REG - Ryanair Holdings PLC - Annual Financial Report <Origin Href="QuoteRef">RYA.I</Origin> - Part 3
06/09/2014 22:39
- Part 3: For the preceding part double click ID:nRSd7552Nb
rely on a number of assumptions concerning future events and are subject to a number of uncertainties and other
factors, many of which are outside the Company's control, that could cause actual results to differ materially from such
statements. It is not reasonably possible to itemize all of the many factors and specific events that could affect the
outlook and results of an airline operating in the European economy. Among the factors that are subject to change and could
significantly impact Ryanair's expected results are the airline pricing environment, fuel costs, competition from new and
existing carriers, market prices for replacement aircraft and aircraft maintenance services, aircraft availability, costs
associated with environmental, safety and security measures, terrorist attacks, actions of the Irish, U.K., EU and other
governments and their respective regulatory agencies, fluctuations in currency exchange rates and interest rates, changes
to the structure of the euro, airport handling and access charges, litigation, labor relations, the economic environment of
the airline industry, the general economic environment in Ireland, the U.K. and elsewhere in Europe, the general
willingness of passengers to travel, flight interruptions caused by volcanic ash emissions or other atmospheric
disruptions, factors affecting the value of Ryanair's investment in Aer Lingus Group plc and other factors discussed
herein. The Company disclaims any obligation to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
TABLE OF CONTENTS
Page
PART I
Item 1. Identity of Directors, Senior Management and
Advisers......................................................................... 41
Item 2. Offer Statistics and Expected
Timetable...................................................................................................... 41
Item 3. Key
Information..............................................................................................................................................
41
The
Company..................................................................................................................................................
41
Selected Financial
Data..................................................................................................................................
42
Exchange
Rates...............................................................................................................................................
44
Selected Operating and Other
Data.............................................................................................................. 46
Risk
Factors.....................................................................................................................................................
47
Item 4. Information on the
Company........................................................................................................................
63
ntroduction.....................................................................................................................................................
63
trategy............................................................................................................................................................
64
Route System, Scheduling and
Fares.......................................................................................................... 68
Marketing and
Advertising...........................................................................................................................
69
Reservations on
Ryanair.Com.......................................................................................................................
69
ircraft..............................................................................................................................................................
70
Ancillary
Services...........................................................................................................................................
71
Maintenance and
Repairs..............................................................................................................................
72
Safety
Record..................................................................................................................................................
73
Airport
Operations..........................................................................................................................................
74
uel....................................................................................................................................................................
76
nsurance..........................................................................................................................................................
77
acilities............................................................................................................................................................
78
rademarks.......................................................................................................................................................
79
Government
Regulation.................................................................................................................................
80
Description of
Property..................................................................................................................................
86
Item 4A. Unresolved Staff
Comments..........................................................................................................................
86
Item 5. Operating and Financial Review and
Prospects......................................................................................... 86
istory..............................................................................................................................................................
86
Business
Overview.........................................................................................................................................
87
Recent Operating
Results..............................................................................................................................
90
Critical Accounting
Policies..........................................................................................................................
91
Results of
Operations.....................................................................................................................................
93
Fiscal Year 2014 Compared with Fiscal Year
2013...................................................................................... 93
Fiscal Year 2013 Compared with Fiscal Year
2012...................................................................................... 96
Seasonal
Fluctuations....................................................................................................................................
99
Recently Issued Accounting
Standards..................................................................................................... 99
Liquidity and Capital
Resources.................................................................................................................
100
Off-Balance Sheet
Transactions.................................................................................................................
105
Trend
Information.........................................................................................................................................
105
nflation..........................................................................................................................................................
105
Item 6. Directors, Senior Management and
Employees....................................................................................... 106
irectors.........................................................................................................................................................
106
Executive
Officers.........................................................................................................................................
111
Compensation of Directors and Executive
Officers................................................................................. 112
Staff and Labor
Relations............................................................................................................................
112
Item 7. Major Shareholders and Related Party
Transactions.............................................................................. 114
Major
Shareholders......................................................................................................................................
114
Related Party
Transactions.........................................................................................................................
115
Item 8. Financial
Information....................................................................................................................................
