REG - Ryanair Holdings PLC - Annual Financial Report <Origin Href="QuoteRef">RYA.I</Origin> - Part 6
06/09/2014 22:39
- Part 6: For the preceding part double click ID:nRSd7552Ne
Factors-Risks Related to the Airline Industry-The
Company Faces the Risk of Loss and Liability" for information on the Company's risks of loss and liability.
FACILITIES
The following are the principal properties owned or leased by the Company:
Dublin Airport............................. 1,370 1,649 Leasehold Administration Offices and crew rooms
Concourse Building, Airside Business Park, Swords, Dublin 12,141 9,298 Freehold New Corporate Headquarters
Dublin Airport (Hangar No. 1).. 1,620 1,620 Leasehold Aircraft Maintenance
Dublin Airport (Hangar No. 2) 5,200 5,000 Leasehold Aircraft Maintenance
Dublin Airport Business Park... 955 749 Leasehold Administration Offices (Leasehold terminated on 22 June 2014)
Phoenix House, 2,566 3,899 Freehold Rental Property
Conyngham Road, Dublin.........
Satellite 3, Stansted Airport...... 605 605 Leasehold Operations Center and Administrative Offices
Stansted Airport (Hangar)........ 12,161 10,301 Leasehold Aircraft Maintenance Hangar and Simulator Training Center
Stansted Airport......................... 375 375 Leasehold Training Centre
Stansted Storage Facilities........ 378 531 Leasehold Aircraft Maintenance
East Midlands Airport............... 3,890 2,801 Freehold Simulator and Training Center
East Midlands Airport............... 2,045 634 Leasehold Training Center
Bremen Airport........................... 5,952 5,874 Leasehold Terminal and Aircraft Maintenance Hangar
Skavsta Airport (Hangar).......... 1,936 1,936 Leasehold Aircraft Maintenance
Prestwick Airport (Hangar)....... 10,052 10,052 Leasehold Aircraft Maintenance
Frankfurt (Hahn) Airport (Hangar)....................................... 5,064 5,064 Leasehold Aircraft Maintenance Hangar and Simulator Training Center
Kaunas Airport (Hangar).......... 1,700 1,700 Leasehold Aircraft Maintenance
Rygge Airport (Hangar)............ 1,700 1,700 Leasehold Aircraft Maintenance
Billund Airport (Hangar)........... 2,800 2,800 Leasehold Aircraft Maintenance
Leasehold
Aircraft Maintenance
Ryanair has agreements with the DAA, the Irish government authority charged with operating Dublin Airport, to lease
bag-drop counters and other space at the passenger and cargo terminal facilities at Dublin Airport. The airport office
facilities used by Ryanair at London (Stansted) are leased from the airport authority; similar facilities at each of the
other airports Ryanair serves are provided by Servisair plc or other service providers.
TRADEMARKS
Ryanair's logo and the slogans "Ryanair.com The Low Fares Website" and "Ryanair The Low Fares Airline" have been registered
as Community Trade Marks ("CTMs"). Ryanair has also registered the CTM for the word "Ryanairhotels.com." A CTM allows a
trademark owner to obtain a single registration of its trademark, which registration affords uniform protection for that
trademark in all EU member states. The registration gives Ryanair an exclusive monopoly over the use of its trade name with
regard to similar services and the right to sue for trademark infringement should another party use an identical or
confusingly similar trademark in relation to identical, or similar services.
Ryanair has not registered either its name or its logo as a trademark in Ireland, as CTM-registration provides all of the
protection available from an Irish registration, and management believes there are therefore no advantages in making a
separate Irish application.
