Chapter 4 Results
This chapter will analyse the quantitative and qualitative data gathered in the
previous chapter, with the intention of better understanding the problems that the
airlines faced during the crisis.
Chapter 5 Discussion of Results
This chapter is intended to discuss the previously gathered data in order to depict
the differences between the two airlines before and after the crisis. This chapter is
going to be structured based on the objectives of the research
Chapter 6 Conclusions
This part of the project will consist of a set of conclusions of the whole project,
indicating to topics that would need further research in order to get a better
understanding of them.
References A complete list of references in the CU Harvard style.
Appendices A complete list of additional material to support the ideas in the project.
Table 1: Project structure

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CHAPTER 2. LITERATURE REVIEW
2.1 Introduction
This literature review is intended to give a background knowledge of the proposed topic, on the basis of
what has already been written by other researchers and professors before. Throughout the use of articles
and various resources available online, the impact of the global recession from 2008 is going to be reviewed.
This chapter is going to be structured as follows: first of all, an outline of the financial crisis and its impact on
the industry is going to be provided. This will consist of analysing literature available on the following topics:
Impact on passenger and freight demand, alliances, consolidations and niche players, fuel prices, impact on
labour and different financing strategies that airlines had to rely upon.
Furthermore, literature that is available for Lufthansa and EasyJet is going to be analysed and compared
through the use of the triangulation method in order to confirm veracity of data. However, the more
information regarding the two airlines is going to be provided in Chapter 4. “Results”. The triangulation
method is likewise used throughout the entire literature review chapter.
2.2 Outline of the Recession’s Impact on the Airline Industry
In his book “Airline Finance”, Peter S. Morrell talks about the industry financial performance in the first
chapter. Chapter 1.1 being entitled “The Impact of the Banking Crisis, Post-2008”, gives a history of the
financial crisis.
The main reason for this happening, was the bankruptcy of the Lehman Brothers Bank, which was one of the
biggest investment banks in the United States. After them going bust, other banks had to step in and try to
sustain the banking system in order for it not to go completely down.
The other reason for the banking crisis happening was that the banks lend too much money to real estate
investors mainly in the US but also in Europe. The so-called “sub-prime” lending was based on the premises
that the boom in the property prices happening at the moment was going to last long enough that banks
would get their money back from the investors even at the low interest rate they were lending.
The lack of credit checks combined with the exaggerated amount of money lend compared to the price of
the property, helped disbalancing the banking system even more.

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There was no single event that started the financial crisis per se, but rather the cumulative effects of all the
events and actions mentioned above. This is the beginning of the financial recession from September 2008.
In order to overcome all these impedances, central banks pumped large amounts of credit into the banking
system in order to create a small recovery in the world’s economy.
Of course, aviation being a highly sensitive industry to economy changes and fluctuations, was one of the
worst impacted by it. First it was the cargo traffic which went down by 0.8% in 2008 and 8.8% in 2009, which
the author acknowledges was the largest fall for the last 20 years. Passengers-km went up by 3.3% in 2008
(this might be because most of the financial years end in September-October, and airlines reported the
increase before the crisis happened) but then went down by 1.3% in 2009.
Morrell acknowledges that airlines have been more prompt to react to the economic environment changes
than they were with past catastrophic events such as the 9/11 terrorist attacks. He says that air traffic and
especially cargo made a bouncing back in 2010. In the graph below, the bounce back difference can be seen.
After the 9/11 attacks, it took airlines almost 5 years in order to become profitable again, compared to 1
year for the recession. (Morrell 2013)
Figure 3: Scheduled airline financial results (Morrell 2013:7)
It can be understood that airline managers learnt from past experiences and were quick enough to
implement operational changes in order to cope with the distressed economy.

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IATA states in their 2009 report that no region will remain unaffected by the global crisis and the most
developed continents will be the worst hit. For example, their estimates are that losses of US$ 1 billion will
be registered by US carriers, US$ 1.8 billion by European carriers, US$ 3.3 billion among Asia-Pacific airlines,
US$ 1.5 billion by Middle Eastern ones, US$ 900 million by Latin American and finally US$ 500 million by
African carriers (IATA 2009).
2.2.1 Alliances, Consolidations and Niche Players
The European Parliament talk in their publication “The Impact of the Economic Crisis on the EU Air Transport
Sector” (2009) about the fact that the global financial crisis highly impacted both passenger numbers as well
as freight demand. They acknowledge that niche airlines in order to be able to survive in the highly sensitive
market have joined alliances with stronger positioned airlines in order to be able to operate to different
markets. However, they further admit the limitations of the paper by stating that it is unclear whether full
potential of the alliances will be achieved through inclusions of new allies in the group or by working closer
with the ones they already have, or perhaps both (European Parliament 2009).
2.2.2 Impact on Passenger and Freight Demand
Passenger’s demand for air travel is highly influenced by the GDP. Their income dictates how and where they
are spending money. Having a higher income, makes people more willing to travel, but during times of
recession, people tend to be more thoughtful before spending money on unessential things.
The global GDP during the financial crisis times plummeted by 10% in the course of one year, from mid 2007
(4%) to mid 2008 (-6%). The global economy seems to be making an uphill return from mid 2008 and at the
beginning of 2009 it was already breaking even (IMF 2009).
Figure 4: Global GDP by year (IMF 2009:1)

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Morrell associates the GDP decrease with the air traffic growth in the first chapter of his book, but the Figure
1.2 “ICAO scheduled airline traffic growth versus world GDP growth” seems to argue in terms of accuracy
with the findings of the International Monetary Fund (IMF). There is a big discrepancy between Morrell’s
graph and IMF’s one in terms of GDP change from year to year. Morrell says that the change in GDP was only
-1% in 2008 while IMF clearly states in the graph above that it was -6%. There is a degree of doubt that goes
into Morrell’s work regarding this topic.
In times of recession, premium travel had the most to suffer regarding passenger’s choice. This class is highly
sensitive at economical changes and companies are more reluctant to buy business or first-class tickets for
their delegates, if there is no real reason to do so. In their 2009 report, IATA acknowledges that in Q1 of
2009, passenger numbers were 9.1% lower, with premium traveller numbers being “almost double that rate”
(IATA 2009:8), meaning approximately 18%. In order to be able to cooperate with the fall in demand for
premium cabin, airlines have drastically reduced capacity for this market. Even though IATA is a trustworthy
source, this paper does not specify to what period the number presented above are compared.
As far as freight demand is concerned, it was the worst impacted by the recession, because the lack of
financial stability led the big countries of the world to be more thoughtful as to what and who they trade
with. According to IATA, in December 2008, freight demand fell a ‘shocking’ 22.6% with a further 23.2% in
January (IATA 2009). Giovanni Bisignani, the CEO of IATA, stated that such a decrease was never recorded
before, not even in the case of the 9/11 event when most of the global fleet was grounded. Back in 2008,
Mr Bisignani stated that cargo levels settled at an exceptionally low level and it is unclear when the demand
and the FTK will bounce back to the original level (IATA 2009a).
According to an article published by Aircargo News, the FTK did not break even until today (Aircargo News
2018). The annual report published by the European Commission in 2009 states that according to the
Association of European Airlines (AEA), freight demand went down in Europe by 20.7% (European
Commission 2009), which slightly contradicts with IATA’s statement of 23.2%.
The fright levels according to the years can be seen in the Figure 4 bellow.