115
Consolidated Financial
Statements............................................................................................................ 115
Other Financial
Information.........................................................................................................................
115
Significant
Changes......................................................................................................................................
122
Item 9. The Offer and
Listing...................................................................................................................................
122
Trading Markets and Share
Prices............................................................................................................. 122
Item 10. Additional
Information.................................................................................................................................
125
Description of Capital
Stock........................................................................................................................
125
Options to Purchase Securities from Registrant or Subsidiaries...........................................................
125
Articles of
Association................................................................................................................................
126
Material
Contracts........................................................................................................................................
127
Exchange
Controls........................................................................................................................................
127
Limitations On Share Ownership By Non-EU Nationals.........................................................................
128
axation..........................................................................................................................................................
131
Documents on
Display.................................................................................................................................
135
Item 11. Quantitative and Qualitative Disclosures About Market
Risk.............................................................. 136
eneral............................................................................................................................................................
136
Fuel Price Exposure and
Hedging............................................................................................................... 136
Foreign Currency Exposure and
Hedging................................................................................................. 137
Interest Rate Exposure and
Hedging......................................................................................................... 139
Item 12. Description of Securities Other than Equity
Securities........................................................................... 140
PART II
Item 13. Defaults, Dividend Arrearages and
Delinquencies................................................................................. 141
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds................................ 141
Item 15. Controls and
Procedures.............................................................................................................................
141
Disclosure Controls and
Procedures......................................................................................................... 141
Management's Annual Report on Internal Control Over Financial Reporting................................... 142
Changes in Internal Control Over Financial
Reporting........................................................................... 143
Item 16.
Reserved.........................................................................................................................................................
143
Item 16A. Audit Committee Financial
Expert.............................................................................................................. 143
Item 16B. Code of
Ethics...............................................................................................................................................
143
Item 16C. Principal Accountant Fees and
Services................................................................................................... 143
Item 16D. Exemptions from the Listing Standards for Audit
Committees.............................................................. 144
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers............................................. 144
Item 16F. Change in Registrant's Certified
Accountant.......................................................................................... 144
Item 16G. Corporate
Governance.................................................................................................................................
144
Item 16H. Mine Safety
Disclosure................................................................................................................................
144
PART III
Item 17. Financial
Statements.....................................................................................................................................
145
Item 18. Financial
Statements.....................................................................................................................................
145
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
THE COMPANY
Ryanair operates an ultra-low cost, scheduled airline serving short-haul, point-to-point routes largely in Europe from its
69 bases in airports across Europe, which together are referred to as "Ryanair's bases of operations" or "Ryanair's bases."
For a list of these bases, see "Item 4. Information on the Company-Route System, Scheduling and Fares." Ryanair pioneered
the low-fares operating model in Europe in the early 1990s. As of June 30, 2014, the Company offered over 1,600 scheduled
short-haul flights per day serving approximately 186 airports largely throughout Europe, with a principal fleet of 297
Boeing 737-800 aircraft and 5 additional leased aircraft acquired on short term leases for the summer of 2014 to provide
extra capacity flying approximately 1,600 routes. The Company also holds a 29.8% interest in Aer Lingus Group plc ("Aer
Lingus"), which it has acquired through market purchases following Aer Lingus' partial privatization in 2006. Ryanair's
attempts to acquire the entire share capital of Aer Lingus have been blocked by the European authorities, with the latest
ruling currently under appeal by Ryanair. For additional information, see "Item 8. Financial Information-Other Financial
Information-Legal Proceedings-Matters Related to Investment in Aer Lingus." A detailed description of the Company's
business can be found in "Item 4. Information on the Company."
SELECTED FINANCIAL DATA
The following tables set forth certain of the Company's selected consolidated financial information as of and for the
periods indicated, financial information presented in euro in the table below has been derived from the consolidated
financial statements that are prepared in accordance with IFRS. The financial information for fiscal 2014 has been
translated from euro to US$ using the Federal Reserve Rate on March 31, 2014. This information should be read in
conjunction with: (i) the audited consolidated financial statements of the Company and related notes thereto included in
Item 18 and (ii) "Item 5. Operating and Financial Review and Prospects."
