Ryanair 2010 Annual Report Download - page 46

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Ryanair’s Continued Growth is Dependent on Access to Suitable Airports; Charges for Airport Access
are Subject to Increase. Airline traffic at certain European airports is regulated by a system of grandfathered
“slot” allocations. Each slot represents authorization to take-off and land at the particular airport during a
specified time period. Although the majority of Ryanair’s bases currently have no slot allocations, traffic at a
minority of the airports Ryanair serves, including its primary bases, is currently regulated through slot
allocations. Applicable EU regulations appear to prohibit the buying or selling of slots for cash, although media
reports indicate that the buying and selling of slots may have occurred at certain airports in Europe. Regardless
of any such sales, there can be no assurance that Ryanair will be able to obtain a sufficient number of slots at
slot-controlled airports that it may wish to serve in the future, at the time it needs them, or on acceptable terms.
There can also be no assurance that its non-slot bases, or the other non-slot airports Ryanair serves, will
continue to operate without slot allocations in the future. See “Item 4. Information on the Company—
Government Regulation—Slots.” Airports may impose other operating restrictions such as curfews, limits on
aircraft noise levels, mandatory flight paths, runway restrictions, and limits on the number of average daily
departures. Such restrictions may limit the ability of Ryanair to provide service to, or increase service at, such
airports.
Ryanair’s future growth also materially depends on its ability to access suitable airports located in its
targeted geographic markets at costs that are consistent with Ryanair’s low-fares strategy. Any condition that
denies, limits, or delays Ryanair’s access to airports it serves or seeks to serve in the future would constrain
Ryanair’s ability to grow. A change in the terms of Ryanair’s access to these facilities or any increase in the
relevant charges paid by Ryanair as a result of the expiration or termination of such arrangements and Ryanair’s
failure to renegotiate comparable terms or rates could have a material adverse effect on the Company’s financial
condition and results of operations. For example, in March 2007, the discount arrangement formerly in place at
London (Stansted) airport terminated, subjecting Ryanair to an average increase in charges of approximately
100%. This increase in charges had a negative impact on yields and passenger volumes. In addition, the Dublin
Airport Authority (“DAA”) recently completed a new terminal (Terminal 2) and other infrastructure at Dublin
Airport at a cost in excess of 11.2 billion. As a result of this capital expenditure, airport fees per departing
passenger increased by 27% in May 2010, from 113.61 to 117.23, and could increase by up to 8.0% in
November 2010 to 118.64 following the opening of Terminal 2 in November 2010 and by up to a further 12.0%
in January 2011 to 120.88 in accordance with the CAR’s decision on December 4, 2009 in relation to airport
charges between 2010 and 2014. Increases in airport charges tend to lead to increased fares and have an adverse
impact on yields and passenger volumes at Dublin Airport. Ryanair has already responded to this change by
moving to reduce capacity in both summer and winter periods. However, the Aviation Appeals Panel appointed
by the Minister of Transport following a request from Ryanair ruled on June 2, 2010, that the Irish Commission
for Aviation Regulation (“CAR”) should introduce differential pricing for the use of the existing Terminal 1 and
the new Terminal 2. The CAR must decide whether to introduce such pricing by August 2, 2010. The Company
is unsure as to whether the introduction of differential pricing will reduce costs at Dublin Airport. The increase
in charges in May 2010, in combination with the introduction of the 110 Air Travel Tax described below, has
led to substantially reduced passenger volumes and a significant decline in yields on flights to and from Dublin
Airport. In June 2009, Ryanair announced that it was reducing its fleet at Dublin Airport to 17 by summer 2009,
16 by winter 2009, 15 by summer 2010 and 12 by winter 2010 (down from 22 in summer 2008 and 20 in winter
2008), as a result of rising airport charges and the introduction of an Air Travel Tax of 110 on all passengers
departing from Irish airports on routes longer than 300 kilometers. Excluding the planned reduction by winter
2010, these reductions have been carried out. See “Item 4. Information on the Company—Airport Operations—
Airport Charges.” See also “—The Company Is Subject to Legal Proceedings Alleging State Aid at Certain
Airports.”
The Company’s Acquisition of 29.8% of Aer Lingus and Subsequent Failure to Conclude a Complete
Acquisition of Aer Lingus Could Expose the Company to Risk. During the 2007 fiscal year, the Company
acquired 25.2% of Aer Lingus. The Company increased its interest to 29.3% during the 2008 fiscal year, and to
29.8% during the 2009 fiscal year at a total aggregate cost of 1407.2 million. Following the acquisition of its
initial stake and upon the approval of the Company’s shareholders, management proposed to effect a tender
offer to acquire the entire share capital of Aer Lingus. This acquisition proposal was, however, blocked by the
European Commission on competition grounds. Ryanair filed an appeal with the CFI, which was heard in July
2009. On July 6, 2010, the Court upheld the Commission’s decision. Ryanair has two months and 10 days from
such date to appeal this judgment.