Analysing and understanding UK yield curve

EASYJET

The Airline started operations on 09 April 1992 and Easy jet was launched by Stelios Haji-Loannou with two Boeing 737-200 aircraft. Easy Jet Company floated on the London stock Exchange of the FTSE 250 index on the 5th November 2000. Nowadays Easy jet 4th largest airline to Europe and this airline has 43 million passengers per year, 47% of passengers originate outside UK. Easy jet use 400 routes, 103 airports to 26 countries. Easy jet vision to be the best low fares airline in the world and however, operational excellence, safety, driving financial performance include in this vision (From Wikipedia, 2007). This company listed on the London Stock Exchange ( LSE:EZJ ) and it is a constituent of the FTSE 250 Index.

Market division and monetary instruments of the Bank of England estimates yield curves for the UK on a daily basis. However, yields in the general collateral repo market and one set is based on yields on UK government bonds so it includes real yield curves and nominal yield curves and the implied inflation term structure for the UK. Government liability nominal yield curves are derived from general collateral repo rates and UK gilt prices. The implied inflation term structure is calculated difference of instantaneous real forward real rates and instantaneous nominal forward rates. The same method used to produce the commercial bank liability curve is used for the nominal government curve and the instruments used in the construction of the commercial bank liability curve are first converted into synthetic bonds and also, yield curve indicates link with short-term, medium term, long term nominal interest rates.

Types of yield curve provided

The bank's website for the data presented, the nominal government spot interest rate n years, this mean interest rate applicable today on 'n' year no risk nominal loan. Interest rate at which an individual nominal cash flow on some next date is discounted to determine its present value and the yield can be considered as an average of single period rates to that maturity. General collateral repo rates use to estimate, irredeemable stocks, double dated stocks, index-linked stocks, variable and floating stocks are all excluded from the bank's nominal yield curve.

When share price is rise the moving average show up ward behaviours so the graph show 17 good signals and 14 sell signals for 5 years. However, Two higher strengths show in the 2007, first strengths above 700 and second strengths around 650.

Total movement = 31 (buy signals = 17 and sell signals=14, 17+14=31) Therefore, 17(good signals) / 31 (total movements) = 0.54. This mean, 50 days moving average useful for buyers because buyers can be follow this technique.

Easy jet price opened 187.75 on the January 2005 and then price closed 220.00 end of the January 2005 because Easy jet passenger numbers increased 23.8% in January. However, Easy jet earned for the 1 year to January growth by 19% to £1.16bn from £980m on a rolling basis (News, 2005). Easy jet share price closed 232.50 in February 2005 so Easy jet passengers flying with the airline in February increased and counted around 2.2m passengers during the month. When we look between August 2005 and October 2005, price was increasing approximately 20% because easy jet passenger numbers rose 16.5% to 2.743m in September and furthermore easy jet welcomed UK Government's rejection of £250m raid on travellers and this company reported pre-tax profit of £67.9m for the year to September 2005 from £62.2m a year earlier on turnover at £1.34bn compared with £1.09bn last time (News, easyJet offsets soaring oil costs, 2005). Easy jet added many new routes and bought more than 20 Airbus A319 on December 2005 for delivery 2008 and 2009 therefore the airline continued rose to the end of the decade. Easy jet carried 11.1% more passengers November 2005 so easy jet share price closed 378.00 end of the December 2005 (Sharecast, 2006).

After January 2006 share price decreased until May 2006 because pre-tax losses came at £40.3m for the 6 months to end March, compared with loss £21.6m last 2005 (sharecast, 2006) but when came to May 2006, share price started rise until end of the 2006, previously Easy jet's profit guidance for the full year was growth of 10% to 15% and Easy jet company expected pre-tax profit growth for the full year to be in the range of 40% to 50%. Revenue per seat was 17% higher for three months between April and June and passenger numbers rose by 15.6% to 2.59m with a load factor of 87.6% against 85.6% after June 2006 (sharecast, Easyjet in big profits boost, 2006). And also, passengers travelling with easy jet in August was 3.15m, rise from 2.9m from last 2005.