Income Statement Data:
Fiscal year ended March 31,
2014(a) 2014 2013 2012 2011 2010
(in millions, except per-Ordinary Share data)
Total operating revenues................. $6,939.1 E5,036.7 E4,884.0 E4,390.2 E3,629.5 E2,988.1
Total operating expenses................. $(6,031.7) E(4,378.1) E(4,165.8) E(3,707.0) E(3,141.3) E(2,586.0)
Operating income............................... $907.4 E658.6 E718.2 E683.2 E488.2 E402.1
Net interest (expense)....................... $(91.9) E(66.7) E(71.9) E(64.9) E(66.7) E(48.6)
Other non-operating (expense) income............................................. $(0.7) E(0.5) E4.6 E14.7 E(0.6) E(12.5)
Profit before taxation......................... $814.8 E591.4 E650.9 E633.0 E420.9 E341.0
Tax expense on profit on ordinary activities.......................................... $(94.5) E(68.6) E(81.6) E(72.6) E(46.3) E(35.7)
Profit after taxation............................ $720.3 E522.8 E569.3 E560.4 E374.6 E305.3
Ryanair Holdings basic earnings per Ordinary Share (U.S. cents)/(euro cent).......................... $50.92 E36.96 E39.45 E38.03 E25.21 E20.68
Ryanair Holdings diluted earnings per Ordinary Share (U.S. cents)/(euro cent).......................... $50.78 E36.86 E39.33 E37.94 E25.14 E20.60
Ryanair Holdings dividend paid per Ordinary Share (U.S. cents)/(euro cent)................................................. n/a n/a E34.00 n/a E33.57 n/a
E20.68
Ryanair Holdings diluted earnings per Ordinary Share (U.S. cents)/(euro cent)..........................
$50.78
E36.86
E39.33
E37.94
E25.14
E20.60
Ryanair Holdings dividend paid per Ordinary Share (U.S. cents)/(euro
cent).................................................
n/a
n/a
E34.00
n/a
E33.57
n/a
Balance Sheet Data:
As of March 31,
2014(a) 2014 2013 2012 2011 2010
(in millions)
Cash and cash equivalents................ $2,383.6 E1,730.1 E1,240.9 E2,708.3 E2,028.3 E1,477.9
Total assets.......................................... $12,140.4 E8,812.1 E8,943.0 E9,001.0 E8,596.0 E7,563.4
Long-term debt, including capital lease obligations............................. $4,248.3 E3,083.6 E3,498.3 E3,625.2 E3,649.4 E2,956.2
Shareholders' equity.......................... $4,526.8 E3,285.8 E3,272.6 E3,306.7 E2,953.9 E2,848.6
Issued share capital............................ $12.1 E8.8 E9.2 E9.3 E9.5 E9.4
Weighted Average Number of Ordinary Shares............................... 1,414.6 1,414.6 1,443.1 1,473.7 1,485.7 1,476.4
1,443.1
1,473.7
1,485.7
1,476.4
Cash Flow Statement Data:
Fiscal year ended March 31,
2014(a) 2014 2013 2012 2011 2010
(in millions)
Net cash inflow from operating activities $1,439.1 E1,044.6 E1,023.5 E1,020.3 E786.3 E871.5
Net cash inflow/(outflow) from investing activities................................................... $414.3 E300.7 E(1,821.5) E(185.4) E(474.0) E(1,549.1)
Net cash (outflow)/inflow from financing activities................................................... $(1,179.4) E(856.1) E(669.4) E(154.9) E238.1 E572.3
Increase/(decrease) in cash and cash equivalents............................................... $674.0 E489.2 E(1,467.4) E680.0 E550.4 E(105.3)
E(1,467.4)
E680.0
E550.4
E(105.3)
______________
(a) Dollar amounts are initially measured in euro in accordance with IFRS and then translated to U.S. $ solely for
convenience at the Federal Reserve Rate on March 31, 2014, of E1.00 = $1.3777 or $1.00 = E0.7258.
