Ryanair 2004 Annual Report Download - page 12

Outlook for Fiscal 2005
The company is very cautious regarding the outlook for next
year. We expect strong trafficpassenger growth of circa 20%
driven by a 16% increase in seat capacity and a 2% to 3%
increase in load factors. Current load factors are higher than
this time last year, which confirms our view that load factors
willimprove once the exceptional capacity growth of last year
returns to a more normal growth rate of approximately 20%.
We continue to expect yields to decline. With most of the seats
booked for the Summer season, the yield attrition seems to be
towards the lower end of our forecast range at -5% to -10%,
but next Winter, as many of our loss making competitors dump
prices inanattempt to survive, we expect the yield declines to
accelerate to within a range of -10% to -20%. We believe
there inevitably will be more airline casualties next Winter, a
process that has already started in recent months with the
closure of airlines in Ireland, the UK and Scandinavia.
There has clearly been much concern in recent months about
higher oil prices. We believe the growth of low fare air travel
will not be damaged or slowed by higher oil prices, which will
only hasten the demise of some of the current wave of loss
making start-ups and high fare flag carriers. The recent
decision by British Airways, Air France and KLM, among others
to impose fuel surcharges is typical of the anti-consumer
m i n d set of high fa res airlines. Wh i l st our fo re ca st fuel
re q u i re m e n ts are almost fully hedged until the end of
September 2004, we are largely unhedged thereafter. We
b e l i eve t h a t over the m e d i u m te r m p r i ces w i l l fa l l a n d
therefore it would be unwise to lock-in at the current high
rates. We anticipate that we willbeable to largely offset these
higher oil prices in this fiscal year by making cost savings in
other areas. We will not impose fuel surcharges on our
customers, and have little doubt that our traffic will continue
to thrive as a result of higher price differentials between
Ryanair’s low fares and those of our surcharging competitors.
Acquisition of Buzz
O nA p r i l1 0, 20 03 , Rya n a i rH o l d i n g sp l cp u rc h a se d ce rt a i na ssets
of K L MU K Ltd f ro mK L M Roya lD u tc hA i r l i n es fo r 20.7 m . Th es e
a s sets p r i m a r i l y co m p r i se d t h e l ea se s o n s i x Bo e i n g 737- 30 0 ’s,
fo u r BAe 1 4 6 -20 0 ’ s, u p to 1 1 0 e m p l oye es, a n d t h e t ra n s f e r of
ce rta i n l a n d i n g a n d ta ke of f s l ots a t Sta n ste d A i r p o rt. Rya n a i r
H o l d i n g s p l c h a s i n co r p o ra te d a n ew s u bs i d i a ry Bu z z Sta n ste d
Ltd a n d t hi s co m p a n y has successf u l l y o bt a i n e d a U K a i r
o p e ra to r’ s c e rt i fica te. Bu zz St a n ste d Ltd o p e ra tes t h ese a i rc ra ft
o n a co n t ra c ts u b - se rv i ce b a s i s fo r Ry a n a i r. Th e B Ae 1 4 6 -20 0 ’s
we re retu r n e d to K L M UK Ltd i n J a n u a ry 2 0 0 4 , h oweve r t h e
re n ta l s co n t i n u e d t o b ep a i du n t i lt h e e n d of t h el ea se p e r i o da t
M a rc h 3 1 , 20 0 4. Th e Bo e i n g 737-30 0 a i rc ra ft a r e o n l ea se f ro m
I n te r n a t i o n a l Lea se F i n a n ce Co r p o ra t i o n. A s a re s u l t of a n
a g re e m e n t re a c h e d o n Au g u st 6 , 20 0 4 t h ese a i rc ra ft w i l l b e
retu r n e d to I L FC b etwe e nO c to b e r1 5, 20 0 4a n dO c to b e r 31 , 20 0 4
with no ea r l y te r m i n a t i o np e n a l ty. Th ea i rc ra ft we re l ea se df ro m
I L FC a n d we re d u e to ex p i re b etwe e n 20 1 0a n d 20 1 1 .
