Ryanair 2009 Annual Report Download - page 45

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EU Regulation of Emissions Trading Could Increase Costs. On November 19, 2008, the European
Council of Ministers adopted legislation to add aviation to the EU Emissions Trading Scheme with effect from
2012. This scheme, which has thus far applied mainly to energy producers, is a cap-and-trade system for CO2
emissions to encourage industries to improve their CO2 efficiency. Under the legislation, airlines will be granted
initial CO2 allowances based on historical performance and a CO2 efficiency benchmark. Any shortage of
allowances will have to be purchased in the open market and/or at government auctions. The cost and amount of
such allowances that Ryanair will have to buy in 2012 have yet to be determined. There can be no assurance that
Ryanair will be able to obtain sufficient carbon credits or that the cost of the credits will not have a material
adverse effect on the Company’s business, operating results, and financial condition.
The Company is Dependent on the Continued Acceptance of Low-fares Airlines. In past years,
accidents or other safety-related incidents involving certain low-fares airlines have had a negative impact on the
public’s acceptance of such airlines. Any adverse event potentially relating to the safety or reliability of low-
fares airlines (including accidents or negative reports from regulatory authorities) could adversely impact the
public’s perception of, and confidence in, low-fares airlines like Ryanair, and could have a material adverse
effect on the Company’s financial condition and results of operations.
The 2001 Terrorist Attacks on the United States Had a Severe Negative Impact on the International
Airline Industry. The terrorist attacks on the United States on September 11, 2001, in which four commercial
aircraft were hijacked, had a severe negative impact on the international airline industry, particularly on U.S.
carriers and carriers operating international service to and from the United States. Although carriers such as
Ryanair that operate primarily or exclusively in Europe were generally spared from such material adverse
impacts on their businesses, the cost to all commercial airlines of insurance coverage for certain third-party
liabilities arising from “acts of war” or terrorism has increased dramatically since the September 11 attacks. See
“Item 4. Information on the Company—Insurance.” In addition, Ryanair’s insurers have indicated that the scope
of the Company’s current “act of war”-related insurance may exclude certain types of catastrophic incidents,
such as certain forms of biological, chemical or “dirty bomb” attacks. This could result in the Company’s
seeking alternative coverage, including government insurance or self-insurance, which could lead to further
increases in costs. Although Ryanair to date has passed on increased insurance costs to passengers by means of a
special “insurance levy” on each ticket, there can be no assurance that it will continue to be successful in doing
so.
Because a substantial portion of airline travel (both business and personal) is discretionary and because
Ryanair is substantially dependent on discretionary air travel, any prolonged general reduction in airline
passenger traffic may adversely affect the Company. Similarly, any significant increase in expenses related to
security, insurance or related costs could have a material adverse effect on the Company. Any further terrorist
attacks in the U.S. or in Europe, particularly in London or other markets that are significant to Ryanair, any
significant military actions by the United States or EU nations (such as the current occupation of, and
insurgency in, Iraq), or any related economic downturn may have a material adverse effect on demand for air
travel and thus on Ryanair’s business, operating results, and financial condition. See also “—Risks Related to
the Company—Further Terrorist Attacks in London and Other Destinations Could Have a Detrimental Effect on
the Company.”
The Company Faces the Risk of Loss and Liability. Ryanair is exposed to potential catastrophic losses
that may be incurred in the event of an aircraft accident or terrorist incident. Any such accident or incident could
involve costs related to the repair or replacement of a damaged aircraft and its consequent temporary or
permanent loss from service. In addition, an accident or incident could result in significant legal claims against
the Company from injured passengers and others who experienced injury as a result of the accident or incident,
including ground victims. Ryanair currently maintains passenger liability insurance, employer liability
insurance, aircraft insurance for aircraft loss or damage, and other business insurance in amounts per occurrence
that are consistent with industry standards. Ryanair currently believes its insurance coverage is adequate
(although not comprehensive). However, there can be no assurance that the amount of insurance coverage will
not need to be increased, that insurance premiums will not increase significantly, or that Ryanair will not be
forced to bear substantial losses from any accidents not covered by its insurance. Airline insurance costs
increased dramatically following the September 2001 terrorist attacks on the United States. See “—The 2001
Terrorist Attacks on the United States Had a Severe Negative Impact on the International Airline Industry”
above. Substantial claims resulting from an accident in excess of related insurance coverage could have a
material adverse effect on the Company’s results of operations and financial condition. Moreover, any aircraft
accident, even if fully insured, could lead to the public perception that Ryanair’s aircraft were less safe or
reliable than those operated by other airlines, which could have a material adverse effect on Ryanair’s business.