EXCHANGE RATES
The following table sets forth, for the periods indicated, certain information concerning the exchange rate between: (i)
the U.S. dollar and the euro; (ii) the U.K. pound sterling and the euro; and (iii) the U.K. pound sterling and the U.S.
dollar. Such rates are provided solely for the convenience of the reader and are not necessarily the rates used by the
Company in the preparation of its consolidated financial statements included in Item 18. No representation is made that any
of such currencies could have been, or could be, converted into any other of such currencies at such rates or at any other
rate.
U.S. dollars per E1.00(a)
Year ended December 31, End of Period Average (b) Low High
2009......................................................................................................... 1.433 1.394 - -
2010......................................................................................................... 1.336 1.326 - -
2011......................................................................................................... 1.296 1.392 - -
2012......................................................................................................... 1.319 1.291 - -
2013......................................................................................................... 1.378 1.328 - -
Month ended
January 31, 2014.................................................................................... - - 1.350 1.368
February 28, 2014.................................................................................. - - 1.351 1.381
March 31, 2014...................................................................................... - - 1.373 1.393
April 30, 2014......................................................................................... - - 1.370 1.390
May 31, 2014.......................................................................................... - - 1.360 1.392
June 30, 2014.......................................................................................... - - 1.353 1.369
Period ended July 18, 2014.................................................................. - - 1.352 1.367
U.K. pounds sterling per E1.00(c)
Year ended December 31, End of Period Average (b) Low High
2009......................................................................................................... 0.887 0.891 - -
2010......................................................................................................... 0.857 0.858 - -
2011......................................................................................................... 0.836 0.868 - -
2012......................................................................................................... 0.811 0.811 - -
2013......................................................................................................... 0.830 0.849 - -
Month ended
January 31, 2014.................................................................................... - - 0.817 0.834
February 28, 2014.................................................................................. - - 0.818 0.833
March 31, 2014...................................................................................... - - 0.821 0.840
April 30, 2014......................................................................................... - - 0.820 0.830
May 31, 2014.......................................................................................... - - 0.809 0.822
June 30, 2014.......................................................................................... - - 0.798 0.814
Period ended July 18, 2014.................................................................. - - 0.789 0.798
U.K. pounds sterling per U.S.$1.00(d)
Year ended December 31, End of Period Average (b) Low High
2009......................................................................................................... 0.627 0.641 - -
2010......................................................................................................... 0.641 0.647 - -
2011......................................................................................................... 0.645 0.624 - -
2012......................................................................................................... 0.615 0.628 - -
2013......................................................................................................... 0.603 0.639 - -
Month ended
January 31, 2014.................................................................................... - - 0.602 0.612
February 28, 2014.................................................................................. - - 0.597 0.613
March 31, 2014...................................................................................... - - 0.597 0.606
April 30, 2014......................................................................................... - - 0.592 0.603
May 31, 2014.......................................................................................... - - 0.589 0.598
June 30, 2014.......................................................................................... - - 0.584 0.598
Period ended July 18, 2014.................................................................. - - 0.582 0.585
0.582
0.585
______________
(a) Based on the Federal Reserve Rate for euro.
(b) The average of the relevant exchange rates on the last business day of each month during the relevant period.
(c) Based on the composite exchange rate as quoted at 5 p.m., New York time, by Bloomberg/Reuters.
(d) Based on the Federal Reserve Rate for U.K. pound sterling.
As of July 18, 2014, the exchange rate between the U.S. dollar and the euro was E1.00 = $1.3524, or $1.00 = E0.7394; the
exchange rate between the U.K. pound sterling and the euro was U.K. £1.00 = E1.2642, or E1.00 = U.K. £0.7910; and the
exchange rate between the U.K. pound sterling and the U.S. dollar was U.K. £1.00 = $1.7086, or $1.00 = U.K. £0.5852. For a
discussion of the impact of exchange rate fluctuations on the Company's results of operations, see "Item 11. Quantitative
and Qualitative Disclosures About Market Risk."
SELECTED OPERATING AND OTHER DATA
The following tables set forth certain operating data of Ryanair for each of the fiscal years shown. Such data are derived
from the Company's consolidated financial statements prepared in accordance with IFRS and certain other data, and are not
audited. For definitions of the terms used in this table, see the Glossary in Appendix A.