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Figure 5: Freight level evolution according to years (Aircargo News 2018)
2.2.3 Impact on Fuel Prices
Contrary to what could have been normally believed, fuel prices went down during recession times. Oil prices
started at 97$/barrel at the beginning of 2008 and ended at about $40/ barrel according to IATA’s 2009
report (IATA 2009).
In order for airlines to manage fuel expenses and manage the risks regarded to increasing fuel prices, airlines
might want to adopt fuel hedging tactics.
Fuel hedging is, simply put, buying fuel in large quantities at a certain price, for a period of time. For example,
an airline hedges fuel at 30$/barrel for 5 years. It doesn’t matter if the price goes up to 43$/barrel, the airline
still pays 30$. But the same is applicable if the price goes down. The airline is still forced to buy at the agreed
price.
According to IATA, 25.3% of airlines operating costs are fuel expenses back in 2008 (IATA 2008).
Bisignani, acknowledged that for every 1$ that the fuel price increases, the total fuel bill to the airlines world-
wide increases by $1.6 billion (O’Connell and Williams 2016).
Siew Hoon Lim and Yongtao Hong state in their paper “Fuel hedging and airline operating cost” that airlines
that have adopted the strategy of hedging fuel saved on average 9 – 12% on operating costs, though same
airlines could have saved between 12 – 14% without adopting the hedging technique. This paper is backed
up by and article by Peter Morrell that regards the same topic, as well as IATA. However, it does not say
much about the state of the entire industry as it mainly focuses on data provided by US airline between 2000
and 2012 (Lim and Hong 2013).

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The lower fuel price from the middle of 2008 has been associated with the lowering demand for air travel,
so in order to keep the industry somewhat operational, kerosene (Jet A1) prices had to be brought down in
order not to affect airline’s financials more than they already were.
Figure 6: Fuel price compared to airlines net profit (IATA 2018:1)
2.2.4 Impact on Labour
Labour is responsible for a significant part of airlines costs and labour cost control is one of the most regarded
area by airline managers. It is one of the biggest costs that can be directly influenced by the airline’s leaders,
unlike fuel, aircraft costs and landing charges. Labour costs are typically a third of the airline’s operating
costs in Europe (Doganis 2006).
In times of crisis, in order to reduce labour costs, airlines typically would reduce capacity, which enables the
airlines to pay less staff, therefore lowering their expenses on workforce.
Several European airlines have adopted “labour cost reduction” strategies very soon after the first signs of
crisis emerged in their economies. Carriers like XL Airways (UK based) and Dalavia (Russian based) with 1,700
and 2,800 employees respectively, have gone bust. In the autumn of 2008, exactly when the recession began,
Air Lingus announced 1,500 job losses continuing with a further 800 proposed in July 2009. The most drastic
job reduction was recorded by SAS, which announced 9,000 job losses (accounting for 40% of the total
workforce) (International Labour Organization n.d.). These are two examples of airlines that had serious
labour issues.
There is no reference given for the data provided above in the paper studied so some concerns arise with
regards to the accuracy of the data. However, the same information is used by Ms Ruchi Goyal and Ms

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Dhanisha Negi in their works entitled “Impact of Global Economic Crisis on Airline Industry”, which talks
about the different business aspects impacted by the recession.
Lufthansa on the other hand, didn’t go into job cutting straight from the beginning, they adopted a rather
interesting strategy. The company went into reducing the working hours of 2,600 employees at its air freight
operations (International Labour Organization n.d.). As discussed above, this was the worst impacted area
by the financial crisis.
2.2.5 Impact on Airlines Financing
When monetary resources are scarce, various financing options need to be taken into consideration by
airlines in order to be able to continue to operate. Borislav Bjelicic outlines the major financing options that
airlines had in his article “Financing airline in the wake of the financial crisis”. He begins by splitting the
aircraft acquisition market into two main categories: primary and secondary markets. Primary market is the
one in which aircraft are bought directly from the manufacturers while the secondary market is the one in
which aircraft are bought second hand. The secondary market is the option for start-up airlines that have
lower capital to invest.
In the fifth chapter of his book, Morrell names the various resources that some airlines had to resort to in
order to remain operable and competitive in the distressed market. The first one is internal finance, which
means that airlines are funded with the money that they generate. Morrell divides the sources for external
financing into short-term and long-term external finance.
The first short-term source of finance is bank overdrafts, which allows airlines to get a significant loan from
the bank, above their capability to pay back, up to a level set in accordance to the company’s financial health.
Short-term loans differ from overdrafts in the way that they are fixed amounts that need to be re-paid at a
fixed date in the future. A fixed interest rate is also applied in this case. Trade creditors is the last short-term
option, and it implies that airlines don’t have to pay their assets (e.g. aircraft) upon delivery, so that a short-
term finance will be available (Bjelicic 2012).
The first long-term source of finance is shareholder’s equity capital, which implies that capital is received
from existing or new owners of the airline. Other categories of shareholders can be other airlines, financial
institutions, employees and other individuals.
Second source is preference share capital, which is similar to the previous one but in this case, a fixed
dividend is payed back (only if the airline is profitable).

