Ryanair 2011 Annual Report Download - page 45

43
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 a significant proportion
of 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 8% during the 2011
fiscal year) have combined to put downward pressure on the Company’s yields. Although Ryanair’s Yield per
Available Seat Mile (“YASM”) increased by approximately 3% in the 2011 fiscal year, it decreased by
approximately 13% in the 2010 fiscal year, and there can be no assurance that it will not decrease in future
periods.
Although Ryanair intends to compete vigorously and to assert its rights against any predatory pricing or
other conduct, price competition among airlines could reduce the level of fares or passenger traffic on the
Company’s routes to the point where profitability may not be achievable.
In addition to traditional competition among airline companies and charter operators who have entered
the low-fares market, the industry also faces competition from ground transportation (including high-speed rail
systems) and sea transportation alternatives, as businesses and recreational travellers seek substitutes for air
travel.
The Company Will Incur Significant Costs Acquiring New Aircraft and Any Instability in the Credit
and Capital Markets Could Negatively Impact Ryanair’s Ability to Obtain Financing on Acceptable Terms.
Ryanair’s continued growth is dependent upon its ability to acquire additional aircraft to meet additional
capacity needs and to replace older aircraft.
Ryanair expects to have 294 aircraft in its fleet by March 31, 2012. With the Company’s current orders
for aircraft it is obligated to buy (i.e., “firm” orders) under its contracts with The Boeing Company (“Boeing”),
the Company expects to increase the size of its fleet to as many as 299 Boeing 737-800 aircraft by March 2013
(assuming that planned disposals of aircraft and returns of leased aircraft are completed on schedule). For
additional information on the Company’s aircraft fleet and expansion plans, see “Item 4. Information on the
Company—Aircraft” and “Item 5. Operating and Financial Review and ProspectsLiquidity and Capital
Resources.” There can be no assurance that this planned expansion will not outpace the growth of passenger
traffic on Ryanair’s routes or that traffic growth will not prove to be greater than the expanded fleet can
accommodate. In either case, such developments could have a material adverse effect on the Company’s
business, results of operations, and financial condition.
Ryanair plans to finance its purchases of firm-order aircraft through a combination of bank loans,
operating and finance leases – including via sale-and-leaseback transactions – and cash flow generated from the
Company’s operations. As in the past, Ryanair expects much of its financing to be supported by guarantees
granted by the Export-Import Bank of the United States (“Ex-Im Bank”). Nonetheless, due to the general
deterioration in the availability of bank credit facilities in recent years, no assurance can be given that sufficient
financing will be available to Ryanair or that the terms of any such financing will be favorable. Any inability of
the Company to obtain financing for new aircraft on reasonable terms could have a material adverse effect on its
business, results of operations, and financial condition.
In addition, the financing of new and existing Boeing 737-800 aircraft has already and will continue to
significantly increase the total amount of the Company’s outstanding debt and the payments it is obliged to
make to service such debt. Furthermore, Ryanair’s ability to draw down funds under its existing bank-loan
facilities to pay for aircraft as they are delivered is subject to various conditions imposed by the counterparties
to such bank loan facilities and related loan guarantees, and any future financing is expected to be subject to
similar conditions. The Company currently has arranged a sale and leaseback transaction for five aircraft to be
delivered in the period between the date hereof and March 2012. For additional details on Ryanair’s financings,
see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
Ryanair has also entered into significant derivative transactions intended to hedge its current aircraft
acquisition-related debt obligations. These derivative transactions expose Ryanair to certain risks and could
have adverse effects on its results of operations and financial condition. See “Item 11. Quantitative and
Qualitative Disclosures About Market Risk.”