Ryanair 2010 Annual Report Download - page 43

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The Company is Subject to Legal Proceedings Alleging State Aid at Certain Airports. In December
2002, the European Commission announced the launch of an investigation into the 2001 agreement between
Ryanair and Brussels (Charleroi) airport and the airport’s owner, the government of the Walloon Region of
Belgium. The agreement enabled the Company to launch new routes and base up to four aircraft at Brussels
(Charleroi).
In February 2004, the European Commission found that a portion of the arrangements between
Ryanair, the airport, and the region constituted illegal state aid, and therefore ordered Ryanair to repay the
amount of the benefit received in connection with those arrangements. In May 2004, Ryanair appealed the
decision of the European Commission to the European Court of First Instance (“CFI”), requesting that the
decision be annulled. The CFI heard Ryanair’s appeal in March 2008. In December 2008, the CFI annulled the
European Commission’s decision and Ryanair was repaid the 14 million that the Commission had claimed was
illegal state aid. Subsequently, the Walloon Region withdrew a separate action for 12.3 million against the
Company.
Between July 2007 and March 2008, the European Commission launched formal investigations into
Ryanair’s agreements with the Lübeck, Schönefeld, Tampere, Alghero, Pau, Aarhus and Bratislava airports.
These investigations are ongoing, with the exception of the Bratislava airport case, which concluded in January
2010 with a finding that the agreement was in full compliance with state-aid rules.
On June 17, 2008, the European Commission launched a further investigation into Ryanair’s
agreements at Frankfurt (Hahn) airport, which is a significant base for Ryanair. The European Commission
announced in a public statement that its initial investigation had found that the airport might have acted like a
private market investor but that it had insufficient evidence to reach a conclusion and therefore had elected to
open a formal investigation. The formal investigation is ongoing.
Ryanair believes that the positive decision by the CFI in the Charleroi case has caused the Commission
to rethink its policy in this area. However, adverse rulings in the Frankfurt (Hahn) or similar cases could be used
as precedents by competitors to challenge Ryanair’s agreements with other publicly owned airports and could
cause Ryanair to strongly reconsider its growth strategy in relation to public or state-owned airports across
Europe. This could in turn lead to a scaling-back of Ryanair’s overall growth strategy due to the smaller number
of privately owned airports available for development. No assurance can be given as to the outcome of legal
proceedings, nor as to whether any unfavorable outcomes may, individually or in the aggregate, have a material
adverse effect on the results of operation or financial condition of the Company. For additional information,
please see “Item 8. Financial InformationOther Financial InformationLegal Proceedings.”
The Company Faces Significant Price and Other Pressures in a Highly Competitive Environment.
Ryanair operates in a highly competitive marketplace, with a number of low-fare, traditional and charter airlines
competing throughout the route network. Airlines compete primarily with respect to fare levels, frequency and
dependability of service, name recognition, passenger amenities (such as access to frequent flyer programs), and
the availability and convenience of other passenger services. Unlike Ryanair, certain of Ryanair’s competitors
are state-owned or state-controlled flag carriers and in some cases may have greater name recognition and
resources and may have received, or may receive in the future, significant amounts of subsidies and other state
aid from their respective governments. In addition, the EU-U.S. Open Skies Agreement, which was signed in
April 2007 and entered into effect in March 2008, allows U.S. carriers to offer services in the intra-EU market,
which should eventually result in increased competition. See “Item 4. Information on the Company—
Government Regulation—Liberalization of the EU Air Transportation Market.”
The airline industry is highly susceptible to price discounting, in part because airlines incur very low
marginal costs for providing service to passengers occupying otherwise unsold seats. Both low-fare and
traditional airlines sometimes offer low fares in direct competition with Ryanair across its route network as a
result of the liberalization of the EU air transport market and greater public acceptance of the low-fares model.
Increased price competition and the resulting lower fares, combined with continuous increases in the Company’s
capacity in recent years (including an increase of approximately 12% during the 2010 fiscal year), have
combined to put downward pressure on the Company’s yields. Ryanair’s Yield per Available Seat Mile
(“YASM”) decreased by 7.6% in the 2009 fiscal year and decreased further by 12.6% in the 2010 fiscal year.