Ryanair 2016 Annual Report Download - page 63

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instability associated with the influx of refugees related to the wars in Syria and Afghanistan could mean that Ryanair may
be unable to expand its operations due to lack of demand for air travel.
Risks Related to the Airline Industry
The Airline Industry Is Particularly Sensitive to Changes in Economic Conditions: A Continued Recessionary
Environment Would Negatively Impact Ryanair’s Result of Operations. Ryanair’s operations and the airline industry in
general are sensitive to changes in economic conditions. Unfavorable economic conditions such as government austerity
measures, the uncertainty relating to the Eurozone and in the U.K. following Brexit, high unemployment rates, constrained
credit markets and increased business operating costs could lead to reduced spending by both leisure and business
passengers. Unfavorable economic conditions, such as the conditions persisting as of the date hereof, also tend to impact
Ryanair’s ability to raise fares to counteract increased fuel and other operating costs. A continued recessionary
environment, combined with austerity measures by European governments and increased Brexit-related uncertainty in the
U.K., will likely negatively impact Ryanair’s operating results. It could also restrict the Company’s ability to grow
passenger volumes, secure new airports and launch new routes and bases, and could have a material adverse impact on its
financial results.
Brexit and the resulting uncertainty could adversely affect our business. In a referendum held on June 23, 2016
in the U.K. (the “Referendum”), a majority voted in favor of the U.K. leaving the EU (“Brexit”). The Referendum was
non-binding and the U.K. government has yet to make the declaration required by Article 50 of the Lisbon Treaty necessary
in order to begin the process by which the U.K. would leave the EU. If such a notification is made, negotiations would
commence to determine the future terms of the U.K.’s relationship with 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 Introduction of Government Taxes on Travel Could Damage Ryanair’s Ability to Grow and Could Have a
Material Adverse Impact on Operations. The U.K. government levies an Air Passenger Duty (“APD”) of £13 per
passenger. The tax was previously set at £5 per passenger, but it was increased to £10 per passenger in 2007, £11 in 2009,