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Third option are bonds, which are very similar to shares, but they need to be paid back to the borrower at
the end of the agreed period, usually with an interest rate applied (Bjelicic 2012).
Forth option are convertible bonds, which can be converted into normal shares within a certain period. This
allows the finance to be raised, by selling the bonds at a low price, but with the promise to convert them to
shares at a certain price in the future (Bjelicic 2012).
Fifth option is term loans, which are basic borrowings, in order to acquire assets such as aircraft. They are
usually secured to the asset, meaning that if the airline is unable to pay back the loan, the asset is taken by
the loaner (Bjelicic 2012).
The sixth option, probably the most used, is leasing. This consists of a contract between the airline and a
leasing company which allow the airline to use an aircraft for example, without actually owning it. There are
two types of leases: wet lease (in which the lessor gives the lessee the crew to operate the aircraft) and dry
lease (in which the airline has to source everything).
The institutions involved in aircraft finance are banks, export credit agencies (ECA) and operating lessors.
The second institution is the most interesting one because it is the institution that developed the most during
the financial crisis.
Borislav Bjelicic wrote an article regarding the airline financing topic, but at the chapter 3.4 where he talks
about ECAs, he uses a different wording to the one of Peter Morrell. He refers to the agreement between
US and European aircraft parts producing countries (France, Germany, UK and Spain), as the “home-country
rule” whereas Morrell refers to it as “gentleman’s agreement”. There is no source as to where Bjelicic’s
wording came along, so a degree of doubt is present in his work. Also, Figure 4, in which he compares ECA’s
around the world is not very representative because the institutions are compared according to different
currencies, so the results might not be as different as they are if there would have been a consistency in the
currency used (Bjelicic 2012).
Airlines made use of all these financing options in order to keep their businesses running, so it can be said
that they played an important role in the airline’s financial performance. Normally many airlines wouldn’t
resort to being financed on ways that would disadvantage them, but a crisis scenario determines them to
make ‘desperate’ choices.

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2.3 Impact on Lufthansa
In 2008, the financial report of Lufthansa starts by making a reference to the global financial. They state that
the second half of the year was defined by market uncertainty. However, they further acknowledge that
they are very well prepared, having a solid financial basis, a strategic orientation that is paying off, the
passenger numbers broke new records and that the brand is stronger than ever (Lufthansa 2008).
These affirmations could be considered arguably strong, regarding the fact that the airline only achieved a
profit increase of £16.6 millions, a number that is very little for an airline the size of Lufthansa. Perhaps their
financial basis might not be as strong as they claim to be, considering the little profit increase. It is true that
revenue went up by 15.4%, but the operating result went down from £660 millions in 2007 to £577 millions
in 2008 (Lufthansa 2008).
In the annual reports 2009 and 2010 from Lufthansa, the information is very scarce regarding the financial
problems that the company encountered. They say that the profit loss that they encountered is due to
disposals, provisions for contingent losses and other special effects. While this can be true, Lufthansa usually
likes to balance the annual reports among the various subdivisions that it has (Lufthansa Cargo, LSG Sky
Chefs, Lufthansa Systems and Lufthansa Technik). This might be only one side of the story, because, as Morell
writes in his book, German airlines might lean towards “reducing” their declared profits in order to avoid
taxation.
In the 2009 annual report, Lufthansa states that the net result for the year was -€148 million but €148 million
have been allocated from the retained earnings, bringing the net result of Lufthansa to 0 (Lufthansa 2009).
This confirms the previous affirmation that Lufthansa allocates extra money to balance out the profits.
2.4 Impact on EasyJet
In 2008, EasyJet provided a report in which the main topic is that the company is having profitability
problems due to the increased fuel prices. In their report, they say that the average fuel price for one metric
tonne of fuel was $1,070 in 2008 without any fees and taxes, compared to $643 in 2007. Even though it is
true that fuel prices have increased in 2008, as per IATA’s 2009 report regarding fuel prices, it can be seen
that from the second half of 2008, the prices of A1 Jet Fuel dropped sharply, thus making EasyJet’s statement
somewhat weak in credibility.

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Figure 7: Jet fuel and crude oil prices (IATA 2009:10)
In their full annual report from 2008, they specify twice the word “crisis” and once the word “recession”
leading to think that they did not give that much importance to one of the industry’s most impactful event
from the last 20 years. While it is true that they state that keeping an eye on the evolution of the recession
is a main objective of theirs, they do not say what they are going to do in regard to this.
In 2009, they gave a bit more details on the financial crisis and its impact on their operation, but they state
that they were one of the only companies in the world to make profit that year. Whether that statement is
true or not we can’t tell for sure because it is impossible to analyse all the airlines, but by having a quick
glance at their financials, they publish a £71.2 million profit for year 2009 (EasyJet 2009).
A good way of getting an idea of an airline’s financial health is to look at their annual financial results.
Considering that airlines want to attract more investors, they might recur to some unethical procedures of
“tweaking” their financial results. This will make shareholders think that the airline is actually doing better
than it actually is. This argument is backed up by Morrell, also saying that airlines from the US, UK and The
Netherlands usually publish two separate financial statements. A confidential one for tax authorities and
another one with less information for investors, thus showing a better financial performance.
Likewise, airlines from Germany, France and Japan, are more concerned with minimising the declared profit
in order to avoid tax payments (Morrell 2013).
2.5 Literature Review Conclusions
It can clearly be said that the global financial crisis had a significant impact on the world’s economy, affecting
all the transport sectors. Aviation was particularly affected as it is a highly volatile industry, easy to be
influenced by economic changes.

23
Passenger demand has seen a significant drop compared to the numbers registered before the recession,
but the most impacted sector was freight. The cause being that airlines ceased to make trades with other
countries during those uncertain times.
Fuel prices have been highly volatile, however, the price dropped from mid 2008 due to lower demand for
air travel. Thus, enabling airlines to boost their profits because of the lower expenses they had.
Labour was also affected by the crisis and airlines had to cut major staff jobs in order to be able to cope with
the low demand and lower than usual profits of the time. However, not all airlines resorted to job cuts
straight up.
It brought up to the industry challenges that airlines didn’t face before to such an extent. It has determined
them to make use of various financing ways in order to still be able to acquire aircraft and continues their
businesses.
Lufthansa and EasyJet are the two airlines chosen to draw a comparison between, in order to be able to
differentiate between the impact of the global recession on a FSC and a LCC.
The following chapter will look at the research methodology used to gather data in order to create the
comparison and analysis, further in the 4th
and 5th
chapter.

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CHAPTER 3. RESEARCH APPROACH
3.1 Introduction
Chapter 3 focuses on the approach towards the research undergone in this project. Various research
methods are being used through the piece of work, giving an in-depth and complete understanding of the
topic of the project.
These research methods will be carefully selected and adapted according to the needs of the researcher in
order to meet the aims and objectives stipulated in the above sections. This process will ensure that only
valuable and significant data will be selected, which will significantly increase the quality of the work. It is
very important for the research project to bring a complete and new understanding of the proposed topic,
and not just re-word something that has been said multiple times before. Kothari states that some pieces of
work “contain endless word-spinning and too many quotations” (Kothari 2004) which means that some of
the research studies out there do not bring new and important information on the topics proposed, only
rewording what has already been said.
After all the information has been collected, the data can be interpreted in order to create a report which
highlights the impact of the global financial crisis on the airline industry, with a closer look at Lufthansa and
EasyJet.
3.2 Research Overview
This section will offer an overview towards the research philosophy, data collection, process and
methodologies within the project.
Figure 8 shows Saunders research onion, which illustrates the different layers of research which are used in
any research work.
The Research Overview section will be divided according to the layers of the research onion, each of the
layers being analysed and explained. This will bring a better understanding of the research methodology
behind the project.