Ryanair's trademarks include:
- Community (Word) Trade Mark registration number 004168721 comprised of the word "Ryanair" in classes 16, 28, 35,
36, 37, 38, 39 and 42 (Nice Classification);
- Community (Figurative) Trade Mark registration number 001493329 comprising the following graphic representation:
in classes 16, 35, 36, 37, 38, 39 and 42 (Nice Classification) and class 27.5.1 (Vienna classification);
- Community (Figurative) Trade Mark registration number 00446559 comprising the following graphic representation:
in classes 16, 35, 36, 37, 38, 39 and 42 (Nice Classification) and class 22.1.16 (Vienna classification);
- Community (Figurative) Trade Mark registration number 000338301
comprising the following graphic representation:
in classes 16, 35, 36, 37, 38, 39 and 42 (Nice Classification) and class 22.1.16 (Vienna classification)
GOVERNMENT REGULATION
Liberalization of the EU Air Transportation Market
Ryanair began its flight operations in 1985, during a decade in which the governments of Ireland and the U.K. liberalized
the bilateral arrangements for the operation of air services between the two countries. In 1992, the Council of Ministers
of the EU adopted a package of measures intended to liberalize the internal market for air transportation in the EU. The
liberalization included measures that allow EU air carriers substantial freedom to set air fares, provided EU air carriers
greatly enhanced access to routes within the EU, and also introduced a licensing procedure for EU air carriers. Beginning
in April 1997, EU air carriers have generally been able to provide passenger services on domestic routes within any EU
member state outside their home country of operations without restriction.
Regulatory Authorities
Ryanair is subject to Irish and EU regulation, which is implemented primarily by the Department of Transport, Tourism and
Sport ("DTTAS"), the Irish Aviation Authority ("IAA"), the European Commission, and the European Aviation Safety Agency
("EASA"). Management believes that the present regulatory environment in Ireland and the EU is characterized by high
sensitivity to safety and security issues, which is demonstrated by intensive reviews of safety-related procedures,
training, and equipment by the national and EU regulatory authorities.
Commission for Aviation Regulation "CAR". The CAR is currently primarily responsible for deciding maximum airport charges
only at Dublin Airport. See "¾Airport Operations¾Airport Charges" above.
The CAR also has responsibility for licensing Irish airlines, subject to the requirements of EU law. It issues operating
licenses under the provisions of EU Regulation 1008/2008 (formerly 2407/92). An operating license is an authorization
permitting the holder to transport passengers, mail and/or cargo by air. The criteria for granting an operating license
include, inter alia, an air carrier's financial fitness, the adequacy of its insurance, and the fitness of the persons who
will manage the air carrier. In addition, in order to obtain and maintain an operating license, Irish and EU regulations
require that (i) the air carrier must be owned and continue to be owned directly or through majority ownership by EU member
states and/or nationals of EU member states and (ii) the air carrier must at all times be effectively controlled by such EU
member states or EU nationals. The CAR has broad authority to revoke an operating license. See "Item 10. Additional
Information--Limitations on Share Ownership by Non-EU Nationals." See also "Item 3. Risk Factors--Risks Related to
Ownership of the Company's Ordinary Shares or ADRs-EU Rules Impose Restrictions on the Ownership of Ryanair Holdings'
Ordinary Shares by Non-EU nationals and the Company has Instituted a Ban on the Purchase of Ordinary Shares by Non-EU
Nationals" above.
Ryanair's current operating license became effective on December 1, 1993, and is subject to periodic review. The Flight
Operations Department is also subject to ongoing review by the IAA, which reviews the department's audits, including flight
audits, training audits, document audits, and quality audits. Ryanair's current Air Operator Certificate No IE 7/94 was
issued on January 28, 2014.
Irish Aviation Authority. The IAA is primarily responsible for the operational and regulatory function and services
relating to the safety, security and technical aspects of aviation in Ireland. To operate in Ireland and the EU, an Irish
air carrier is required to hold an air operator's certificate granted by the IAA attesting to the air carrier's operational
and technical competence to conduct airline services with specified types of aircraft. The IAA has broad authority to amend
or revoke an air operator's certificate, with Ryanair's ability to continue to hold its air operator's certificate being
subject to ongoing compliance with applicable statutes, rules and regulations pertaining to the airline industry, including
any new rules and regulations that may be adopted in the future.
The IAA is also responsible for overseeing and regulating the operations of Irish air carriers. Matters within the scope of
the IAA's regulatory authority include: air safety; aircraft certification; personnel licensing and training; maintenance,
manufacture, repair, airworthiness, and operation of aircraft; implementation of EU legislation; aircraft noise; aviation
security and ground services. Each of the Company's aircraft is required to have a Certificate of Airworthiness, which is
issued by the IAA. The validity of Certificates of Airworthiness is subject to the review by the IAA. Each certificate is
generally valid for a 12-month period. In March 2009, Ryanair received "Sub-Part (I) approval" from the IAA, which gives
Ryanair the authority to extend the validity of its certificates, subject to certain record checks and physical aircraft
inspections being performed by Ryanair's quality department. The Company's flight personnel, flight and emergency
procedures, aircraft, and maintenance facilities are subject to periodic inspections by the IAA. The IAA has broad
regulatory and enforcement powers, including the authority to require reports; inspect the books, records, premises, and
aircraft of a carrier; and investigate and institute enforcement proceedings. Failure to comply with IAA regulations can
result in revocation of operating certification.
