Ryanair 2010 Annual Report Download - page 42

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Based upon Ryanair’s fuel consumption for the 2010 fiscal year, a change of $1.00 in the average
annual price per metric ton of jet fuel would have caused a change of approximately 10.9 million in the
Company’s annual fuel costs. Ryanair’s fuel costs in the 2010 fiscal year, after giving effect to the Company’s
fuel hedging activities, decreased by 29% from the comparable period ended March 31, 2009, to 1893.9 million,
primarily due to the significant decrease in the cost of jet fuel. Ryanair estimates that its fuel costs would have
been approximately 1916.6 million in the 2010 fiscal year, as compared to 11,154.5 million in the 2009 fiscal
year, had Ryanair not had any fuel hedging arrangements in place in either fiscal year.
Ryanair Has Decided to Freeze its Development in the U.K. Market and Curtail Certain U.K.
Operations. Ryanair informed its U.K.-based pilots on June 16, 2009 that it had completed a review of its U.K.
growth plans. The review was prompted by the recessionary environment in the U.K. and the impact it had had
on Ryanair’s business, coupled with the negative impact of the U.K.’s then £10 Air Passenger Duty (“APD”),
described in more detail below. As a secondary issue, Ryanair also noted that the campaign conducted by the
British Airline Pilots Association (“BALPA”) for union recognition had made Ryanair’s position in the U.K.
more uncertain. See “—Risks Related to the Airline Industry—The Airline Industry Is Particularly Sensitive to
Changes in Economic Conditions; A Continued Recessionary Environment Would Negatively Impact Ryanair’s
Result of Operations” below.
As a result of the review, Ryanair announced its decision to temporarily freeze overall growth at its
existing U.K. bases from June 16, 2009 onwards. However, the Company may selectively increase capacity at
some U.K. airports where opportunities arise such as its launch of a new base at Leeds Bradford. Any changes
in the announced policy will be dependent upon the recovery of the U.K. economy, the status of the U.K.’s APD
tourist tax and any other relevant factors (such as airport growth incentives). Furthermore, Ryanair announced
on July 21, 2009 that, as a result of the U.K. government’s £10 APD tourist tax (as well as the then scheduled
increase in APD from £10 to £11, which occurred in November 2009) and the high costs of operating at its
London (Stansted) base, it would implement a 40% reduction in capacity at such base between October 2009
and March 2010. In particular, the Company announced its intention to reduce its London (Stansted)-based
aircraft from the then current 40 to 24 during the aforementioned period, and also reduce by 30% the number of
weekly Ryanair flights to and from the airport. The Company announced at that time that it expected these cuts
to result in 2.5 million fewer passenger trips during the period. In addition, on June 29, 2010, due to the
continuance of the U.K. government’s £11 APD tourist tax and high charges at London (Stansted) airport, the
Company announced that capacity at London (Stansted) airport would be reduced from winter 2010 by 17% and
the number of aircraft based at London (Stansted) would be reduced from 24 to 22. Ryanair also noted that, as a
result of other capacity reductions at its U.K. bases except for the bases at Edinburgh and Leeds Bradford, its
total U.K. capacity would fall by 16% in the period from November 1, 2010 to March 31, 2011.
The decision to freeze the Company’s development in the U.K. and reduce flights to and from London
(Stansted) has presented some risks. In the past, the Company’s growth has been largely dependent on flights to
or from the U.K. Such flights represented 24.1% of total flights in the 2010 fiscal year. A weak U.K. economy,
along with the Company’s decision to freeze growth at its U.K. bases (with the exception of launching a base at
Leeds Bradford), and reduce its London (Stansted) flights, may affect the overall growth of the Company. In
addition, the abovementioned measures affecting U.K.-based pilots may affect the Company’s labor relations.
Such risks could lead to negative effects on the Company’s financial condition and/or results of operations.
The Company May Not Be Successful in Reducing Business Costs to Offset Reduced Fares. Ryanair
operates a low-fares airline. The success of its business model depends on its ability to control costs so as to
deliver low fares while at the same time earning a profit. The Company has limited control over its fuel costs
and already has comparatively low other operating costs. In periods of high fuel costs, if the Company is unable
to further reduce its other operating costs, operating profits are likely to fall. The Company cannot offer any
assurances regarding its future profitability. See “—The Company Faces Significant Price and Other Pressures
in a Highly Competitive Environment” below and “—Changes in Fuel Costs and Fuel Availability Affect the
Company’s Results and Increase the Likelihood that the Company May Incur Additional Losses” above.