Ryanair 2011 Annual Report Download - page 44

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Ryanair Has Decided to Seasonally Ground Aircraft. In recent years, in response to an operating
environment characterized by high fuel prices, typically lower winter yields and higher airport charges and/or
taxes, Ryanair has adopted a policy of grounding a certain portion of its fleet during the winter months (from
November to March). In the winter of 2010-11, Ryanair grounded approximately 40 aircraft and the Company
announced in May 2011 that it intends to ground up to 80 aircraft during the coming winter. As a result, while
the Company still expects to grow passenger traffic during fiscal 2012 as a whole, it expects that its passenger
volumes during the winter months of 2011-12 will be lower than those recorded during the winter months of
2010-11, which could have a negative impact on its results of operations and/or financial condition.
Ryanair’s adoption of the policy of seasonally grounding aircraft presents some risks. While the
Company seeks to implement its seasonal grounding policy in a way that will allow it to avoid suffering losses
by operating flights to high cost airports at low winter yields, there can be no assurance that this strategy will be
successful. Additionally, the Company’s growth has been largely dependent on increasing capacity, and
decreasing capacity may affect the overall future growth of the Company. Further, while seasonal grounding
does reduce the Company’s variable operating costs, it does not avoid aircraft ownership costs, and it also
decreases Ryanair’s potential to earn ancillary revenues. Decreasing the number and frequency of flights may
also negatively affect the Company’s labor relations, including its ability to attract flight personnel interested in
full-time employment. 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 or generate additional revenues, 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.
The Company is Subject to Legal Proceedings Alleging State Aid at Certain Airports. Formal
investigations are ongoing by the European Commission into Ryanair’s agreements with the Lübeck,
Schönefeld, Tampere, Alghero, Pau, Aarhus and Frankfurt (Hahn) airports. The investigations seek to determine
whether the arrangements constitute illegal state aid. In addition to the European Commission investigations,
Ryanair is facing allegations that it has benefited from unlawful state aid in a number of court cases, including
in relation to its arrangements with Frankfurt (Hahn) and Lubeck airports. Adverse rulings in these matters
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 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.”