Valuation of EasyJet – a Scenario Analysis

Tom Gustav Christian Tomsson Von Segebaden Starberg & Simen Bakken Revfem

Student thesis: Master thesis


The scope of the thesis is to identify and investigate, from an investor’s point of view, the different strategic directions EasyJet can take based on the current state of the Low Cost Carrier (LCC) industry. While the Full Service Carrier (FSC) industry has matured over the last decade, characterized by high M&A activity, the LCC industry has shown strong organic growth. Lately, however, there have been signs of diminishing growth opportunities, as the M&A activity has increased. Through a valuation, the thesis has analyzed EasyJet and the European LCC market with the purpose of identifying new directions the company may take to continue its tremendous growth. The base case valuation depicts a picture of an industry characterized by fierce price competition, with little or no differentiation. Furthermore, it yielded a share price slightly lower than that of the market price, indicating a small downside. From the fundamental analysis, the thesis has identified three strategic directions for EasyJet, namely long-haul, Scandinavia and hub and spoke. Long-haul operations have historically been exclusive to the FSCs, however the LCC industry entered with Norwegian Air Shuttle’s launch of flights to Dubai in 2008. Several have followed, however EasyJet has yet to enter the market, which led to the long-haul scenario of new European-US routes. Compared to the share price of the base case, the new share price from long-haul indicates a strong upside. EasyJet has one of Europe’s strongest route network, however their presence in Scandinavia is marginal compared to peers. Previous efforts have been made to challenge Norwegian Air Shuttle and Ryanair in the region, however unsuccessful. The failure of the routes in Norway was explained by too optimistic expectations, which led the thesis to investigate a more conservative market entry approach where the focus was on the capitals. Compared to the base case share price, the new share price from the Scandinavian scenario indicates a substantial downside. The tremendous growth of the LCC industry has led the largest airlines to converge towards a business model closer to that of the FSC companies. The point-to-point route system has historically been used to distinct an LCC from an FSC. However, as LCC route networks have expanded, it is becoming increasingly similar to the traditional FSC hub and spoke system. As the two industries are gradually becoming more intertwined, lastly with the long-haul operations, the thesis has investigated the consequences of EasyJet fully applying a hub and spoke system. Compared to the base case, the new share price from the hub and spoke scenario indicates a severe downside, larger than the Scandinavian scenario. The scenarios rest upon several assumptions regarding internal and external factors. These factors will affect both the probability as well as the mere share price outcome. Thus the thesis has created an investment model, analyzing the scenario specific triggers as well as drivers for each strategic direction. The investment model is an analysis tool for an EasyJet investor.

EducationsMSc in International Business, (Graduate Programme) Final ThesisMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2016
Number of pages204