Ryanair 2016 Annual Report Download - page 56

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the EU. This would include the renegotiation, either during a transitional period or more permanently, of a number of
arrangements between the EU and the U.K. that directly impact our business. These arrangements include, inter alia,
freedom of movement between the U.K. and the EU, employment rules governing the relationship between the U.K. and
the EU, the status of the U.K. in relation to the EU’s open aviation market and the tax status of EU member state entities
operating in the U.K. Adverse changes to any of these arrangements, and even uncertainty over potential changes during
any period of negotiation, could potentially materially impact on Ryanair’s financial condition and results of operations in
the U.K. or other markets Ryanair serves.
Ryanair is exposed to Brexit-related risks and uncertainties, as approximately 28% of revenue in fiscal 2016 came
from operations in the U.K., although this was offset somewhat by 21% of our non-fuel costs in fiscal 2016 which were
related to operations in the U.K.
Brexit could also present Ryanair with a number of potential regulatory challenges. Brexit could lead to
potentially divergent national laws and regulations as the U.K. determines which EU laws to replace or replicate. It could
also require special efforts to ensure our continuing compliance with EU Regulation No. 1008/2008, which requires that
air carriers registered in EU member states be majority-owned and effectively controlled by EU nationals. If U.K. holders
of the Company’s shares are no longer designated as EU nationals, the Board of Directors may have to take action to
ensure continuing compliance with EU Regulation No. 1008/2008. For additional information, please see “Item 3 – Risks
Related to Ownership of the Company’s Ordinary Shares or ADRs”.
The Referendum has also caused, and Brexit may continue to cause, both significant volatility in global stock
markets and currency exchange rate fluctuations, as well as creating significant uncertainty among U.K. businesses and
investors. In particular, the pound sterling has lost approximately over 10% of its value against the U.S. Dollar and the
euro since the Referendum, and The Bank of England and other observers have warned of a significant probability of a
Brexit-related recession in the U.K. We earn a significant portion of our revenues in pounds sterling, and any significant
decline in the value of the pound and/or recession in the U.K. would materially impact our financial condition and results
of operations. For the remainder of fiscal 2017, taking account of timing differences between the receipt of sterling
denominated revenues and the payment of sterling denominated costs, Ryanair estimates that every 1 pence sterling
movement in the EUR/GBP exchange rate will impact income by approximately €8 million. For additional information,
please see “Item 3 – Currency Fluctuations Affect the Company’s Results”.
The Company May Not Be Successful in Increasing Fares to Cover Rising Business Costs. Ryanair operates a
low-fares airline. The success of its business model depends on its ability to control costs so as to deliver low fares while
at the same time earning a profit. Ryanair has limited control over its fuel costs and already has comparatively low operating
costs. In periods of high fuel costs, if Ryanair is unable to further reduce its other operating costs or generate additional
revenues, operating profits are likely to fall. Furthermore, as part of its change in marketing and airport strategy, the
Company will expect increased marketing and advertising costs along with higher airport charges due to the increasing
number of primary airports to which it operates. Ryanair cannot offer any assurances regarding its future profitability.
Changes in fuel costs and availability could have a material adverse impact on Ryanair’s results. See “—The Company
Faces Significant Price and Other Pressures in a Highly Competitive Environment” below and “—Changes in Fuel Costs
and Availability Affect the Company’s Results” above.
The Company is Subject to Legal Proceedings Alleging State Aid at Certain Airports. Formal investigations are
ongoing by the European Commission into Ryanair’s agreements with the Lübeck, Klagenfurt, Paris (Beauvais), La
Rochelle, Carcassonne, Cagliari, Girona and Reus and Târgu Mures airports. The investigations seek to determine whether
the agreements constitute illegal state aid under EU law. The investigations are expected to be completed in late 2016, with
the European Commission’s decisions being appealable to the EU General Court. Between 2010 and 2014, investigations
into Ryanair’s agreements with the Bratislava, Tampere, Marseille, Berlin (Schönefeld), Aarhus, Dusseldorf (Weeze),
Brussels (Charleroi), Frankfurt (Hahn), Alghero and Stockholm (Västerås) airports concluded with findings that these
agreements contained no state aid. In 2014, the European Commission announced findings of state aid to Ryanair in its
arrangements with Pau, Nimes, Angouleme, Altenburg and Zweibrücken airports, ordering Ryanair to repay a total of
approximately €10.4 million of alleged state aid. Ryanair has appealed to the EU General Court these five “aid” decisions.
These appeal proceedings are expected to take between two and four years. In addition to the European Commission
investigations, Ryanair is facing allegations that it has benefited from unlawful state aid in national court cases in relation
to its arrangements with Frankfurt (Hahn) and Lübeck airports. Adverse rulings in the above state aid matters could be