25
Figure 8: Research onion (Saunders et al 2016: 124)
3.2.1 Research Philosophy
In his book Research Methods for Business Students, Saunders affirms that there are 3 types of philosophical
assumptions and that it is important to understand them in order to be able to select an appropriate
individual research philosophy.
Ontology – “refers to assumptions about the nature of reality” (Saunders et al 2016:127)
Epistemology – “concerns assumptions about knowledge” (Saunders et al 2016:127)
Axiology – “refers to the role of values and ethics within the research process” (Saunders et al 2016:128)
The Research Philosophy is the most outer layer of the research onion and it is comprised of positivism,
critical realism, interpretivism, post-modernism and pragmatism.
As the purpose of this project is to analyse the impact that the global financial crisis from 2008 had over the
airline industry, especially Lufthansa and EasyJet using a range of methods, a critical realism approach is
going to be undergone. It allows the researcher to create hypothesis based on the information already
available online or offline and test them in order to test and confirm them either completely or partially.
(Saunders et al 2007:103).

26
3.2.2 Research Approach to Theory Development
The approach to theory development is the second layer in the research onion.
This is the stage of the project where an inductive or deductive approach to the research is applied. The
main difference between the two types of theory development methods are that “whilst a deductive
approach is aimed and testing theory, an inductive approach is concerned with the generation of new theory
emerging from the data” (Deborah Gabriel 2013).
Illustrated in the Figures 2 and 3 bellow, the differences between the approach towards the two reasoning
methods can be seen.
Figure 9: Deductive method Figure 10: Inductive method
(Social Research Methods 2006) (Social Research Methods 2006)
This research will be based on the deductive approach, as its main goal is to gather as much information as
needed in order to be able to draw meaningful and logical conclusions. Theories will be developed on the
conclusions part of the project based on the discussed information.
3.2.3 Research Methodological Choice
The methodological choice is the third layer of the research onion and the contents of it can be categorised
as follows:
• Mono-method – Where only one approach is applied to the project
• Mixed-method – Where a mix of methodologies is utilised, most usually qualitative and quantitative
• Multi-method – Where a wide range of methods are applied
This research will take a multi-method approach because it will consist of gathering and analysing both
quantitative as well as qualitative data.

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3.2.4 Research Strategy & Data Collection Methods
This is the forth layer of the research onion and it determines the data collection methods that the
researcher will use in order to develop its theories.
The project will be based entirely on secondary data and it will use the case study and archival research for
gathering information on the topic. The project will look at 4 areas namely: The impact of the financial crisis
on the airline industry, the impact of the financial crisis on Lufthansa, the impact of the financial crisis on
EasyJet and a comparative study of the performance of the two airlines pre and post crisis. The following
data collection methods will be applied, specific to each area:
PROJECT TOPIC RESEARCH APPROACH
Literature review This will consist of a desk-based research, gathering
as much information as possible on the topic from
various web sources. Qualitative and quantitative
data will be analysed and reviewed.
Impact of the financial crisis on the airline
industry
The airline industry is known for being very volatile
and sensitive to various economic problems that
the world has faced. This part will consist of
gathering information about the airline industry
and the various problems in terms of expenses,
demand, revenue etc. Quantitative and qualitative
Impact of the financial crisis on Lufthansa Lufthansa is one of the biggest FSC airlines in Europe
and its operations were affected by the crisis too.
This part will look at the problematic areas in the
airline’s performance. Quantitative and qualitative
Impact of the financial crisis on EasyJet EasyJet is one of the oldest and biggest LCC in
Europe. Being a low-cost airline, it is especially
sensitive to economic turbulences making it a
perfect candidate to analyse. Both qualitative and
quantitative data will be analysed and reviewed.
Comparative study of Lufthansa’s and
EasyJet’s performance pre and post crisis
This topic will analyse the financial and operational
performance of the two airlines before and after
the crisis, examining what has changed and by how
much the airlines were affected. Quantitative and
qualitative data will be analysed and reviewed.
Table 2: Data collection methods

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3.2.5 Research Time Horizon
This is the fifth layer of the research onion and it divides the time frame of the project into two: cross-section
and longitudinal.
For this project, the first variant will be chosen as the later one asks for a longer period of time for data
gathering and analysis. Due to the nature and time constraint of the project, longitudinal study is not an
option (Saunders et al 2016).
3.3 Triangulation of the Research Data
Mark Liberman states that triangulation of data (see Figure 4 below) is “Considering data and findings from
multiple sources is valuable” because “doing so serves as a safeguard against being misled by
nonrepresentative samples and unreliable research methods” (Rhodes 2018:21). What this means is that
cross-checking information found on multiple websites is an important thing to do in order to establish the
accuracy of a piece of information.
This project will indeed use the triangulation method in order to ensure that only high-quality data is
extracted and analysed from the available sources.
Figure 11: Triangulation of data (Slide Player n.d.)
3.4 Research Approach Conclusions
This project will be conducting an in-depth research into the impact of the financial crisis from 2008 on the
airline industry, especially Lufthansa and EasyJet, emphasising the next topics: the impact of the financial
crisis on the airline industry, the impact of the financial crisis on Lufthansa, the impact of the financial crisis
on EasyJet and a comparative study between the performance of the two airlines before and after crisis.

29
Considering that the recession had a broad effect on the global economy, extracting data only regarding to
the airline industry is going to be a challenging task. However, with the use of appropriate data collection
techniques, the information extracted is going to be valuable enough in order to be analysed and provide a
relevant final report. The use of the triangulation method will ensure the accuracy of the data collected.
The two research strategies will be case study and archival research, which will provide in-depth and relevant
data for the researcher to analyse.
The project will consist of secondary data only, making use of various books, journals and articles available
online which refer back to the event examined. Airline’s websites will help in the analysis of the financial
data enabling the researcher to conduct the comparative study. Also, other websites such as FlightGlobal,
CAPA and Idea Works will be used for data collection.

30
CHAPTER 4. RESULTS
4.1 Introduction
The previous chapter presented the way in which data from this chapter will be gathered and analysed. This
chapter is going to go more in-depth in regard to the financial implications of the global recession. The results
then being analysed in the next chapter of the research.
Data in this chapter will be presented in tabular formats as much as possible. It will be extracted from various
financial reports made available by IATA at the time as well as Lufthansa’s and EasyJet’s financial reports. No
analysis will be made in this chapter as the main aim of this is to present the raw data as it was published.
Interpretation of the data will alter the correctness of the published figures.
At the end of this chapter, the reader will be able to get an understanding of the financial situation of the
industry at the time, the key problematic areas, how different factors influenced airlines profitability and the
financial position of Lufthansa and EasyJet.
The two airlines will consist the basis of the comparison in chapter 4 and 5, where various performance
aspects will be contrasted one against the others. This will allow for a clearer differentiation of the impact
that the recession had over a major FSC as well as a major LCC.