Fiscal Year ended March 31,
Operating Data: 2014 2013 2012 2011 2010
Average Yield per Revenue Passenger Mile ("RPM") (E). 0.059 0.064 0.059 0.053 0.052
Average Yield per Available Seat Miles ("ASM") (E)......... 0.049 0.052 0.048 0.045 0.043
Average Fuel Cost per U.S. Gallon (E).................................. 2.453 2.381 2.075 1.756 1.515
Cost per ASM ("CASM") (E)... 0.055 0.056 0.051 0.049 0.047
Operating Margin...................... 13% 15% 14% 14% 13%
Break-even Load Factor............ 72% 70% 70% 72% 73%
Average Booked Passenger Fare (E)..................................... 46.40 48.20 45.36 39.24 34.95
Cost Per Booked Passenger (E)................................................... 53.61 52.56 48.90 43.59 38.88
Ancillary Revenue per Booked Passenger (E)........................... ................................................... 15.27 13.43 11.69 11.12 9.98
Fiscal Year ended March 31,
Other Data: 2014 2013 2012 2011 2010
Revenue Passengers Booked................................ 81,668,285 79,256,253 75,814,551 72,062,659 66,503,999
Revenue Passenger Miles... 64,470,425,471 59,865,600,628 58,584,451,085 53,256,894,035 44,841,072,500
Available Seat Miles............. 77,916,511,414 72,829,956,243 71,139,686,423 63,358,255,401 53,469,635,740
Booked Passenger Load Factor................................... 83% 82% 82% 83% 82%
Average Length of Passenger Haul (miles)...... 788 754 771 727 661
Sectors Flown........................ 524,765 512,765 489,759 463,460 427,900
Number of Airports Served at Period End...................... 186 167 159 158 153
Average Daily Flight Hour Utilization (hours).............. 8.81 8.24 8.47 8.36 8.89
Staff at Period End................ 8,992 9,137 8,388 8,560 7,168
Staff per Aircraft at Period End ...................................... 30 30 30 31 31
Booked Passengers per Staff at Period End............. 9,082 8,674 9,038 8,418 9,253
______________
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.
Oil prices increased substantially in fiscal years 2012, 2013 and 2014 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 fuel supplies, including, without
limitation, any such events resulting from international terrorism, prolonged hostilities in Ukraine or 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. As of
July 25, 2014, Ryanair had entered into forward jet fuel (jet kerosene) contracts covering approximately 90% of its
estimated requirements for the fiscal year ending March 31, 2015 at prices equivalent to approximately $950 per metric ton.
In addition, as of July 25, 2014, Ryanair had entered into forward jet fuel (jet kerosene) contracts covering approximately
55% of its estimated requirements for the first half of the fiscal year ending March 31, 2016 at prices equivalent to
approximately $950 per metric ton. Ryanair is exposed to risks arising from fluctuations in the price of fuel, and
movements in the euro/U.S. dollar exchange rate because of the limited nature of its hedging program, especially in light
of the recent volatility in the relevant currency and commodity markets. Any further increase in fuel costs could have a
material adverse effect on Ryanair's financial performance. 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 25, 2014, Ryanair had hedged approximately
90% of its forecasted fuel-related dollar purchases against the euro at a rate of approximately $1.34 per euro for the
fiscal year ending March 31, 2015 and approximately 50% of its forecasted fuel related dollar purchases against the euro at
a rate of approximately $1.37 per euro for the first 6 months of the fiscal year ending March 31, 2016.
No assurances whatsoever can be given about trends in fuel prices, and average fuel prices 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 E2 million, taking into account Ryanair's hedging programme for the 2015
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, or less, 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, either alone or in combination with other factors. Because of Ryanair's low fares and its
no-fuel-surcharges policy, as well as Ryanair'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 from September 2014 onwards will likely result in an increase, in absolute terms,
in Ryanair's aggregate fuel costs.
Ryanair Has Decided to Seasonally Ground Aircraft. In recent years, in response to an operating environment characterized
by high fuel prices, typically lower winter traffic and yields and higher airport charges and/or taxes, Ryanair has adopted
a policy of grounding a certain portion of its fleet during the winter months (from November to March). In the winter of
fiscal year 2014, Ryanair grounded approximately 70 aircraft and the Company intends to again ground approximately 50
aircraft in the coming winter. Ryanair's adoption of the policy of seasonally grounding aircraft presents some risks. While
Ryanair seeks to implement its seasonal grounding policy in a way that will allow it to reduce losses by operating flights
during periods of high oil prices to high cost airports at low winter yields, there can be no assurance that this strategy
will be successful.
