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Assess whether the change in price of jet fuel between November 2015 and July 2018 may have affected easyJet plc’s management of its working capital - Edexcel - A-Level Business - Question 1 - 2022 - Paper 2
Question 1
Assess whether the change in price of jet fuel between November 2015 and July 2018 may have affected easyJet plc’s management of its working capital. Jet fuel price... show full transcript
Worked Solution & Example Answer:Assess whether the change in price of jet fuel between November 2015 and July 2018 may have affected easyJet plc’s management of its working capital - Edexcel - A-Level Business - Question 1 - 2022 - Paper 2
Step 1
Negative effects of rising jet fuel prices
Answer
The price of jet fuel rose dramatically from 97 per barrel by July 2018. This significant increase likely led to higher cash outflows for easyJet, as the airline operates a fleet of 342 aircraft, all of which require fuel. Such increased costs could have forced easyJet to reduce flights to manage fuel expenses, negatively impacting their working capital by limiting operational capabilities and inflows.
Step 2
Potential cash inflow reductions
Answer
Additionally, the rise in fuel costs may have caused easyJet to raise ticket prices to maintain profit margins. Higher ticket prices could have decreased demand for flights, further exacerbating cash flow issues, and consequently reducing easyJet's working capital.
Step 3
Counteracting strategies
Answer
However, as the seventh largest airline, easyJet might have been able to negotiate better fuel prices with suppliers, thereby managing cash outflows more effectively. Moreover, they could have implemented strategies to encourage customers to pay for flights in advance, which could have mitigated the negative effects on cash inflows.
Step 4
Assessment of overall impact
Answer
While easyJet had some strategies to counteract the impact of rising fuel prices, the substantial increase in costs likely had a significant negative impact on their working capital management due to the reliance on fuel for operations and the potential for reduced customer demand.