31
4.2 Airline Industry Figures
4.2.1 Travel Demand
From 2007 until 2011, the airline industry has faced very challenging times. This is can be emphasised by
having a look at the figure below which gives an idea of the evolution of the demand from 2007 through
2011.
Figure 12: Premium travel vs Economy travel demand (IATA annual reports)
It can be seen that premium travel was far worse affected by the crisis than the normal economy type. The
biggest dip is in years 2009 – 2010, after that, a sudden growth can be seen in both cases.
In percental language, premium travel demand fell by 25 points while economy travel demand fell by 5-6
units. In some cases, airlines chose to introduce the premium economy type cabin in order to stop business
travellers to downgrade to economy class.
4.2.2 Air Freight Demand
Air cargo is a good barometer for economic activity world-wide and air freight has not seen better days
either. The figure bellow illustrates the cargo demand evolution on a year-on-year basis. It can be clearly
seen that the lowest demand has been registered in 2009 (very similar to the passenger demand curve) and
after that, the demand has improved to initial pre crisis levels. However, as stated before, the freight side of
the industry is yet to breakeven with the expected growth path after the crisis.
Freight yields during 2008 dropped as well by almost 20% as a result of the decrease in trade demand
between countries.

32
Figure 13: Air cargo demand (IATA annual reports)
4.2.3 Airlines’ Fuel Costs
Fuel prices were also impacted by the financial crisis and they have in the end impacted airlines profitability.
The table below illustrates the sharp increase in fuel price starting from 2007 and the ascending trend
continues until 2008.
Figure 14: Airline’s industry total fuel costs evolution (IATA annual reports)
There is an noticeable decrease in the total amount of money that airlines spent in 2009 but a very abrupt
increase follows starting from mid 2009. This volatility had much to do with the airlines’ financials.
Fuel prices are generally closely correlated to the price of crude oil. This means that the more expensive
crude oil is, the more expensive Jet A1 fuel will be. Usually, Jet A1 is approximately 18-20% more expensive
than crude oil due to refinery, transport and storage costs.
Many airlines have been affected by the fuel price volatility, especially the ones that do not hedge fuel.

33
In this case, both EasyJet and Lufthansa hedge at least part of their fuel needed for the future months.
However, EasyJet stated that their profits were highly affected by the increased fuel prices in 2008.
Fuel is most of the times priced in USD, and airlines outside the US market are exposed to the exchange rates
volatility as well when buying fuel. Both EasyJet and Lufthansa operate in currencies different than the USD.
It could be stated that the airlines had to suffer a double loss as currency exchange rates highly fluctuated
at the time.
4.3 Lufthansa’s Results
The currency in which the two companies publish their annual report is different. Hence the need to convert
the figures in Lufthansa’s reports from Euros to Great British Pounds to be able to reflect a more accurate
comparison. In order to do that, the following conversion rates have been used: 2007 (€1 = £0.68), 2008 (€1
= £0.80), 2009 (€1 = £0.89), 2010 (€1 = £0.86) and 2011 (€1 = £0.87) (Statista 2019).
As said before, Lufthansa is a big company which has several other branches, apart from passengers
transportation. The following information has been extracted from their annual reports and reflect only the
passengers transport business segment.
Figure 15: Lufthansa’s passenger revenue (Lufthansa annual reports)
As it can be seen in the figure above, Lufthansa has been on an ascendant trend before the financial crisis
put its hand on the company. The sharp increase in revenue from 2007 – 2008 comes from the acquisition
of SWISS which greatly helped boosting revenue (Lufthansa 2007). In 2007 they managed to generate over
£9 billion in passenger revenue but from 2008 to 2009, the figure dropped from £11.2 billions to £10.5
billions. However, they managed to restructure their operations and from 2009 they are on a constant YoY

34
revenue increase of 9.56% on average. The figures above include all the ancillary services that the company
provides to its customers. Though, the figures for those services are not present in the reports.
Figure 16: Lufthansa’s salaries costs (Lufthansa annual reports)
In the figure above, the salaries cost for the company have been identified. It can be seen that before the
recession, the costs went up by £590 million in a single year, 2007. However, from 2008 onwards, the salaries
cost curve started to drop through 2009 and 2010. Lufthansa managed to reduce its labour costs by an
average of £175 millions these two years, achieving a drop of £350 million, from £2.56 billions in 2008 to
£2.21 billions in 2010 (Lufthansa 2010). From 2010 salaries expenses started to climb up slightly reaching
£2.31 billions at the end of 2011 (Lufthansa 2011). Still, lower than the maximum level before the crisis. This
is totally attributed to the good labour management techniques discussed in the Chapter 2.
Figure 17: Lufthansa’s fuel cost (Lufthansa annual reports)
The figure above reflects Lufthansa’s annual fuel cost. In 2007 the company had a total fuel bill of £2.62
billions, which went up by almost £2 billions by the end of 2008 (Lufthansa 2007). The year 2009 greets the

35
company with a decrease in the world-wide fuel price and by the end of the year, the company managed to
shave off £2.15 billions in fuel costs. Lufthansa reduced its expenses from £4.24 billions in 2008 to £2.09
billions in 2009 (Lufthansa 2009). However, when the financial situation settled a bit, the company has seen
a continuous growth trend in fuel costs. From 2009 to 2010, the costs went up by £660 millions but almost
doubled for the next year reaching a maximum of £5.39 billions by the end of 2011 (Lufthansa 2011).
Figure 18: Lufthansa’s EBITDA (Lufthansa annual reports)
As previously seen, the ascending trend before the financial crisis hit the industry reflects in the case of
EBITDA as well. In 2007 the company registered a total of £1.36 billions, which went up for the following
year to £1.55 billions (Lufthansa 2008). After the recession wave reached the company, their EBITDA went
bellow the initial level before the crisis, to £1.2 billions in 2009. However, after that, Lufthansa has seen a
continuous increase in EBITDA through 2010 and 2011 of £120 millions on average YoY (Lufthansa 2011).
This growth rate is lower than the one registered before the crisis, but it is a good sign of improvement in
the financial strength of the company.
Figure 19: Lufthansa’s profit for the year (Lufthansa annual reports)

