Ryanair 2011 Annual Report Download - page 43

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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 2009 and 2011. These increases had a significant impact on
Ryanair’s costs, and the fiscal year 2009 increase contributed to the decline in profit before exceptional items
recorded in the 2009 fiscal year. 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
international terrorism, 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 22, 2011, Ryanair had entered into forward jet fuel
(jet kerosene) contracts covering approximately 90% of its estimated requirements for the fiscal year ending
March 31, 2012 at prices equivalent to approximately $820 per metric ton. In addition, as of July 22, 2011,
Ryanair had entered into forward jet fuel (jet kerosene) contracts covering approximately 20% of its estimated
requirements for the first quarter of the fiscal year ending March 31, 2013 at prices equivalent to approximately
$1,035 per metric ton, and had not entered into any jet fuel hedging contracts with respect to its expected fuel
purchases beyond that quarter. 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, any 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 22, 2011, Ryanair had hedged 75% of its forecasted fuel-related dollar purchases
against the euro at a rate of $1.38 per euro for the period to December 31, 2012, without, however, having
entered into any material hedging arrangements with respect to periods 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 2012
fiscal year or for future years may be significantly higher than current prices. Management estimates that every
$10.00 movement in the price of a metric ton of jet fuel will impact Ryanair’s costs by approximately
11.5 million, taking into account Ryanair’s hedging program for the 2012 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 could 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.
Based upon Ryanair’s fuel consumption for the 2011 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 11.5 million in the
Company’s annual fuel costs. Ryanair’s fuel costs in the 2011 fiscal year, after giving effect to the Company’s
fuel hedging activities, increased by approximately 37% from the comparable period ended March 31, 2010, to
11,227.0 million, primarily due to higher market prices per metric ton and growth of the airline. Ryanair
estimates that its fuel costs would have been approximately 11,275.1 million in the 2011 fiscal year, as
compared to 1916.6 million in the 2010 fiscal year, had Ryanair not had any fuel hedging arrangements in place
in either fiscal year.