Additionally, Ryanair's growth has been largely dependent on increasing summer capacity, and decreasing winter capacity,
which may affect the overall future growth of Ryanair. Further, while seasonal grounding does reduce Ryanair's variable
operating costs, it does not avoid fixed costs such as aircraft ownership costs, and it also decreases Ryanair's potential
to earn ancillary revenues. Decreasing the number and frequency of flights may also negatively affect Ryanair's labor
relations, including its ability to attract flight personnel only interested in year round employment. Such risks could
lead to negative effects on Ryanair's financial condition and/or results of operations.
Ryanair May Not Achieve All of the Expected Benefits of its Recent Strategic Initiatives. Ryanair is in the process of
implementing a series of strategic initiatives that are expected to have a significant impact on its business. Among other
things, these initiatives include scheduling more flights to primary airports, selling flights via corporate travel agents
on global distribution systems ("GDS"), increasing marketing spending significantly, and adjusting the airline's yield
management strategy with the goal of increasing load factors. Ryanair has also announced a series of customer-experience
related initiatives, including a new, easier-to-navigate website with a fare finder facility, reduced penalty fees, more
customer-friendly baggage allowances, 24 hour grace periods to correct minor booking errors and the introduction of
allocated seating. For additional information on these initiatives, see "Strategy". Although customer reaction to the
measures has, so far, been positive and management expects these initiatives to be accretive to the Company's results over
time, no assurance can be given that the financial impact of the initiatives will be positive, particularly in the short to
medium term. In particular, certain of the strategic initiatives may have the effect of increasing certain of the Company's
costs (including airport fees and marketing expenses), while reducing ancillary revenues previously earned from website
sales and from various penalty fees and charges. Although the Company expects that revenues from allocated seating will
offset the reduction in ancillary revenues, there can be no assurance that this will occur. Factors beyond Ryanair's
control, including but not limited to customer acceptance, competitive reactions, market and economic conditions and other
challenges described in this report could limit Ryanair's ability to achieve some or all of the expected benefits of these
initiatives. A relatively minor shortfall from expected revenue levels (or increase in expected costs) could have a
material adverse effect on the Company's growth or financial performance.
Currency Fluctuations Affect the Company's Results. Although the Company is headquartered in Ireland, a significant portion
of its operations are conducted in the U.K. Consequently, the Company has significant operating revenues and operating
expenses, as well as assets and liabilities, denominated in U.K. pounds sterling. In addition, fuel, aircraft, insurance,
and some maintenance obligations are denominated in U.S. dollars. The Company's operations and financial performance can
therefore be significantly affected by fluctuations in the values of the U.K. pound sterling and the U.S. dollar. Ryanair
is particularly vulnerable to direct exchange rate risks between the euro and the U.S. dollar because a significant portion
of its operating costs are incurred in U.S. dollars and none of its revenues are denominated in U.S. dollars.
Although the Company engages in foreign currency hedging transactions between the euro and the U.S. dollar, between the
euro and the U.K. pound sterling, and between the U.K. pound sterling and the U.S. dollar, hedging activities cannot be
expected to eliminate currency risks. See "Item 11. Quantitative and Qualitative Disclosures About Market Risk."