In July 1999, the IAA awarded Ryanair an air operator's certificate, which is subject to routine audit and review, in
recognition of Ryanair's satisfaction of the relevant EU requirements for the operation of commercial air transport ("EU
OPS 1"). The requirements of EU OPS 1 have been incorporated into European law as prescribed in Regulation (EEC) 3922/91
and were applied in full on July 16, 2008. All current regulatory requirements are addressed in the Ryanair Operations
Manual Part A (as amended). The current Manual, Issue 3 Revision9, was approved by the IAA on October 31, 2013.
Department of Transport, Tourism and Sport. The Department of Transport, Tourism and Sport ("DTTAS") is responsible for
implementation of certain EU and Irish legislation and international standards relating to air transport.
In June 2005, the Irish Minister for Transport enacted legislation strengthening rights for air passengers following the
enactment of EU legislation requiring compensation of airline passengers who have been denied boarding on a flight for
which they hold a valid ticket (Regulation (EC) No. 261/2004), which came into force on February 17, 2005. See "Item 3.
Risk Factors-Risks Related to the Airline Industry-EU Regulation on Passenger Compensation Could Significantly Increase
Related Costs."
The European Aviation Safety Agency. EASA is an agency of the EU that has been given specific regulatory and executive
tasks in the field of aviation safety. EASA was established through Regulation (EC) No. 1592/2002 of the European
Parliament and the Council of July 15, 2002, repealed by Basic Regulation (EC) 216-2008. The purpose of EASA is to draw-up
common standards to ensure the highest levels of safety, oversee their uniform application across Europe and promote them
at the global level. The EASA formally started its work on September 28, 2003, taking over the responsibility for
regulating airworthiness, maintenance and air crew issues within the EU member states.
Eurocontrol. The European Organization for the Safety of Air Navigation ("Eurocontrol") is an autonomous European
organization established under the Eurocontrol Convention of December 13, 1960. Eurocontrol is responsible for, inter alia,
the safety of air navigation and the collection of route charges for en route air navigation facilities and services
throughout Europe. Ireland is a party to several international agreements concerning Eurocontrol. These agreements have
been implemented in Irish law, which provides for the payment of charges to Eurocontrol in respect of air navigation
services for aircraft in airspace under the control of Eurocontrol. The relevant legislation imposes liability for the
payment of any charges upon the operators of the aircraft in respect of which services are provided and upon the owners of
such aircraft or the managers of airports used by such aircraft. Ryanair, as an aircraft operator, is primarily responsible
for the payment to Eurocontrol of charges incurred in relation to its aircraft.
The legislation authorizes the detention of aircraft in the case of default in the payment of any charge for air navigation
services by the aircraft operator or the aircraft owner, as the case may be. This power of detention extends to any
equipment, stores or documents, which may be onboard the aircraft when it is detained, and may result in the possible sale
of the aircraft.
European Commission. The European Commission is in the process of introducing an updated legislative package to its "single
European sky policy," called "SES2+", which would lead to changes to air traffic management and control within the EU. The
"single European sky policy" currently consists of the Framework Regulation (Reg. (EC) No. 549/2004) plus three technical
regulations on the provision of air navigation services, organization and use of the airspace and the inter-operability of
the European air traffic management network. These regulations have recently been amended by the so-called "Single European
Sky II" regulation (EU Regulation 1070/09), which focused on air traffic control ("ATC") performance and extended the
authority of EASA to include Airports and Air Traffic Management. The objective of the policy is to enhance safety
standards and the overall efficiency of air traffic in Europe, as well as to reduce the cost of air traffic control
services.