Legal Proceedings
In February 2004 the European Commissionruledthat Ryanair
h a d re ce i ve d i l l e g a l sta te a i d f ro m t h e Wa l l o o n re g i o n a l
governmentin connectionwithits establishment of a low cost
base atBrussels (Charleroi).
Su bse q u e n t l y Rya n a i r wa s re q u e s te d by t h e re g i o n a l
government to repay all deemed illegal state aid, but in
accordance with the Commission ruling Ryanair may deduct
various costs incurred in establishing its base at Brussels
(Charleroi)fromthis amount. Ryanairhasadvisedthe regional
governmentthatitbelieves nomoney is repayableasthe cost
of establishing the base substantially exceeded the amount
determined to beillegal state aid.
Ryanair is also appealing the decision of the Eu ro p ea n
Co m m i ssion to the Eu ro p ea n Co u r t of F i r s t I n s t a n ce ,
requesting the Court to annul the decision on the basis that
Ryanair’s deal at Brussels (Charleroi) was consistent with
dealsatsimilarprivately ownedairports andtherefore didnot
constitute illegal state aid.
In July 2004, Ryanair filed proceedings in the High Court in
London forthe recovery of overcharging on fuellevies by BAA
plc, the monopoly operator of London’s three major airports.
The action relates to a fuel levy that BAA has unilaterally
imposed on Ryanair and other airlines at Stansted Airport.
Despite representations by BAAthatthefuellevy wasimposed
to re co ve r i ts o r i g i n a l c a p i ta l i nves t m e n t, a n d f u rt h e r
representations that the fuel levy would be reduced once the
capital costs had been recovered and as fuel uplift volumes
i n c rea s e, BA A h a s fa i l e d t o re d u ce t h e f u e l l ev y i n
circumstances where it has now recovered its original capital
investment some three times over and where the volumes of
fuel uplifted at Stansted Airport have increased dramatically.
Ryanairhas claimed damages and other relief against BAA for
breaches of statutory duty and abuse of dominant position
arising out of BAA’s overcharging in respect of the fuel levy
a n d BA A’s c o n t i n u i n g fa i l u re t o p rov i d e t ra n s p a re n t
informationabout thefuel levy.
BA A h a s res p o n d e d by fi l i n g a se p a ra te a c t i o n a g a i n st Rya n a i r
a l l e g i n g t h a t Ry a n a i r h a s re p u d i a te d i t s co n t ra c t w i t h BA A a n d
c l a i m i n gp ay m e n t of a i r p o rt c h a rg es w i t h h e l d by Rya n a i r. Th e se
s u m s we re w i t h h e l d by Rya n a i ra s a res u l t of, a n di n res p o n se to,
BA A’s a l l e g e d a b u ses i n re l a t i o n to the fuel l ev y. Th ea m o u n ti n
d i s p u te i n BA A’s c l a i m a g a i n st Rya n a i r i s a p p rox i m a te l y 1 . 5 m
( o r ro u g h l y 3% of t h e tot a l a e ro n a u t i ca l c h a rg es t h a t R y a n a i r
p a i d BA A) . BA Af u rt h e rc l a i m st h a ti ti sn ow n ol o n g e rb o u n d by
t h e Ag re e m e n t e n te re d i n to w i t h R ya n a i r i n re l a t i o n t o a i r p o rt
c h a rg es a n d t h a t i t ca n i n stea d c h a rg e Rya n a i r t h e p u b l i s h e d
a i r p o rt ta r i ff a s o p p ose d to the a m o u n ts p re v i o u s l y a g re e d
b et we e nt h ep a rt i es. Rya n a i rh a s denied all of BA A’ s c l a i m sa n d
h a s co u n te rc l a i m e d a g a i n st BA A fo r b rea c h of co n t ra c t,
b rea c h es of st a tu to r y d u ty, a b u se of d o m i n a n t p os i t i o n a n d
m i s re p rese n ta t i o ni n re l a t i o n to t h ef u e ll ev y.
(Continued)
Operating & Financial Review
12
A N N U A L R E P O RT & F I N A N C I A L S T A T E M E N T S 2 0 0 4