4 Deliver low cost and maximise margins

Through this recessionary period, our superior network and competitive fares have enabled us to win market share and drive the best revenue performance of any European airline. Over the past year, we have grown the number of business passengers in spite of an overall decline in the business travel market.

Our unique revenue management system delivers transparent and simple pricing for our customers while, at the same time, enabling us to capture the maximum yield available in the market for each route. Our aim is to be significantly cheaper than our direct competitors on each route, thereby allowing us to take market share.

We see a number of opportunities to drive continued growth in ancillary revenues by introducing initiatives that add value to our customer proposition.

In-flight services continue to deliver improving revenue. The year saw wastage of fresh food halved and the introduction of new localised food and drink choices which better match the expectations of customers on different routes. For 2010, the emphasis will be on fresh food, including a key country-specific bistro offering.

We have also expanded the number of partners we work with to provide customers with services including car hire, hotel rooms, coach and rail travel and insurance. Agreements with new partners such as Mondial Assistance and Laterooms.com, together with renewed focus on long-term partnerships with companies including Europcar and Gatwick Express, will drive revenue through easyJet.com

Customers of all airlines now accept that bag charges are inevitable and during the year we increased our “first bag” charges to £9. However, we are committed to ensuring that our charges remain competitive and support a strong customer proposition. Therefore we recognise that future opportunities to increase revenue in this area may be limited.

Fuel efficiency is very important to us at easyJet. It is our largest single cost and also the most volatile. During 2009, we have made significant improvements to our fuel efficiency, saving 1.2% of all the fuel we burn. We have achieved this through the implementation of a new flight planning system, together with a focus on fuel conservation both in the air and on the ground. Due to the high number of sectors we operate each day, even a small fuel saving per flight adds up to big financial gains.

The new flight planning system optimises every flight based on route, payload, weather and fuel. It was introduced during the year, reaching full capability towards the end of the period. This means we are well positioned in 2010 to receive the full year benefit of having the system in place plus identify other areas of additional savings.

Fuel conservation in the air has been achieved through successful engagement with our flight crews on a range of initiatives to optimise operating procedures. On the ground, we have successfully reduced our reliance on auxiliary power units in favour of ground power and operated an optimised aircraft schedule.

We remain firmly committed to fuel efficiency and have a range of further initiatives in the pipeline for 2010, across all areas of our business from engineering to flight operations.

It is vital that easyJet aggressively manages its cost base so that it can continue to offer competitive fares profitably. easyJet aims to deliver at least £190 million of cost reduction initiatives by the end of financial year 2012; this will enable us to offset inflationary pressures and deliver a £1 per seat benefit to the bottom line at current exchange rates. There are clear opportunities in the following areas:

Efficient fleet management

Aircraft ownership costs on aircraft is expected to fall by £30 million per annum by the end of financial year 2012, driven by the exit of our non-core fleet of Boeing 737-700s and GB Airways aircraft.

The easyJet A320 family of aircraft are cheaper to own and operate and the fleet rationalisation programme will also remove the need for the additional Boeing-specific training that we currently carry out.

Leverage scale and recession to deliver procurement efficiencies

Safety is always our No.1 priority and we will never compromise that commitment.

In the last 12 months we have seen a successful renegotiation of our maintenance contract with SR Technics, a world-class provider. The new arrangement is for 11 years and will generate savings of around £35 million. We will also maintain our policy of leveraging our scale and buying power to challenge airports on the charges they levy and aim to deliver savings of £60 million.

Systems implementation to drive efficiency

Fuel remains a major cost. We have targeted a 3% improvement in fuel burn, some of which has already been delivered during the year under review and a further £20 million will be delivered by 2012. However, there remains room for further improvement, specifically through pilot technique and a new fuel reporting system.

We have also set ourselves a goal of a 10% improvement in crew efficiency, which will be delivered through route and crew optimisation tools and a new rostering system that goes live in the coming year. These initiatives will deliver savings of £35 million by 2012.