Ryanair 2010 Annual Report Download - page 41

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RISK FACTORS
Risks Related to the Company
Changes in Fuel Costs and Fuel Availability Affect the Company’s Results and Increase the Likelihood
of Adverse Impact to the Company’s Profitability. Jet fuel costs are subject to wide fluctuations as a result of
many economic and political factors and events occurring throughout the world that Ryanair can neither control
nor accurately predict, including increases in demand, sudden disruptions in supply and other concerns about
global supply, as well as market speculation. For example, although they declined in the 2010 fiscal year, oil
prices increased substantially in fiscal years 2008 and 2009, peaking in July 2008. These increases had a
significant impact on Ryanair’s costs, and in turn, on its financial results – contributing to the net loss recorded
in the 2009 fiscal year, which reflected, among other things, a 59% increase in fuel costs between fiscal year
2008 and fiscal year 2009. As international prices for jet fuel are denominated in U.S. dollars, Ryanair’s fuel
costs are also subject to certain exchange rate risks. Substantial price increases, adverse exchange rates, or the
unavailability of adequate supplies, including, without limitation, any such events resulting from prolonged
hostilities in the Middle East or other oil-producing regions or the suspension of production by any significant
producer, may adversely affect Ryanair’s profitability. In the event of a fuel shortage resulting from a disruption
of oil imports or otherwise, additional increases in fuel prices or a curtailment of scheduled services could result.
Ryanair has historically entered into arrangements providing for substantial protection against
fluctuations in fuel prices, generally through forward contracts covering periods of up to 18 months of
anticipated jet fuel requirements. Ryanair (like many other airlines) has, in more recent periods, entered into
hedging arrangements on a more selective basis. As of July 19, 2010, Ryanair had entered into forward jet fuel
(jet kerosene) contracts covering approximately 90% of its estimated requirements for the fiscal year ending
March 31, 2011 at prices equivalent to approximately $730 per metric ton. In addition, as of July 19, 2010,
Ryanair had entered into forward jet fuel (jet kerosene) contracts covering approximately 90% of its estimated
requirements for the period from April 2011 to September 2011 at prices equivalent to approximately $755 per
metric ton. Because of the limited nature of its hedging program, the Company is exposed to risks arising from
fluctuations in the price of fuel, especially in light of the recent volatility. Any new increase in fuel costs could
have a material adverse effect on the Company’s financial condition and results of operations. In addition, the
recent strengthening of the U.S. dollar against the euro could have an adverse effect on the cost of buying fuel in
euro. As of July 19, 2010, Ryanair had hedged 88% of its forecasted fuel-related dollar purchases against the
euro at a rate of $1.38 per euro for the period to 30 June 2011, without, however, having entered into material
hedging arrangements thereafter. See “—The Company May Not Be Successful in Raising Fares to Offset
Increased Business Costs” below.
No assurances whatsoever can be given about trends in fuel prices, and average fuel prices for the 2011
fiscal year or for future years may be significantly higher than current prices. Management estimates that every
$1.00 movement in the price of a metric ton of jet fuel will impact Ryanair’s net income by approximately 12.1
million, taking into account Ryanair’s hedging program for the 2011 fiscal year. There can be no assurance,
however, in this regard, and the impact of fuel prices on Ryanair’s operating results may be more pronounced.
There also cannot be any assurance that Ryanair’s current or any future arrangements will be adequate to protect
Ryanair from increases in the price of fuel or that Ryanair will not incur losses due to high fuel prices alone or
in combination with other factors. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk—
Fuel Price Exposure and Hedging.” Because of Ryanair’s low fares and its no-fuel-surcharges policy, as well as
the Company’s expansion plans, which will tend to have a negative impact on yields, its ability to pass on
increased fuel costs to passengers through increased fares or otherwise is somewhat limited. Moreover, the
anticipated expansion of Ryanair’s fleet will result in an increase, in absolute terms, in Ryanair’s aggregate fuel
costs.