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 it operates to. Ryanair cannot offer any assurances regarding its future profitability. Changes
in fuel costs and fuel availability could have a material adverse impact on Ryanair's results and could also increase the
likelihood that Ryanair may incur losses. See "-The Company Faces Significant Price and Other Pressures in a Highly
Competitive Environment" below and "-Changes in Fuel Costs and Fuel Availability Affect the Company's Results and Increase
the Likelihood of Adverse Impact to the Company's Profitability" 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, Alghero, Frankfurt (Hahn), Zweibrücken, Altenburg,
Klagenfurt, Stockholm (Vasteras), Paris (Beauvais), La Rochelle, Carcassonne, Brussels (Charleroi), Cagliari, Girona and
Reus airports. The investigations seek to determine whether the arrangements constitute illegal state aid under EU law. The
investigations are expected to be completed in mid to late 2014, with the European Commission's decisions being appealable
to the EU General Court. Investigations between 2010 and 2014 into Ryanair's agreements with the Bratislava, Tampere,
Marseille, Berlin (Schönefeld) and Aarhus airports concluded with findings that these agreements contained no state aid. On
July 23, 2014 the European Commission announced a 'no state aid' decision in respect of Dusseldorf (Weeze) airport, as well
as findings of state aid to Ryanair in its arrangements with Pau, Nimes and Angouleme airports, ordering Ryanair to repay a
total of approximately E9.7m of alleged aid. Ryanair will appeal these 'aid' decisions to the EU General Court where
proceedings are expected to take between 2 and 4 years. In addition to the European Commission investigations, Ryanair is
facing allegations that it has benefited from unlawful state aid in a number of court cases, including in relation to its
arrangements with Frankfurt (Hahn) and Lübeck airports. Adverse rulings in the above state aid matters could be used as
precedents by competitors to challenge Ryanair's agreements with other publicly owned airports and could cause Ryanair to
strongly reconsider its growth strategy in relation to public or state-owned airports across Europe. This could in turn
lead to a scaling-back of Ryanair's overall growth strategy due to the smaller number of privately owned airports available
for development.
On July 25, 2012, the European Commission decided that Ryanair, along with Aer Lingus Group plc ("Aer Lingus") and Aer
Arann, had been in receipt of unlawful state aid from the Irish government as a result of being an identified beneficiary
of the two-tier air travel tax in place for flights departing from Irish airports between March 2009 and March 2011.
Ryanair was the original complainant to the European Commission, alleging that the air travel tax favored Aer Arann and Aer
Lingus. Ryanair appealed the decision of the European Commission to the EU General Court on November 14, 2012. The
hearing in the EU General Court took place in June 2014, and judgment is expected within six months of the hearing. The EU
General Court may affirm or annul the European Commission decision. The Irish State is obliged to recover the unlawful
state aid from Ryanair before the Irish courts notwithstanding Ryanair's appeal of the EU Commission decision, and
initiated its claim in April 2013. The Irish State is seeking approximately E12 million plus interest from Ryanair in
these proceedings. Ryanair has also issued proceedings before the Irish courts for recovery of the entire amount of the
air travel tax paid during the period March 2009 - March 2011 on the basis of the two-tier nature of the tax being unlawful
under EU law.
No assurance can be given as to the outcome of these legal proceedings, nor as to whether any unfavorable outcomes may,
individually or in the aggregate, have an adverse effect on the results of operations or financial condition of Ryanair.
For additional information, please see "Item 8. Financial Information¾Other Financial Information¾Legal Proceedings."
The Company Faces Significant Price and Other Pressures in a Highly Competitive Environment. Ryanair operates in a highly
competitive marketplace, with a number of low-fare, traditional and charter airlines competing throughout its route
network. Airlines compete primarily in respect of fare levels, frequency and dependability of service, name recognition,
passenger amenities (such as access to frequent flyer programmes), and the availability and convenience of other passenger
services. Unlike Ryanair, certain competitors are state-owned or state-controlled flag carriers and in some cases may have
greater name recognition and resources and may have received, or may receive in the future, significant amounts of
subsidies and other state aid from their respective governments. In addition, the EU-U.S. Open Skies Agreement, which came
into effect in March 2008, allows U.S. carriers to offer services in the intra-EU market, which could eventually result in
increased competition in the EU market. See "Item 4. Information on the Company-Government Regulation-Liberalization of the
EU Air Transportation Market."
The airline industry is highly susceptible to price discounting, in part because airlines incur very low marginal costs for
providing service to passengers occupying otherwise unsold seats. Both low-fare and traditional airlines sometimes offer
low fares in direct competition with Ryanair across a significant proportion of its route network as a result of the
liberalization of the EU air transport market and greater public acceptance of the low-fares model. Ryanair's average
booked passenger fare decreased in the 2014 fiscal year, and there can be no assurance that it will not decrease further in
future periods.
