Ryanair 2016 Annual Report Download - page 59

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Ryanair’s New Routes and Expanded Operations May Have an Adverse Financial Impact on its Results.
Currently, a substantial number of carriers operate routes that compete with Ryanair, and the Company expects to face
further intense competition.
When Ryanair commences new routes, its load factors and fares tend to be lower than those on its established
routes and its advertising and other promotional costs tend to be higher, which may result in initial losses that could have
a material negative impact on Ryanair’s results of operations as well as require a substantial amount of cash to fund. In
addition, there can be no assurance that Ryanair’s low-fares service will be accepted on new routes. Ryanair also
periodically runs special promotional fare campaigns, in particular in connection with the opening of new routes.
Promotional fares may have the effect of increasing load factors and reducing Ryanair’s yield and passenger revenues on
such routes during the periods that they are in effect. Ryanair has other significant cash needs as it expands, including the
cash required to fund aircraft purchases or aircraft deposits related to the acquisition of additional Boeing 737-800 and
Boeing 737-MAX-200 series aircraft. There can be no assurance that Ryanair will have sufficient cash to make such
expenditures and investments, and to the extent Ryanair is unable to expand its route system successfully, its future revenue
and earnings growth will in turn be limited. See “—The Company Will Incur Significant Costs Acquiring New Aircraft
and Any Instability in the Credit and Capital Markets Could Negatively Impact Ryanair’s Ability to Obtain Financing on
Acceptable Terms” above.
Ryanair’s Continued Growth is Dependent on Access to Suitable Airports; Charges for Airport Access are Subject
to Increase. Airline traffic at certain European airports is regulated by a system of grandfathered “slot” allocations. Each
slot represents authorization to take-off and land at the particular airport at a specified time. As part of Ryanair’s recent
strategic initiatives, which include more flights to primary airports, Ryanair is operating to an increasing number of slot
coordinated airports, a number of which have constraints at particular times of the day. There can be no assurance that
Ryanair will be able to obtain a sufficient number of slots at slot-coordinated airports that it may wish to serve in the future,
at the time it needs them, or on acceptable terms. There can also be no assurance that its non-slot constrained bases, or the
other non-slot constrained airports Ryanair serves, will continue to operate without slot allocation restrictions in the future.
See “Item 4. Information on the Company—Government Regulation—Slots.” Airports may impose other operating
restrictions such as curfews, limits on aircraft noise levels, mandatory flight paths, runway restrictions, and limits on the
number of average daily departures. Such restrictions may limit the ability of Ryanair to provide service to or increase
service at such airports.
Ryanair’s future growth also materially depends on its ability to access suitable airports located in its targeted
geographic markets at costs that are consistent with Ryanair’s strategy. Any condition that denies, limits, or delays
Ryanair’s access to airports it serves or seeks to serve in the future would constrain Ryanair’s ability to grow. A change in
the terms of Ryanair’s access to these facilities or any increase in the relevant charges paid by Ryanair as a result of the
expiration or termination of such arrangements and Ryanair’s failure to renegotiate comparable terms or rates could have
a material adverse effect on the Company’s financial condition and results of operations. For example, in July 2012, the
Spanish government increased airport taxes at the two largest airports, Barcelona and Madrid, by over 100%, while smaller
increases were implemented at other Spanish airports. As a result, Ryanair cancelled routes and reduced capacity on
remaining routes from Madrid and Barcelona in response to the Spanish government’s decision to double airport taxes at
the two airports. The Italian government has recently increased the municipal taxes in Italy by €2.50. As a result, Ryanair
was forced to close two Italian bases. From June 2016, the Norwegian government introduced a passenger travel tax of
NOK80 (approximately €8.50) which resulted in Ryanair announcing the closure of its Oslo Rygge base with effect from
late October 2016. For additional information, see “Item 4. Information on the Company—Airport Operations—Airport
Charges.” See also “—The Company Is Subject to Legal Proceedings Alleging State Aid at Certain Airports”.
Labor Relations Could Expose the Company to Risk. A variety of factors, including, but not limited to, Ryanair’s
profitability and its seasonal grounding policy, may make it difficult for Ryanair to avoid increases to salary levels and
productivity payments. Consequently, there can be no assurance that Ryanair’s existing employee compensation
arrangements will not be subject to change or modification at any time. These steps may lead to deterioration in labor
relations in Ryanair and could impact Ryanair’s business or results. Ryanair also operates in certain jurisdictions with
above average payroll taxes and employee-related social insurance costs, which could have an impact on the availability
and cost of employees in these jurisdictions. Ryanair’s crew in continental Europe (with the exception of the U.K.)
generally operate on Irish contracts of employment as they are required to do so under Irish tax law on the basis that those
crew work mainly on Irish Territory, (i.e., on-board Irish Registered Aircraft). A number of challenges have been initiated