The impact of seasonality and fuel costs on easyjet

easyjet shares lost 6% this week on the release of their half year results.  The airline, like most other similar airlines in Europe, always makes a loss in the winter months  due to lower levels of demand at this time of year.  What caused the shares to fall was the size of this loss – £212m compared with £21m in the previous year.  According to the BBCNews this was due to “seasonality and higher fuel costs”.

So I took a look at easyjet’s presentation to City analysts (here).  Seasonality is a feature of this business, so what has made 2016/17 so different?  At first sight (slide 5) it was incomprehensible.  When compared with 2015/16, passenger numbers were up 9% and even the load factor was slightly up by 0.5%.  However, whilst the volume of demand  had been maintained, it seems this had only been achieved by lowering price.  Revenue per seat was down by 4.9%.  But despite this (slide 6) total revenue was up 3.2%.  So it would seem that seasonality has not affected profitability at all, as it only affects revenues not costs.

So was the high loss simply due to the increased cost of fuel?  Apparently not.  Headline costs excluding fuel had gone up 18.7% (slide 6), whereas fuel costs had actually gone down 0.5%. This is not making any sense…  There are then three slides (slides 7,8 and 9) that are meant to explain this:

  • Slide 7 explains why revenue per seat was down.  This was for two reasons.  First, Easter was included in the 2015/16 period, but was outside the half year in 2016/17.  But this only accounted for less than a third of the difference.  The biggest effect was due to “underlying market conditions”.
  • Slide 8 explains “headline cost per seat bridge”.  This shows that overall these costs were “flat” (i.e. the same) in both periods, except for two things.  Fuel costs which were lower, and “P&L Fx” which were higher, and which accounted for the actual higher cost per seat.  It seems that P&L Fx is something to do with foreign exchange rate and the value of the pound against the dollar.
  • Slide 9 appears to confirm this.  But to be honest, this is where I got lost…

Another slide in the presentation caught my eye.  This outlined easijet’s key strategic goals (slide 3).  One of these was “continued investment in customer proposition and lean initiatives” (my emphasis).  Given that this airline is a low cost carrier, it’s whole business model is based around being lean already.  So this illustrates how adopting a lean approach is not just a one off activity, it is something that is put in place for the long term. Exactly what easijet’s initiatives are, is explained in slide 26.

Posted in Chap 07 Capacity and demand, Sector: Hospitality & Tourism | Tagged , , , , | Leave a comment

Remote sensing for business

The term remote sensing has two different meanings.  Three years ago I blogged about how some firms are using sensors to monitor the performance of their machinery and equipment remotely.   This is often adopted as part of their products-as-services strategy.  But a second meaning, more commonly used, is the use of satellites and other technologies to view and analyse what is happening on the surface of the earth.  Originally deployed for military and scientific purposes, digital aerial photography and satellite imaging is now being applied commercially.

In this article, Segal talks about the application of the second type of remote sensing to the business world.  One of its earliest buses was in the field of oil exploration.  But more recent remote sensing is being used by retailers and others for market analysis, site selection, market planning and change detection.  One simple example is the swimming pool cleaning company that used to go house-to-house promoting its services.  By using aerial photography, the company no longer had to go to every house, but only those that they knew already had a pool.

Posted in Chap 04 Location and design, Sector: Public Services & Charities, Sector: Retail | Tagged , | Leave a comment

Implications of AI for the travel industry

Over the next few years, consumers and employees will increasingly speak to their smart devices rather than use a key board. This has significant implications for how consumers will buy products and services and for how these products will be made and how services will be delivered.  This is exemplified by this article that looks at Google’s adoption of AI and how this will affect one specific industry – the travel sector.

In the article, Huang explores Google’s strategy and how it will be deploying artificial intelligence (AI).  She then explores the implications of this for the travel industry.  The key thing will be that consumers will not be typing in search terms on their keyboards, but be using ‘natural language’ to speak to their devices.  This is likely to make their searches more specific and hence the results they get more customised to the needs of each consumer.

Posted in Chap 10 Processes and technology, Sector: Hospitality & Tourism | Tagged , | Leave a comment

Exemplars of co-creation

Co-creation is the concept that consumers are directly involved in the devising, and sometime delivery, of new products and services.  This is something that Vision Critical are interested in.  This is because this operation “provides a cloud-based customer intelligence platform that allows companies to build engaged, secure communities of customers they can use continuously, across the enterprise, for ongoing, real-time feedback and insight”.  Hence it provides short case studies of co-creation at work (here).

The examples it presents are an interesting bunch:

  • DEWALT – this power tool manufacturer has an “insight community” of 10,000 end users which provides feedback on all aspects of its products.
  • LEGO – has on online community that can vote of new product ideas.
  • DHL – has hosted 6,000 workshops with customers devoted to NPD and continuous improvement.,
  • Manchester City F.C. – adopted a variety of approaches when developing its smart phone presence.
  • Made.com – the Made Unboxed online community decides which new furniture designs should go into production.
Posted in Chap 08 Queuing and customers, Sector: Entertainment & Sport, Sector: Manufacturing | Tagged , , | Leave a comment

Shared services at BAESystems

BAESystems is the UK’s largest defence and security company, employing 39,000 people.  It has four main operational divisions – maritime, regional aircraft, military air & information, and applied intelligence (cyber operations).  To support these, the company has a fifth division – namely its Shared Service division as explained here.

This division is responsible for a number of functions – IT delivery and support, finance back office, human resources, indirect procurement, facilities management, and air shuttle services (i.e. transportation between sites).  The advantage of this approach is that the company shares best practice, drives continuous improvement, and achieves economies of scale.

