Ryanair 2011 Annual Report Download - page 50

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Risks Related to the Airline Industry
Volcanic Ash Emissions Could Affect the Company and Have a Material Adverse Effect on the
Company’s Results of Operations. Between April 15 and April 20, 2010 and May 4 and May 17, 2010, a
significant portion of the airspace over northern Europe was closed by authorities as a result of safety concerns
presented by emissions of ash from an Icelandic volcano. This closure forced Ryanair to cancel 9,490 flights. In
May 2011, there were further periodic closures of parts of the European airspace due to emissions of ash from
another Icelandic volcano, which resulted in the cancellation of 96 flights.
Under the terms of Regulation (EC) No. 261/2004, described below, Ryanair has certain duties to
passengers whose flights are cancelled. In particular, Ryanair is required to reimburse passengers who have had
their flights cancelled for certain reasonable, documented expenses – primarily for accommodation and food. As
of the date hereof, the Company is uncertain as to the number of claims it will receive or the amount it will have
to reimburse passengers in respect of these claims, (as there is currently no time limitation on claims specified in
the Regulation) but the Company expects that the amount will be significant. The Company estimates that the
non-recoverable fixed costs associated with the cancellations, the repositioning costs for aircraft, and other costs
associated with cancellations, as well as the aforementioned reimbursement claims for the initial 20 days of
closure of European aerospace will amount to approximately 11.5 million per day, or approximately 129 million
for such periods of closure. The Company has re-accommodated or refunded fares to approximately 1.5 million
passengers due to flight cancellations.
Volcanic emissions may happen again and could lead to further significant flight cancellation costs
which could have a material adverse impact on the Company’s financial condition and results of operations.
Furthermore, volcanic emissions (whether from current or new sources) or similar atmospheric disturbances and
resulting cancellations due to the closure of airports could also have a material adverse affect on the Company’s
financial performance indirectly, as a consequence of changes in the public’s willingness to travel within Europe
due to the risk of flight disruptions.
The Airline Industry Is Particularly Sensitive to Changes in Economic Conditions; A Continued
Recessionary Environment Would Negatively Impact Ryanair’s Result of Operations. Ryanair’s operations and
the airline industry in general are sensitive to changes in economic conditions. Unfavorable economic conditions
such as government austerity measures, high unemployment rates, constrained credit markets and increased
business operating costs lead to reduced spending by both leisure and business passengers. Unfavorable
economic conditions, such as the conditions persisting as of the date hereof, also tend to impact Ryanair’s ability
to raise fares to counteract increased fuel and other operating costs. A continued recessionary environment,
combined with austerity measures by European governments, will likely negatively impact Ryanair’s operating
results. It could also restrict the Company’s ability to grow passenger volumes, secure new airports and launch
new routes and bases, and could have a material adverse impact on its financial results. Furthermore, demand
for air travel could be impacted by emissions of volcanic ash, as noted above.
The Introduction of Government Taxes on Travel Could Damage Ryanair’s Ability to Grow and Could
Have a Material Adverse Impact on Operations. The U.K. government levies an Air Passenger Duty (APD) of
£12 per passenger. The tax was previously set at £5 per passenger, but it was increased to £10 per passenger in
2007 and £11 in 2009 and subsequently to £12 in 2010. The increase in this tax is thought to have had a negative
impact on Ryanair’s operating performance, both in terms of average fares paid and growth in passenger
volumes. In 2008, the Dutch government introduced a travel tax ranging from 111 on short-haul flights to 145
on long-haul flights (withdrawn with effect from July 1, 2009). On March 30, 2009, the Irish government also
introduced a 110 Air Travel Tax on all passengers departing from Irish airports on routes longer than 300
kilometers but subsequently reduced it to 13 on March 30, 2011.
Other governments also have introduced or may introduce similar taxes. See “Item 4. Information on
the Company—Airport Operations—Airport Charges.” The introduction of government taxes on travel has had
a negative impact on passenger volumes, particularly given the current period of decreased economic activity.
The introduction of further government taxes on travel across Europe, could have a material negative impact on
Ryanair’s results of operations as a result of price-sensitive passengers being less likely to travel.
Any Significant Outbreak of any Airborne Disease, Including Swine Flu or Foot-and-Mouth Disease,
Could Significantly Damage Ryanair’s Business. Worldwide, there has, from time to time, been substantial
publicity in recent years regarding certain potent influenza viruses and other disease epidemics. Publicity of this