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This is the most interesting figure of them all. The profit growth of Lufthansa in 2007 – 2008 has been of
£16.6 millions from £561 millions to £577 millions (Lufthansa 2008). However, after the financial crisis hit
the industry at the end of 2008, the profits plummeted for the company and it registered a staggering £359
millions loss for the year. This makes for a £936 millions change in profit/ loss in the course of the year 2009.
After this strong punch, the company was able to get back on track and registered a convincing profit of
£197 millions for the year 2010 which brought them back into the green side of the line (Lufthansa 2010).
For the following year the company has seen an increase of £40 millions in profits reaching £237 millions in
2011 (Lufthansa 2011).
4.4 EasyJet’s Results
Data from the tables below has been collected following a detailed examination of the financial reports of
the company. The reports span over a period of 5 years 2007 – 2011 in order to create a representative
image for the performance before and after the recession.
EasyJet has experienced a rather consistent growth trend even considering the crisis scenarios that the
industry experienced. The chart below illustrates this factor and it shows that the company has managed to
deal with the difficult times very well. Overall profitability for the British LCC was £1.79 billion in 2007, and
managed to achieve a significant 71.5% increase, to a total of £3.45 billion in 2011.
Figure 20: EasyJet’s total revenue (EasyJet annual reports)
Considering that this company is a LCC, it has a significant revenue gain from ancillary services as well. These
accounted for a total of £2.34 billion over the 5 years. On average, the ancillary services accounted for
16.89% of the airline’s total revenue (EasyJet 2011). Ancillary services include checked baggage, priority
boarding, booking fares, credit card and change fees.

37
The numbers above represent the total amount of money that the airline has gained during the 5 years,
before any taxes being paid, labour, fuel costs and other expenses. The tables below are going to represent
the operational expenses that EasyJet incurred, their evolution and finally the amount of money left after
that.
As identified in chapter 2, labour cost is one of the biggest costs to an airline. The chart below shows the
salaries evolution of EasyJet during the recession times. Between 2009 and 2010 a slight levelling of the
initial growth trend can be seen. The growth trend can be associated to the growth of the company, but
there are more factors to this (see chapter 5 for analysis). In 2007 the company had 5,674 employees (EasyJet
2007) while in 2011 it reached 7,724 employees (EasyJet 2011).
Figure 21: EasyJet’s salaries cost (EasyJet annual reports)
Fuel expenses for the company have been on an almost continuous ascending trend. In 2007, EasyJet had a
total fuel bill of £425.5 millions (EasyJet 2007). In 2009 the company has seen a slight decrease in the fuel
costs but at the end of the year, the fuel prices started to climb again and so did the fuel expenses. In 2008,
the company acknowledged that the profits are affected by the increase in fuel price and this can indeed be
seen in the figure below. However, by comparing the figure below with the one regarding the overall industry
prices, there is no direct correlation between the trends. More will be discussed in the next chapter.

38
Figure 22: EasyJet’s fuel cost (EasyJet annual reports)
From the table below, it can be seen that the company’s EBITDAR started rather high in 2007 at £298.2
millions (EasyJet 2007), then it was on a decline until 2009 when it reached its minimum of £225.1 millions
(EasyJet 2009) and switched to an abrupt upward trend reaching a high of £468 millions in 2011 (EasyJet
2011).
EBITDAR is an economical acronym that stands for Earnings Before Interest, Depreciation, Amortisation and
Restructuring. It is generally used to assess the financial health of the company. It is particularly useful when
comparing two companies within the same industry as it reduces the variability of one company to the other.
It helps to focus only on the costs that are related to operations.
Figure 23: EasyJet’s EBITDAR (EasyJet annual reports)
The profit for the year of EasyJet has been on a downwards – upwards trend. This represents the total
amount of money which the company is left with after paying all the expenses. From the tables below it can
be seen that in 2007, EasyJet had a strong £152.3 millions profit and they have been on a continuous descend

39
until 2009 when they reached a bottom of £71.2 millions. In 2009 EasyJet started to make a comeback but
it took them until second quarter of 2010 to breakeven with the profit before the recession. Finally, in 2011
the almost doubled the previous year, reaching a total profit of £225 millions (EasyJet 2011).
Figure 24: EasyJet’s profit for the year (EasyJet annual reports)
4.5 Results Conclusions
This chapter analysed some of the most important factors which need to be taken into consideration when
analysing the financial situation of the airline industry before and after the crisis.
The financial performance of the two chosen companies, namely Lufthansa and EasyJet have been done and
trends and figures have been discussed. This is in order to get a clearer understanding of the situation in a
significant European FSC and a significant European LCC before and after the recession.
Area like total revenue, labour and fuel costs, EBITDA and profits have been discussed as those are among
the most significant factors that determine the financial strength of a company.
The following chapter will consist of the actual comparison between the two companies. Differences and
similarities will be also discussed. By the use of figures, trend lines will be compared in order to depict those
differences and similarities.
Reasons for any of these changes in trends will also be discussed as part of the overall analysis.

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CHAPTER 5. DISCUSSION OF RESULTS
5.1 Introduction
The previous chapter was aimed towards identifying some of the major financial areas impacted by the
financial crisis.
This chapter is going to be aimed at comparing and contrasting the two airlines and determine what were
the differences between the two in terms of financial performance before and after the recession. Some
main reasons for these changes are going to be discussed.
Figure for the entire airline industry from the previous chapter are going to be discussed and demand drops,
or fuel prices fluctuations are going to analysed.
This chapter is going to be structured according to the objectives of the research. The extent to which they
have been accomplished is going to also be discussed.

41
5.2 Discussion of Objectives
The first objective of this research was to critically review the literature review already available on the
chosen topic. This has been done by reading and evaluating a multitude of articles from the Journal of Air
Transport Management and the Journal of International Economics. Books like Airline Finance and Air
Transport in the 21st
century have been used to get a better general understanding of the impact that the
financial crisis had over the airline industry. Also, annual reports from IATA have been analysed to get a grip
of the figures regarding the whole airline industry. The changes that occurred in demand or expenses have
been identified in the figures from the previous chapter.
After reading these resources, it has been identified that the main reason for the drop in demand is that the
global GDP dropped to a level that would not enable people to travel by plane anymore.
Figure 25: GDP to travel demand evolution
The chart above has been put together by combining the two travel demand charts from the previous
chapter together with GDP by year data from The World Bank. It clearly shows the correlation between the
decreased GDP and the demand for premium and economy travel. The more significant drop in demand for
premium travel occurred because premium travel is more consistent of business travellers. When countries
stop doing business with each other, businessmen will stop flying. Also, this decrease can be linked to the
will for companies to save more money and they would fly its employees in economy class rather than
business.
Air freight did not see better times during recession and air trade has been greatly impacted by the crisis. As
identified in the previous chapter, air freight took a hit of almost 20% from 2008 – 2009. This happened
because the countries stopped trading goods and doing business with each other as well.

