Ryanair 2012 Annual Report Download - page 51

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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.
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. In
November 2009, the Court of Justice of the EU in the Sturgeon case decided that provisions of the legislation in
relation to compensation are not only applicable to flight cancellations but also to delays of over three hours.
However, such provisions, by their terms, do not apply to any cancellation, or any delay over three hours, in
circumstances in which the airline is able to prove that such cancellation or delay was caused by extraordinary
circumstances, such as weather, air-traffic control delays, or safety issues. The Sturgeon case was referred to the
Court of Justice of the European Union for a preliminary ruling from the High Court of Justice (England &
Wales), Queen's Bench Division (Administrative Court) on December 24, 2010. The Opinion of the Advocate
General of the European Court of Justice has reinforced the legitimacy of the Sturgeon judgment. The Opinion
is not binding on courts unless reconfirmed in the judgment which will be issued at the end of 2012. 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. There can be no assurance that the
Company will not incur a significant increase in costs in the future due to the impact of this legislation, if
Ryanair experiences a large number of cancelled flights, which could occur as a result of certain types of events
beyond its control. See ―—Risks Related to the Airline Industry—Volcanic Ash Emissions Could Affect the
Company and Have a Material Adverse Effect on the Company‘s Results of Operations.‖
EU Regulation of Emissions Trading Will Increase Costs. On November 19, 2008, the European
Council of Ministers adopted legislation to add aviation to the EU Emissions Trading Scheme (―ETS‖) with
effect from 2012. This scheme, which has thus far applied mainly to industrial companies, is a cap-and-trade
system for CO2 emissions to encourage industries to improve their CO2 efficiency. Under the legislation, airlines
are 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 of
such allowances that Ryanair will have to buy in order to cover the shortage that will arise in calendar year 2012
are estimated to be in the region of €10 million to €15 million at current market rates. The Company estimates
that the related cost in respect of calendar year 2013 could be in the region of €15 million to €25 million but
could increase significantly over the coming years depending on the costs of carbon credits and the Company‘s
future decisions on growth. 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.
Volcanic Ash Emissions Could Affect the Company and Have a Material Adverse Effect on the
Company’s Results of Operations. Between April 15 and April 20, 2010 and May 4 and May 17, 2010, a
significant portion of the airspace over northern Europe was closed by authorities as a result of safety concerns
presented by emissions of ash from an Icelandic volcano. This closure forced Ryanair to cancel 9,490 flights. In
May 2011, there were further periodic closures of parts of the European airspace due to emissions of ash from
another Icelandic volcano, which resulted in the cancellation of 96 flights.
Under the terms of Regulation (EC) No. 261/2004, described above, Ryanair has certain duties to
passengers whose flights are cancelled. In particular, Ryanair is required to reimburse passengers who have had
their flights cancelled for certain reasonable, documented expenses – primarily for accommodation and food. As
of the date hereof, the Company is uncertain as to the number of claims it will receive or the amount it will have
to reimburse passengers in respect of these claims, (as there is currently no time limitation on claims specified in
the Regulation) but the Company expects that the amount will not be significant. The Company to date
estimates that the non-recoverable fixed costs associated with the cancellations, the repositioning costs for
aircraft, and other costs associated with cancellations, as well as the aforementioned reimbursement claims for
the initial 20 days of closure of European aerospace will amount to approximately €29 million for such periods
of closure. The Company has re-accommodated or refunded fares to approximately 1.5 million passengers due
to flight cancellations.