Ryanair 2009 Annual Report Download - page 44

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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. Ryanair’s operations and
the airline industry in general are sensitive to changes in economic conditions. Unfavorable economic conditions
such as high unemployment rates, constrained credit markets and increased business operating costs lead to
reduced spending by both leisure and business passengers. Unfavorable economic conditions, including the
current recession, also tend to impact Ryanair’s ability to raise fares to counteract increased fuel and other
operating costs. Demand for European air travel weakened during the latter half of 2008 and the first half of
2009, which Ryanair believes can be primarily attributed to the crisis experienced in the worldwide credit
markets, high oil prices, and the global recession. A continued recessionary environment 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.
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
£10 per departing passenger and plans to increase it to £11 per passenger in November 2009. The tax was
previously set at £5 per passenger, but it was increased to £10 per passenger in 2007. 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 €11 on
short-haul flights to €45 on long-haul flights. On March 30, 2009, the Irish government also introduced a €10
Air Travel Tax on all passengers departing from Irish airports on routes longer than 300 kilometers. Both the
Belgian and Greek governments planned to introduce similar taxes; however, they have now cancelled plans to
introduce these taxes. The Dutch government withdrew its travel tax with effect from July 1, 2009. The
introduction of government taxes on travel, Ryanair believes, has a negative impact on passenger volumes,
particularly during a period of decreased economic activity, such as the current global recession, when
passengers’ disposable income is reduced. 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 been substantial publicity in recent
months regarding the A (H1N1) influenza virus – also known as “swine flu” – which emerged in North America
in March 2009. The Company believes that this publicity may have a negative impact on demand for air travel
in Europe. Past outbreaks of SARS, foot-and-mouth disease and avian flu have adversely impacted the travel
industries, including aviation, in certain regions of the world, including Europe. The Company believes that if
the swine flu pandemic becomes severe in Europe, its effect on demand for air travel in the markets in which
Ryanair operates could be material, and it could therefore have a significantly adverse impact on the Company.
A severe outbreak of swine flu, SARS, foot-and-mouth disease, avian flu or another pandemic or livestock-
related disease also may result in European or national authorities imposing restrictions on travel, further
damaging Ryanair’s business. A serious pandemic could therefore severely disrupt Ryanair’s business, resulting
in the cancellation or loss of bookings, and adversely affecting Ryanair’s financial condition and results of
operations.
EU Regulation on Passenger Compensation Could Significantly Increase Related Costs. The EU has
passed legislation for compensating airline passengers who have been denied boarding on a flight for which they
hold a valid ticket (Regulation (EC) No. 261 / 2004). This legislation, which came into force on February 17,
2005, imposes fixed levels of compensation to be paid to passengers in the event of cancelled flights, except
when the airline can prove that such a cancellation is caused by extraordinary circumstances, such as weather,
air-traffic control delays, or safety issues. The regulation calls for compensation of €250, €400, or €600 per
passenger, depending on the length of the flight. As Ryanair’s average flight length is less than 1,500 km – the
upper limit for short-haul flights – the amount payable is generally €250 per passenger per occurrence.
Passengers subject to long delays (in excess of two hours for short-haul flights) are also entitled to “assistance,”
including meals, drinks and telephone calls, as well as hotel accommodations if the delay extends overnight. For
delays of over five hours, the airline is also required to offer the option of a refund of the cost of the unused
ticket. This legislation has had no material financial impact on the Company to date. However, there can be no
assurance that the Company will not incur an increase in costs in the future due to the impact of this legislation,
if Ryanair experiences an increase in cancelled flights, which could occur as a result of factors beyond its
control.