On September 6, 2005, the European Commission announced new guidelines on the financing of airports and start-up aid to
airlines by regional airports based on its February 2004 finding in the Charleroi case, a decision that the EU Court of
First Instance ("CFI") has since annulled in December 2008. The guidelines only apply to publicly owned regional airports,
and place restrictions on the incentives that these airports can offer airlines to deliver traffic. Ryanair believes that
the CFI's annulment of the Charleroi decision severely undermines these guidelines. In April 2014, the European Commission
published final revised guidelines that better reflect the commercial reality of the liberalized air transport market, but
still place restrictions on the incentives public airports can offer to airlines delivering traffic, when compared with the
commercial freedom available to private airports.
The European Union also adopted legislation on airport charges (EU Directive 2009/12), which was originally intended to
address abusive pricing at monopoly airports. However, the legislation includes all European airports with over five
million passengers per year. Management believes that this will likely increase the administrative burdens on smaller
airports and may lead to higher airport charges, while the scope that exists within this Directive to address abuses of
their dominant positions by Europe's larger airports is very limited. See "Item 7. Major Shareholders and Related-Party
Transactions ¾Other Financial Information¾Legal Proceedings¾EU State Aid-Related Proceedings."
The European Union also passed legislation calling for increased transparency in airline fares, which requires the
inclusion of all mandatory taxes, fees, and charges in advertised prices. Ryanair currently includes this information in
its advertised fares in all markets where it operates. However, certain regulatory authorities have alleged that some fees
applied by airlines, including Ryanair, on an avoidable basis are in fact mandatory. Ryanair amended its website to include
information on fees in June 2012 and incorporated further changes to meet these requirements on its website in August 2012
and December 2012.
Registration of Aircraft
Pursuant to the Irish Aviation Authority (Nationality and Registration of Aircraft) Order 2002 (the "Order"), the IAA
regulates the registration of aircraft in Ireland. In order to be registered or continue to be registered in Ireland, an
aircraft must be wholly owned by either (i) a citizen of Ireland or a citizen of another member state of the EU having a
place of residence or business in Ireland or (ii) a company registered in and having a place of business in Ireland and
having its principal place of business in Ireland or another member state of the EU and not less than two-thirds of the
directors of which are citizens of Ireland or of another member state of the EU. As of the date of this report, nine of the
ten directors of Ryanair Holdings are citizens of Ireland or of another member state of the EU. An aircraft will also
fulfill these conditions if it is wholly owned by such citizens or companies in combination. Notwithstanding the fact that
these particular conditions may not be met, the IAA retains discretion to register an aircraft in Ireland so long as it is
in compliance with the other conditions for registration under the Order. Any such registration may, however, be made
subject to certain conditions. In order to be registered, an aircraft must also continue to comply with any applicable
provisions of Irish law. The registration of any aircraft can be cancelled if it is found that it is not in compliance with
the requirements for registration under the Order and, in particular: (i) if the ownership requirements are not met; (ii)
if the aircraft has failed to comply with any applicable safety requirements specified by the IAA in relation to the
aircraft or aircraft of a similar type; or (iii) if the IAA decides in any case that it is not in the public interest for
the aircraft to remain registered in Ireland.
Regulation of Competition
Competition/Antitrust Law. It is a general principle of EU competition law that no agreement may be concluded between two
or more separate economic undertakings that prevents, restricts or distorts competition in the common market or any part of
the common market. Such an arrangement may nevertheless be exempted by the European Commission, on either an individual or
category basis. The second general principle of EU competition law is that any business or businesses having a dominant
position in the EU common market or any substantial part of the common market may not abuse such dominant position. Similar
competition laws apply at national level in EU member states. Ryanair is subject to the application of the general rules of
EU competition law as well as specific rules on competition in the airline sector.
An aggrieved person may sue for breach of EU competition law in the courts of a member state and/or petition the European
Commission for an order to put an end to the breach of competition law. The European Commission also may impose fines and
daily penalties on businesses and the courts of the member states may award damages and other remedies (such as
injunctions) in appropriate circumstances.
Competition law in Ireland is primarily embodied in the Competition Act 2002. This Act is modeled on the EU competition law
system. The Irish rules generally prohibit anti-competitive arrangements among businesses and prohibit the abuse of a
dominant position. These rules are enforced either by public enforcement (primarily by the Competition Authority) through
both criminal and civil sanctions or by private action in the courts. These rules apply to the airline sector, but are
subject to EU rules that override any contrary provisions of Irish competition law. Ryanair has been subject to an
abuse-of-dominance investigation by the Irish Competition Authority in relation to service between Dublin and Cork. The
Competition Authority closed its investigation in July 2009 with a finding in favor of Ryanair.
