Ryanair 2009 Annual Report Download - page 36

36
Based upon Ryanair’s fuel consumption for the 2009 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 €1.1 million in the
Company’s annual fuel costs. Ryanair’s fuel costs in the 2009 fiscal year, after giving effect to the Company’s
fuel hedging activities, increased by 59% over the comparable period ended March 31, 2008, to €1,257.1
million, primarily due to the significant increase in the cost of jet fuel and an increase in the number of sectors
flown as a result of the expansion of Ryanair’s fleet and route network, offset in part by the positive impact on
fuel costs of the strengthening of the Euro against the U.S. dollar. Ryanair estimates that its fuel costs would
have been approximately €1,154.5 million in the 2009 fiscal year, as compared to €915.8 million in the 2008
fiscal year, had Ryanair not had any fuel hedging arrangements in place in either fiscal year. Fuel costs were a
significant component in the significant increase in Ryanair’s cost base during fiscal year 2009, as its Cost per
Available Seat Mile (“CASM”) increased from 0.051 Euro cents to 0.058 Euro cents, and its Break-Even Load
Factor increased from 79% to 98%.
Ryanair Has Decided to Freeze its Development in the U.K. Market and Curtail Certain U.K.
Operations. Ryanair informed its U.K.-based pilots on June 16, 2009 that it had completed a review of its U.K.
growth plans. The review was prompted by the recessionary environment in the U.K. and the impact it had had
on Ryanair’s business, coupled with the negative impact of the U.K.’s £10 Air Passenger Duty (“APD”),
described in more detail below. As a secondary issue, Ryanair also noted that the campaign conducted by the
British Airline Pilots Association (“BALPA”) for union recognition had made Ryanair’s position in the U.K.
more uncertain. See “—Risks Related to the Airline Industry—The Airline Industry Is Particularly Sensitive to
Changes in Economic Conditions; A Continued Recessionary Environment Would Negatively Impact Ryanair’s
Result of Operations” below.
As a result of the review, Ryanair announced its decision to temporarily freeze all growth at its existing
U.K. bases from June 16, 2009 onwards. Ryanair plans to review the freeze of U.K. bases at the end of 2009;
any changes in the announced policy will be dependent upon the recovery of the U.K. economy, the status of the
U.K.’s APD tourist tax and any other relevant factors (such as airport growth incentives).
Furthermore, Ryanair announced on July 21, 2009 that, as a result of the U.K. government’s £10 APD
tourist tax (as well as the planned increase in APD from £10 to £11 in November 2009) and the high costs of
operating at its London (Stansted) base, it would implement a 40% reduction in capacity at such base between
October 2009 and March 2010. In particular, the Company will reduce its London (Stansted)-based aircraft from
the current 40 to 24 during the aforementioned period. This reduction in capacity will accompany a 30%
reduction in the number of weekly Ryanair flights to and from the airport, and is expected to result in 2.5
million fewer passenger trips during the period.
The decision to freeze the Company’s development in the U.K. and reduce flights to and from London
(Stansted) presents numerous risks. In the past, the Company’s growth has been largely dependent on flights to
or from the U.K. Such flights represented 28.6% of total flights in the 2009 fiscal year. A weak U.K. economy,
along with the Company’s decision to freeze its U.K. bases, and reduce its London (Stansted) flights, may affect
the overall growth of the Company. In addition, the abovementioned measures affecting U.K.-based pilots may
affect the Company’s labor relations. 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. However, the Company currently faces an environment
of weakening economic demand – prompting fare reductions – as well as high fuel costs. 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.
Although the Company believes fare reductions are necessary in order to retain and grow its market
share, every 1% movement in average fares tends to impact Ryanair’s net income by approximately €23.5
million (based on fiscal 2009 data). As a result, Ryanair is likely to be able to generate profits only if it is able to
reduce fuel and other costs. The Company has limited control over its fuel costs and already has comparatively
low operating costs. If the Company is unable to reduce its operating costs, operating profits could fall. The
Company cannot offer any assurances regarding its future profitability.