Although Ryanair intends to compete vigorously and to assert its rights against any predatory pricing or other similar
conduct, price competition among airlines could reduce the level of fares and/or passenger traffic on Ryanair's routes to
the point where profitability may not be achievable.
In addition to traditional competition among airline companies and charter operators who have entered the low-fares market,
the industry also faces competition from ground transportation (including high-speed rail systems) and sea transportation
alternatives, as businesses and recreational travellers seek substitutes for air travel.
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. Ryanair's continued growth is dependent upon
its ability to acquire additional aircraft to meet additional capacity needs and to replace older aircraft. Ryanair had 297
aircraft in its fleet by March 31, 2014 and has ordered an additional 180 new Boeing 737-800 next generation aircraft (the
"New Aircraft") for delivery during fiscal 2015 to fiscal 2019 pursuant to a contract with the Boeing Company (the "2013
Boeing Contract"). Ryanair expects to have approximately 426 aircraft in its fleet by March 31, 2019, depending on the
level of lease returns/disposals. For additional information on the Company's aircraft fleet and expansion plans, see "Item
4. Information on the Company-Aircraft" and "Item 5. Operating and Financial Review and Prospects¾Liquidity and Capital
Resources." There can be no assurance that this planned expansion will not outpace the growth of passenger traffic on
Ryanair's routes or that traffic growth will not prove to be greater than the expanded fleet can accommodate. In either
case, such developments could have a material adverse effect on the Company's business, results of operations, and
financial condition.
As a result of the 2013 Boeing Contract, the Company is expected to raise substantial debt financing to cover all of the
expected aircraft deliveries over the period from September 2014 to December 2018, including Ryanair's issuance of E850.0
million in 1.875% unsecured eurobonds with a 7 year tenor in June 2014 that are guaranteed by Ryanair Holdings. This
aircraft order is expected to increase the Company's outstanding debt from fiscal 2015 onwards. Furthermore, Ryanair's
ability to raise unsecured or secured debt to pay for aircraft as they are delivered is subject to various conditions
imposed by the counterparties and debt markets to such loan facilities and related loan guarantees, and any future
financing is expected to be subject to similar conditions. Any failure by Ryanair to comply with such conditions would
have a material adverse effect on its operations and financial condition.
Using the debt capital markets to finance the Company and the 2013 Boeing Contract requires the Company to obtain and
retain investment grade credit ratings, (the Company has a BBB+ (stable) credit rating from S&P and a BBB+ (stable) credit
rating from Fitch). There is a risk that the Company will be unable, or unwilling, to access these markets if it is
downgraded or is unable to retain its investment grade credit ratings and this could lead to a higher cost of finance for
Ryanair.
Ryanair has also entered into significant derivative transactions intended to hedge its current aircraft
acquisition-related debt obligations. These derivative transactions expose Ryanair to certain risks and could have adverse
effects on its results of operations and financial condition. See "Item 11. Quantitative and Qualitative Disclosures About
Market Risk."
The Company's Growth May Expose It to Risks. Ryanair's operations have grown rapidly since it pioneered the low-fares
operating model in Europe in the early 1990s. Ryanair intends to continue to expand its fleet and add new destinations and
additional flights, with the goal of increasing Ryanair's booked passenger volumes to approximately 112.0 million
passengers per annum by March 31, 2019, an increase of approximately 37% from the approximately 81.7 million passengers
booked in the 2014 fiscal year. However, no assurance can be given that this target will be met. If growth in passenger
traffic and Ryanair's revenues do not keep pace with the planned expansion of its fleet, Ryanair could suffer from
overcapacity and its results of operations and financial condition (including its ability to fund scheduled purchases of
the New Aircraft and related debt repayments) could be materially adversely affected.
The continued expansion of Ryanair's fleet and operations, at a rate lower than in previous years (although in absolute
terms it may be higher), in addition to other factors, may also strain existing management resources and related
operational, financial, management information and information technology systems. Expansion will generally require
additional skilled personnel, equipment, facilities and systems. An inability to hire skilled personnel or to secure
required equipment and facilities efficiently and in a cost-effective manner may adversely affect Ryanair's ability to
achieve its growth plans and sustain or increase its profitability.
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
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