Easy jet share price was growing until April 2007 because Easy jet company was trying to lure more business travellers on flights to rise average ticket prices and however, Easy jet opened Madrid flight and eighteen routes available including three domestic, thirteen European and two north Africa therefore Easy jet expected to carry over 2m passengers just from Madrid in 2007 (sharecast, EasyJet passenger numbers rise, 2007). But after April 2007, price dropped 511.50 to July 2007 from 711.50 to April 2007 because the number of passengers as a proportion of the number of seats available decreased to 83.1% to 86.4% (sharecast, FTSE 250 movers: easyJet leads fall, 2007). After July 2007 , easy jet share price had reach a high end of the 2007, First reach a high August of 2007, Second reach a high October of 2007 and Third reach a high December of 2007.

When started 2008 of January, share price was 465.50 but share price dropped until June 2008 so June 2008 price was 269.75 therefore share price dropped approximately %42 just 6 months because economic crisis became to 2008 and share holders sold their company stocks. Easy Jet half year pre-tax lost widened after acquisition costs and it go on to grapple with soaring oil prices (Sharecast, easyJet losses widen, 2008). Easy Jet shares rallied sharply since July and helped in large part by the fall in the oil price. Easy Jet passengers were up by nearly 24% from the same month (August 2008) one year ago (Sharecast, Broker snap: EasyJet rally overdone, UBS says, 2008). Easy Jet share price closed 280.25 (December 2008) end of the 2008

Finally, Easy Jet share price opened 283.00 last January 2009 and rose of 2.8% on the same point last year, load factor had also growth in the month by 3.7 percentage points to 75.7% and share price closed 299.00 end of the January 2009 (Sharecast, EasyJet January volume up 2.8%, 2009). Share price growth in the February 2009 by 2.4 percentage points to 87% so share price closed 308.75 end of the February 2009. After February, Share price down 6.3% on the 3.7m it carried in the same period last year and Load factor was down 2.8% points to 84.7% in the month and then share price fluctuate until July 2009 and Share price closed 270.25 end of the Jun 2009. Easy Jet expected to make full year profit of up to £50m after rose revenue by 12% for the third quarter. Share price was maximum 379.20 last September because Easy Jet passengers up 5.3% from just under 4.2m passengers the year before and load factor was 88.1% compared by 86.9% in the same month one year earlier, made 85.5% for the rolling 12 months (sharecast N. , 2009). 30 September pre-tax profit fell to £54.7m from £110.2m the year before and total revenue during the period rose 12.9% to £2.7bn and then easy jet share price was closed 367.00 end of the November.

Bibliography

  • Bloomberg. (2009, december 09). U.K. Government Bonds. Retrieved december 09, 2009, from www.bloomberg.com: http://www.bloomberg.com/markets/rates/uk.html
  • From Wikipedia, t. f. (2007). Easyjet. Retrieved december 09, 2009, from http://en.wikipedia.org: http://en.wikipedia.org/wiki/EasyJet
  • News, S. (2005, march 07). EasyJet flies more passengers in February. Retrieved december 09, 2009, from www.share.com: http://www.share.com/cgi-bin/oicgi.exe/inet_tsc_dl2?pass=1&csi=14263&action=news&story_id=445511
  • Sharecast, N. (2008, September 10). Broker snap: EasyJet rally overdone, UBS says. Retrieved december 11, 2009, from www.share.com: http://www.share.com/cgi-bin/oicgi.exe/inet_tsc_dl2?pass=1&csi=14263&action=news&story_id=2324740
  • Sharecast, n. (2006, july 07). Easyjet in big profits boost. Retrieved december 10, 2009, from www.share.com: http://www.share.com/cgi-bin/oicgi.exe/inet_tsc_dl2?pass=1&csi=14263&action=news&story_id=748141
  • Sharecast, N. (2009, october 06). easyJet Sept passengers up 5.3%. Retrieved december 11, 2009, from www.share.com: http://www.share.com/cgi-bin/oicgi.exe/inet_tsc_dl2?pass=1&csi=14263&action=news&story_id=3045781
  • Sharecast, n. (2007, may 08). FTSE 250 movers: easyJet leads fall. Retrieved december 10, 2009, from www.share.com: http://www.share.com/cgi-bin/oicgi.exe/inet_tsc_dl2?pass=1&csi=14263&action=news&story_id=1265489
  • Yahoo, F. (2009, november 16). EASYJET (EZJ.L) Technical Analysis. Retrieved november 16, 2009, from http://uk.finance.yahoo.com: http://uk.finance.yahoo.com/q/ta?s=EZJ.L&t=5y&l=on&z=m&q=l&p=m50&a=&c=

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