7BSP1245: EuroJet is a low cost no frills airline – Finance For International Business

Internal Code: MAS6253

Finance For International Business:

EuroJet is a low cost no frills airline which is registered in Ireland and listed on the Dublin Stock Exchange. The company was founded in the 1980s as a small internal airline. However, the airline had ambitious growth plans. Taking inspiration from the success of budget airlines in the USA, Eurojet restructured as a no-frills low-cost operator in the late 1980s. Very low operating costs enabled the airline to offer very low ticket prices and this not only attracted customers from the full-service legacy airlines but generated a new market of travellers who were now able to afford the low ticket prices. Consequently, EuroJet prospered and grew rapidly. A further significant impetus to growth came with the deregulation of European airspace in 1992 which gave carriers from one EU country the right to operate scheduled services between other EU
states. EuroJet is now the largest European airline in terms of seat-miles flown per annum serving some 200 destinations in Europe and North Africa with a fleet of 300 Boeing B737-800 aircraft. The carrier operates approximately 1750 routes linking city pairs with a route
structure that focusses on five main operating centres – Dublin, Stansted, Brussels, Dusseldorf and Milan. Stansted is the most important of the operating centres accounting for some 40% of EuroJet traffic.

Question:

1) Evaluate the EuroJet (UK) plc proposal from a financial perspective and advise the Board whether the project should be given approval.

2) Advise the Board on the forex risk aspects of the project. You should support your arguments with relevant theory and calculations.

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