Ryanair 2009 Annual Report Download - page 46

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EU Regulation No. 2027 / 97, as amended by Regulation No. 889 / 2002, governs air carrier liability.
See “Item 4. Information on the Company—Insurance” for details of this regulation. This regulation increased
the potential liability exposure of air carriers such as Ryanair. Although Ryanair has extended its liability
insurance to meet the requirements of the regulation, no assurance can be given that other laws, regulations, or
policies will not be applied, modified or amended in a manner that has a material adverse effect on Ryanair’s
business, operating results, and financial condition.
Airline Industry Margins are Subject to Significant Uncertainty. The airline industry is characterized
by high fixed costs and by revenues that generally exhibit substantially greater elasticity than costs. Although
fuel accounted for 43.8% of total operating expenses (excluding de-icing costs) in the 2009 fiscal year,
management anticipates that this percentage may vary significantly in future years. See “—Changes in Fuel
Costs and Fuel Availability Affect the Company’s Results and Increase the Likelihood that the Company May
Incur Losses” above. The operating costs of each flight do not vary significantly with the number of passengers
flown, and therefore, a relatively small change in the number of passengers, fare pricing, or traffic mix could
have a disproportionate effect on operating and financial results. Accordingly, a relatively minor shortfall from
expected revenue levels could have a material adverse effect on the Company’s growth or financial
performance. See “Item 5. Operating and Financial Review and Prospects.” The very low marginal costs
incurred for providing services to passengers occupying otherwise unsold seats are also a factor in the industry’s
high susceptibility to price discounting. See “—The Company Faces Significant Price and Other Pressures in a
Highly Competitive Environment” above.
Safety-Related Undertakings Could Affect the Company’s Results. Aviation authorities in Europe and
the United States periodically require or suggest that airlines implement certain safety-related procedures on
their aircraft. In recent years, the U.S. Federal Aviation Administration (the “FAA”) has required a number of
such procedures with regard to Boeing 737 aircraft, including checks of rear pressure bulkheads and flight
control modules, redesign of the rudder control system, and limitations on certain operating procedures.
Ryanair’s policy is to implement any such required procedures in accordance with FAA guidance and to
perform such procedures in close collaboration with Boeing. To date, all such procedures have been conducted
as part of Ryanair’s standard maintenance program and have not interrupted flight schedules nor required any
material increases in Ryanair’s maintenance expenses. However, there can be no assurance that the FAA or
other regulatory authorities will not recommend or require other safety-related undertakings or that such
undertakings would not adversely impact the Company’s operating results or financial condition.
There also can be no assurance that new regulations will not be implemented in the future that would
apply to Ryanair’s aircraft and result in an increase in Ryanair’s cost of maintenance or other costs beyond
management’s current estimates. In addition, should Ryanair’s aircraft cease to be sufficiently reliable or should
any public perception develop that Ryanair’s aircraft are less than completely reliable, the Company’s business
could be materially adversely affected.
Currency Fluctuations Affect the Company’s Results. Although the Company is headquartered in
Ireland, a significant portion of its operations is conducted in the U.K. Consequently, the Company has
significant operating revenues and operating expenses, as well as assets and liabilities, denominated in U.K.
pounds sterling. In addition, fuel, aircraft, insurance, and some maintenance obligations are denominated in U.S.
dollars. The Company’s results of operations and financial condition can therefore be significantly affected by
fluctuations in the respective values of the U.K. pound sterling and the U.S. dollar. Ryanair is particularly
subject to direct exchange rate risks between the Euro and the U.S. dollar because a significant portion of its
operating costs are incurred in U.S. dollars and none of its revenues are denominated in U.S. dollars. Although
the Company engages in foreign currency hedging transactions between the Euro and the U.S. dollar, between
the Euro and the U.K. pound sterling, and between the U.K. pound sterling and the U.S. dollar, hedging
activities cannot be expected to eliminate currency risks. See “Item 11. Quantitative and Qualitative Discussion
About Market Risk.”