42
The second objective of this project has been to determine the impact of the financial crisis over demand,
fuel prices, labour costs and acquisition of new aircraft.
These topics have been discussed in depth in the literature review, however, due to limitations of time and
words, labour costs and acquisition of aircraft have not been brought further in the Results chapter.
The fuel prices, however, have been identified as being highly volatile in the times of the recession and
airlines reported profit losses because of the sudden spike identified in Figure 14 in the previous chapter.
This spike has been created because the refineries have increased the jet fuel price before the crisis in the
fear of not losing too much money. However, after seeing that the airlines are not able to cope with the
increase, they had to bring the prices lower, helping the airlines in a way.
The third objective of this research has been to analyse the financial performance of a significant European
FSC, namely Lufthansa and a significant European LCC, EasyJet.
This has been achieved in the previous chapter 4, by creating charts to illustrate the evolution of certain
financial aspects of these two companies. Data from their annual reports has been used and analysed over
a period of 5 years (2007 – 2011).
However, due to time and word count constraints, the research had to limit to only analysing the total
revenue, labour costs, fuel costs, EBITDAR and the profit for the year. These 5 areas are a strong indicator of
the financial health of the companies and cover the most significant income areas as well as expenses, which
in the same time keep in theme with the previous discussed topics in the literature review chapter.
The fourth objective of this research has been to create a comparative study between the impact that the
recession had over Lufthansa and EasyJet, and this can be found below.
5.3 Lufthansa and EasyJet Comparative Study
When it comes to revenue evolution in the period 2007 – 2011. The chart below illustrates the curve that
the two companies experience before and after the crisis. It can be seen that compared to EasyJet, that had
a constant growth, mostly thanks to the switch in psychology from the traveling public, Lufthansa
experienced a dip in profits.
This dip is mostly because of the reasons expressed many times before of people not affording expensive air
travel anymore and choosing instead the less expensive companies.

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It could be argued that EasyJet had the edge in this “profit competition” because of their operating strategy
and because it is a smaller company, easier to manage than the huge German carrier.
Although, EasyJet reported revenue decrease in the period 2008 – 2009 due to apparently “increased fuel
cost” (EasyJet 2008a).
Figure 26: Revenue comparison (Lufthansa/EasyJet annual reports)
In terms of labour costs, once again the two airlines are following the same path. In the chart below, it can
be seen that EasyJet experienced a constant increase in terms of salaries expenditures, while Lufthansa,
from 2008 to 2010 experienced a decrease in labour cost.
This happened because of the schedule restructuring procedures that the German airline chose to follow in
order to cut costs. They did not want to axe a lot of jobs, as other companies did, but instead they reduce
the working hours in order to save money. It seems like this strategy worked for them as they managed to
reduce labour cost by £350 millions in two years.
EasyJet on the other hand, did not seem affected by the financial crisis in terms of labour costs and as the
company grew in size, salaries expenditures grew as well. They have been employing around 600 people
every year in the 2007 – 2010 time period (EasyJet annual reports). This is one more reason why they are
experiencing constant growth during the years. However, they reduced the salaries for all employees after
2009, to better cope with costs.

44
Figure 27: Salaries cost comparison (Lufthansa/EasyJet annual reports)
Fuel expenses are another major cost area for airlines. Annually airlines spend hundreds of billions of Pounds
on fuel. Lufthansa and EasyJet are no exception from this cost. In order to reduce their short-term earnings
volatility, airlines might adopt the fuel hedging technique. It means buying a certain amount of fuel at a
certain time for a certain price. This can be to airlines’ advantage if done right, however, it can mess them
up if the strategy is wrong.
The figure below is the graphic representation of the fuel costs that the two airlines had. Although, because
of the big difference in the amounts paid, the figure is not very representative for EasyJet. For a clearer
picture of EasyJet’s fuel costs see Figure 17 in the previous chapter.
It can be seen that Lufthansa had significantly bigger fuel costs than EasyJet. This is also because the airline
publishes certain information for the entire Lufthansa Group, not only for Lufthansa Airline. However, by
having a look at the Figure 7 in Chapter 2, it can be seen that the curve in Lufthansa’s fuel bill closely follows
the curve of the whole industry’s fuel prices. This happened because Lufthansa had fuel hedging policies
with Lehman Brothers bank and when they went bankrupt, the airline lost its hedging volumes. However, in
Lufthansa’s luck, by the time they lost the fuel transactions, the fuel price dropped significantly, and they
were able to take advantage of the lower fuel price, helping them to save almost £2.5 billions in 2008
(Lufthansa 2008).
EasyJet on the other hand, hedges 60% of its future fuel needs one year in advance, hence the reason why
the airline experienced a little bit of fuel cost reduction in 2009, one year later than Lufthansa. They did not
manage to take full advantage of the big price dip but still managed to save £60 millions.

45
Figure 28: Fuel cost comparison (Lufthansa/EasyJet annual reports)
In terms of EBITDA, the two companies follow almost the same path. The table below illustrates the gross
income of the two airlines.
It can be seen that in the case of Lufthansa, the EBITDA follows an almost identical trajectory to that of the
passengers revenue. This is normal to happen as the revenue and the gross income should be relative to
each other, without much fluctuations. This however is not the case for EasyJet which can be seen making a
decrease of £80 million from 2007 to 2009. This could be linked to the improper use of the fuel hedging
technique which has been reported in the preliminary results for 2008.
Figure 29: EBITDA comparison (Lufthansa/EasyJet annual reports)
Finally, the profits need to be addressed. The figure below represents the net result for the two airlines.
Once again, the downwards – upwards trend can be seen in the case of both airlines. However, Lufthansa
managed to make a loss of £359 million in the year 2009.

46
As stated before in the literature review chapter, Lufthansa didn’t give too much information to the public
in the years 2009 – 2010. However, in the reports that the company published, they acknowledged that the
profit loss was mostly due to disposals.
To an extent, the profit curve follows the EBITDA curve, but the plunge in 2009 changes the course. On their
website, Lufthansa admits that if it wouldn’t have been for the acquisition of Austrian Airlines and bmi, the
fall in revenue and implicitly profit would have been greater (Lufthansa 2009a).
The profit loss is also linked to the fall in demand for premium travel as well as the will for the public to
travel.
Regarding EasyJet, the profit curve closely follows the EBITDA curve, which is a sign that the company didn’t
encounter too many taxation interferences. There are no significant fluctuations in the numbers in the case
of EasyJet.
This could go to show that managing a LCC is easier than managing one of the biggest airlines in Europe and
how different are the financial implications as the company grows bigger.
Perhaps, if it wasn’t for the faulty fuel hedging strategy, the company would have managed a better profit
for the years.
Figure 30: Profit comparison (Lufthansa/EasyJet annual reports)

47
5.4 Discussion of Results Conclusions
In this chapter the comparative study between the two airlines have been realised. Although quite narrow
focused because of restrictions of word count and time frame, it covers the major income and expenses
areas for both airlines.
It has been discovered that being a large FSC as it is the case for Lufthansa, makes the company more prone
to market volatility and economic instability. While in the meantime, the smaller, simpler LCC, was able to
obtain although smaller numbers, significantly better trends and results overall. Little significant spikes or
drops have been registered for EasyJet, whilst Lufthansa experienced quite unpredictable results.
Overall, both companies managed to plough through the recession with arguably good results.