Posted in Chap 14 Operations strategy, Sector: Manufacturing | Tagged , , | Leave a comment

‘The Human Connection’ – people and design

The Chartered Institute for Ergonomics and Human Factors has a series of free to download case studies on “how ergonomics and human factors can improve lives, business and society” (here).  To give you a flavour of what these range over, here are some of the topics covered:

  • designing for delight
  • design for patient safety
  • understanding passengers
  • improving a computer user’s comfort
  • improving parcel sorting
  • and etc…
Posted in Chap 15 Lean and agile | Tagged , | Leave a comment

Category management jargon – the relevance of finger space

As I explained recently, looking at the jargon used by any group of professionals provides great insight into how they manage their operations.  So I was interested to see this glossary of terms used in category management.  Many of these terms relate to the supply chain side of this activity, but there are also many which relate to what I would call in-store merchandising.  In other words how to present products to consumers in the retail space.

To illustrate the complexity and sophistication of such merchandising, I want to focus on one particular piece of jargon – ‘finger space‘.  This is defined as ‘the distance from the top of a product to the underside of the shelf above’.  Clearly there is trade off here.  Too little finger space and the customer may be unable to take the product off the shelf.  On the other hand, too much finger space is clearly a waste of space.  Hence what we are talking about here is the management of capacity at a micro level.  Just 1 cm of uneccessary finger space on one shelf, adds up to many cubic metres of unused space across a whole supermarket.

This is largely why industry norms have emerged with regards product packaging. Cans and packets tend to come in standard sizes so that they fit on the retailers’ shelves.  Another benefit of this is that sourcing packaging is cheaper due to economies of scale.

An implication of this standardisation is that size and shape cannot be used to differentiate products from each other, which is why colour and artwork is used so much in product presentation.  There is nowhere in the modern world more colourful than a supermarket shelf – all because of finger space.

Posted in Chap 06 Materials and inventory, Sector: Retail | Tagged , , , | Leave a comment

The Spurs new stadium

Really great website that tells you all about Tottenham Hotspurs new stadium.  Scheduled to open in 2018, the White Hart Lane site currently has eight tower cranes in operation and 1,500 construction workers involved in the project.  The completed stadium will incorporate many of the features of contemporary stadium design, such as:

  • fans as close to the pitch as possible in order to create a great atmosphere
  • uninterrupted views from every seat
  • adaptable seating to allow disabled fans to sit with their friends or family members
  • multi-purpose pitch and facilities to host not only Spurs home games, but also NFL matches, other sporting fixtures, concerts, and other events.
  • contemporary food court
  • exterior public space which can also be used to host events
  • extensive retail, leisure and hospitality operations including a club museum, conference centre, and hotel.
  • a ‘sky walk’ around the top of the stadium.

Hear’s an idea of what it might look like.

Posted in Chap 04 Location and design, Chap 13 Projects and crises, Sector: Entertainment & Sport | Tagged | Leave a comment

The impact of Brexit on the UK labour market as it relates to the hospitality industry

We talk about the importance of understanding the labour market and its impact on managing employees on pages 282 to 284 of our book.  Currently the UK government’s decision to trigger Article 50 in order to leave the EU has resulted in this issue having a much higher profile.  One very good example of this is the publication today of a report* into the potential effect Brexit could have on the UK hospitality industry.

The report is 58 pages long so it is challenging to summarise in just one blog.  Here is what I found most insightful:

  • the Appendices provide an explanation of the methodology used to arrive at the report’s conclusions.  These are very helpful in explaining one of the major issues that arises from this report – namely the significant disparity between the Office for National Statistics (ONS) Labour Force Survey (LFS) data on employment in this sector, and KPMG’s own data derived from a survey of British Hospitality Association (BHA) members.  Hence the LFS estimates that 12.3% of the hospitality workforce is made up of EU nationals, whereas KPMG estimate this to be 23.7%.
  • Taking this higher figure and current levels of staff turnover and sector growth, assuming that after 2019 EU nationals will no longer be able to come to the UK to work in this sector, KPMG estimate that the industry will have a recruitment shortfall of 62,000 employees each year thereafter.
  • The UK labour market will not be able to fill this gap, as current high levels of EU nationals working in the industry illustrates.
  • the may be some improvement in productivity through automation, but this will have limited impact.
  • some local labour markets will be harder hit than others, London especially.
  • some industry sectors will be more affected, namely hotels and restaurants.

*KPMG (March 2017) ‘Labour Migration in the hospitality sector: a report by KPMG for the British Hospitality Association

Posted in Chap 11 Jobs and people, Sector: Hospitality & Tourism | Tagged , , | Leave a comment

Logistics in 2017

Always take with a pinch of salt anyone who forecasts trends for the forthcoming year.  Nonetheless it is sometimes worth looking at such forecasts, because they can tell you what is happening right now…  Here’s one CEO’s view of how logistics in the US will develop over the course of this year.   He has eleven trends, but I’ll just mention what I regard as the three most interesting.

  1. Just as Uber has transformed the taxi business, an Uber-like business model is being adopted in the trucking business.
  2. Drone delivery is being seriously looked at by major corporations.
  3. Global tracking of shipping containers, individual pallets, and in some case individual products is now viable using RFID, satellites and IoT.
Posted in Chap 05 Supply chain, Chap 06 Materials and inventory, Sector: I.T. & ecommerce, Sector: Manufacturing, Sector: Retail | Tagged , , | Leave a comment