Ryanair 2012 Annual Report Download - page 42

42
RISK FACTORS
Risks Related to the Company
Changes in Fuel Costs and Fuel Availability Affect the Company’s Results and Increase the Likelihood
of Adverse Impact to the Company’s Profitability. Jet fuel costs are subject to wide fluctuations as a result of
many economic and political factors and events occurring throughout the world that Ryanair can neither control
nor accurately predict, including increases in demand, sudden disruptions in supply and other concerns about
global supply, as well as market speculation. For example, although they declined in the 2010 fiscal year, oil
prices increased substantially in fiscal years 2011 and 2012 and remain at elevated levels. As international
prices for jet fuel are denominated in U.S. dollars, Ryanair‘s fuel costs are also subject to certain exchange rate
risks. Substantial price increases, adverse exchange rates, or the unavailability of adequate supplies, including,
without limitation, any such events resulting from international terrorism, prolonged hostilities in the Middle
East or other oil-producing regions or the suspension of production by any significant producer, may adversely
affect Ryanair‘s profitability. In the event of a fuel shortage resulting from a disruption of oil imports or
otherwise, additional increases in fuel prices or a curtailment of scheduled services could result.
Ryanair has historically entered into arrangements providing for substantial protection against
fluctuations in fuel prices, generally through forward contracts covering periods of up to 18 months of
anticipated jet fuel requirements. Ryanair (like many other airlines) has, in more recent periods, entered into
hedging arrangements on a more selective basis. As of July 27, 2012, Ryanair had entered into forward jet fuel
(jet kerosene) contracts covering approximately 90% of its estimated requirements for the fiscal year ending
March 31, 2013 at prices equivalent to approximately $1,000 per metric ton. In addition, as of July 27, 2012,
Ryanair had entered into forward jet fuel (jet kerosene) contracts covering approximately 50% of its estimated
requirements for the first half of the fiscal year ending March 31, 2014 at prices equivalent to approximately
$935 per metric ton, and had not entered into any jet fuel hedging contracts with respect to its expected fuel
purchases beyond that quarter. Because of the limited nature of its hedging program, the Company is exposed to
risks arising from fluctuations in the price of fuel, and movements in the euro/U.S. dollar exchange rate,
especially in light of the recent volatility in the relevant markets. Any new increase in fuel costs could have a
material adverse effect on the Company‘s financial condition and results of operations. In addition, any
strengthening of the U.S. dollar against the euro could have an adverse effect on the cost of buying fuel in euro.
As of July 27, 2012, Ryanair had hedged 90% of its forecasted fuel-related dollar purchases against the euro at a
rate of $1.38 per euro for the period to March 31, 2013, without, however, having entered into any material
hedging arrangements with respect to periods thereafter. See ―—The Company May Not Be Successful in
Raising Fares to Offset Increased Business Costs‖ below.
No assurances whatsoever can be given about trends in fuel prices, and average fuel prices for the 2013
fiscal year or for future years may be significantly higher than current prices. Management estimates that every
$10 movement in the price of a metric ton of jet fuel will impact Ryanair‘s costs by approximately €1.0 million,
taking into account Ryanair‘s hedging program for the 2013 fiscal year. There can be no assurance, however, in
this regard, and the impact of fuel prices on Ryanair‘s operating results may be more pronounced. There also
cannot be any assurance that Ryanair‘s current or any future arrangements will be adequate to protect Ryanair
from increases in the price of fuel or that Ryanair will not incur losses due to high fuel prices alone or in
combination with other factors. See ―Item 11. Quantitative and Qualitative Disclosures About Market Risk—
Fuel Price Exposure and Hedging.‖ Because of Ryanair‘s low fares and its no-fuel-surcharges policy, as well as
the Company‘s expansion plans, which could have a negative impact on yields, its ability to pass on increased
fuel costs to passengers through increased fares or otherwise is somewhat limited. Moreover, the anticipated
expansion of Ryanair‘s fleet in 2013 will result in an increase, in absolute terms, in Ryanair‘s aggregate fuel
costs.
Based upon Ryanair‘s fuel consumption for the 2012 fiscal year, a change of $10 in the average annual
price per metric ton of jet fuel at the prevailing euro/U.S. dollar exchange rate would have caused a change of
approximately €17.0 million in the Company‘s annual fuel costs. Ryanair‘s fuel costs in the 2012 fiscal year,
after giving effect to the Company‘s fuel hedging activities, increased by approximately 30% from the
comparable period ended March 31, 2011, to €1,593.6 million, primarily due to higher market prices per metric
ton and growth of the airline. Ryanair estimates that its fuel costs would have been approximately
€1,923.9 million in the 2012 fiscal year, as compared to €1,275.1 million in the 2011 fiscal year, had Ryanair
not had any fuel hedging arrangements in place in either fiscal year.