48
CHAPTER 6. CONCLUSIONS
6.1 Summary
When this project has been planned, there was nothing like it available online. There is information available
online regarding the impact of the financial crisis on the whole aviation industry. However, no study compiles
the information altogether and present it in a report form to clearly illustrate the impact of the recession on
the aspects of the industry discussed above.
Nonetheless, there is no study available that clearly illustrates the impact that the financial crisis had over a
FSC and a LCC in the way that this project does. Even though the financial crisis from 2008 is an old event, it
makes for a decent research topic because of the abundance of information available online and offline.
The relevance of this project can be sustained by the fact that several reputable economic news sources,
among which Business Insider and Investopedia, interviewed financial experts in regard to their views about
the next recession.
Sheila Bair, the head of FDIC during the 2008 crisis, argued that the next recession could occur sooner than
expected. She made four points regarding the reasons, namely: reduced bank capital, soaring private debt,
ballooning federal deficit and the student debt (Investopedia 2019).
The next global financial crisis could have catastrophic effects on all industries, including aviation, as now,
according to Bair, banks are in bigger debt than back in 2008. This means that they also have less reserve
cash to “cushion” another bank going bankrupt, leaving them exposed to economic instability. The
Netherlands Bureau for Economic Policy Analysis stated that world trade declined 1.8%, as the global
downturn gained momentum, sign of a possible economy meltdown (The Trading Report 2019).
6.2 Critical Reflections
This project has been achieved to the best of the abilities of the researcher, however, as no project is perfect,
this is no exception. There have been some impediments during the 4 months completion period.
The first one was that aviation being quite a niche industry, information was scarce at the beginning. It was
only after reading the available articles and going to references to try and find more, that information started
to come to surface.
The second, was that airlines are usually quite secretive with the information that they publish, as they don’t
want to give out confident insights to the general public and other airlines implicitly. It was difficult to find
similar information for both airlines but after analysing and reading the annual reports, the information

49
presented in chapter 4 became apparent. Lufthansa was particularly difficult as the company publishes
information regarding the whole group and finding only Lufthansa Airline information is more difficult.
The final one was a software limitation meaning that the figures in chapter 5, couldn’t be produced more
accurate, hence the reason why the format is slightly changed from the ones in chapter 4. Due to time
constraints, the figures in chapter 2, are in a different format because it would have been too time
consuming the reproduce them in the same format once again.
OBJECTIVE STATUS EVIDENCE OF COMPLETION
1
Chapter 2 contains the critical literature review regarding the topic of the
project. It covers the 4 key points of the research.
2
Chapter 2 and 4 contain information regarding the impact of the financial crisis
over the airline industry. Chapter 4 looks at figures while chapter 2 reviews the
quantitative data.
3
Chapter 4 is where the analysis of the two airlines can be found in the form of
figures and text.
4
Chapter 5 consists of the discussion of the figures from chapter 4, and it is the
place to find the comparative analysis of the two chosen airlines.
5
Chapter 6, section 6.3 is where areas for further research are suggested.
Table 3: Reflection on objectives
6.3 Further Research
Further research can be done regarding this topic. This research looked at the impact that the financial crisis
had over the demand, fuel prices, labour, and financing in the industry. However, more could be said about
what would happen in the next financial crisis, considering the lessons learned by airlines during the one
from 2008.
Regarding the two airlines, further research could be done by analysing other factors than the ones present
in this research and determine what other areas might have been significantly affected by the recession.
Such as assets, liquidities, alliances and regarding Lufthansa especially, the impact that the financial crisis
had over its other subsidiaries.

50
In addition to this, by using historical data and trends such as the ones presented in this report, forecasts
could be made in order to establish what would be the implications of another financial crisis. Taking in
consideration the financial strength that airlines have today and the knowledge from the past experience, it
would be interesting for one to try and predict the implications of another recession.
Also, considering that the economy might be in the wake of yet another global financial crisis, analysis could
be made to see if the airlines will be able to cope with the implications of a troubled economy once again.
Areas like cash reserves, contingency strategies and debts/ credits could be analysed to determine areas
that would need more attention in the event of an economy collapse.
Above all that, taking into account how vast the impact of the recession has been over the entire economy,
each of the main topics discussed above has the potential to make for a small piece of research individually.
Areas like fuel prices and demand could be more broadly discussed. Demand for air travel could be further
examined considering the implications of the drop in global GDP in more detail. The study could be more
analytical going into more detailed numbers regarding the will of passengers to fly before and after the crisis.
6.4 Conclusive Key Findings
The financial crisis had an impact over all sectors of the airline industry, in some cases deeply influencing the
way that airlines were usually run before. This project found out that fuel prices, air travel demand, cargo
demand, labour and airlines financing have been influenced by the crisis.
Fuel prices helped and affected airlines profitability in some cases. Lufthansa had to gain from the sharp
decrease in prices while EasyJet did not benefit from the decrease due to hedging agreements.
Labour needed to be restructured and airlines had to cut personnel or reduce the working hours in order to
cope with profits deficit.
Different financing options became available in that period which helped airlines be able to still acquire
aircraft and cope with the decreased demand without losing too much money.
In terms of the two airlines analysed, Lufthansa has been worse affected by the recession than EasyJet,
mostly because of the complexity and diversity of the operations but due to lower premium travel demand
as well.

51
EasyJet on the other hand, was able to better deal with the difficult times due to the nature of their operation
and the fact that people shifted from flag carriers which are generally more expensive to low cost carriers,
which are generally cheaper to fly with.
END

52
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Flight Global (n.d.) Lufthansa Traffic [online] available from
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COVER PHOTOS:
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<https://www.cnbc.com/2018/09/14/the-next-financial-crisis-why-it-looks-like-history-may-repeat-
itself.html> [22 April 2019]
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56
APPENDICES
Appendix 1 – CU Ethics Approval Certificate
Certificate of Ethical Approval
Applicant:
Tudor Mihailov
Project Title:
How did the Financial Crisis from 2008 impact the aviation industry, especially
Lufthansa and EasyJet
This is to certify that the above named applicant has completed the Coventry
University Ethical Approval process and their project has been confirmed and
approved as Low Risk
Date of approval:
28 February 2019
Project Reference Number:
P86055

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