State Aid. The EU rules control aid granted by member states to businesses on a selective or discriminatory basis. The EU
Treaty prevents member states from granting such aid unless approved in advance by the EU. Any such grant of state aid to
an airline is subject to challenge before the EU or, in certain circumstances, national courts. If aid is held to have been
unlawfully granted it may have to be repaid by the airline to the granting member state, together with interest thereon.
See "Item 3. Key Information¾Risk Factors¾Risks Related to the Company-The Company Is Subject to Legal Proceedings Alleging
State Aid at Certain Airports" and "Item 8. Financial Information¾Other Financial Information¾Legal Proceedings."
Environmental Regulation
Aircraft Noise Regulations. Ryanair is subject to international, national and, in some cases, local noise regulation
standards. EU and Irish regulations have required that all aircraft operated by Ryanair comply with Stage 3 noise
requirements since April 1, 2002. All of Ryanair's aircraft currently comply with these regulations. Certain airports in
the U.K. (including London Stansted and London Gatwick) and continental Europe have established local noise restrictions,
including limits on the number of hourly or daily operations or the time of such operations.
Company Facilities. Environmental controls are generally imposed under Irish law through property planning legislation,
specifically the Local Government (Planning and Development) Acts of 1963 to 1999, the Planning and Development Act 2000
and regulations made there under. At Dublin Airport, Ryanair operates on land controlled by the DAA. Planning permission
for its facilities has been granted in accordance with both the zoning and planning requirements of Dublin Airport. There
is also specific Irish environmental legislation implementing applicable EU directives and regulations, to which Ryanair
adheres. From time to time, noxious or potentially toxic substances are held on a temporary basis within Ryanair's
engineering facilities at Dublin Airport, Glasgow (Prestwick), London (Stansted), Frankfurt (Hahn), Stockholm (Skavsta),
Oslo (Rygge) and Kaunas. However, at all times Ryanair's storage and handling of these substances complies with the
relevant regulatory requirements. At Ryanair's Glasgow (Prestwick) and London (Stansted) maintenance facilities, all normal
waste is removed in accordance with the Environmental Protection Act of 1996 and Duty of Care Waste Regulations. For
special waste removal, Ryanair operates under the Special Waste Regulations 1998. At all other facilities Ryanair adheres
to all local and EU regulations.
Ryanair's Policy on Noise and Emissions. Ryanair is committed to reducing emissions and noise through investments in "next
generation" aircraft and engine technologies and the implementation of certain operational and commercial decisions to
minimize the environmental impact of its operations. According to the Air Travel Carbon and Energy Efficiency Report
published by Brighter Planet, Ryanair is the industry leader in terms of environmental efficiency, and the Company is
constantly working towards improving its performance.
In December 2005, Ryanair completed the fleet replacement program it commenced in 1999. All of Ryanair's older Boeing
737-200A aircraft were replaced with Boeing 737-800 "next generation" aircraft, and Ryanair now operates a
single-aircraft-type fleet of Boeing 737-800 "next generation" aircraft with an average age of just over 5.5 years. The
design of the new aircraft is aimed at minimizing drag, thereby reducing the rate of fuel burn and noise levels. The
engines are also quieter and more fuel-efficient. Furthermore, by moving to an all Boeing 737-800 "next generation" fleet,
Ryanair reduced the unit emissions per passenger due to the inherent capacity increase in the Boeing 737-800 aircraft. The
Boeing 737-800 "next generation" aircraft have a significantly superior fuel-burn to passenger-kilometer ratio than
Ryanair's former fleet of Boeing 737-200A aircraft. See "-Aircraft" above for details on Ryanair's fleet plan.
Ryanair has also installed winglets on all of its existing aircraft and all future aircraft will also be fitted with
winglets. Winglets reduce both the rate of fuel burn and carbon dioxide emissions by approximately 4% and also reduce noise
emissions.
In addition, Ryanair has distinctive operational characteristics that management believes are helpful to the general
environment. In particular, Ryanair:
· operates with a high-seat density of 189 seats and an all-economy configuration, as opposed to the 162 seats and
two-class configuration of the Boeing 737-800 aircraft used by traditional network airlines, reducing fuel burn and
emissions per seat-kilometer flown;
· has reduced per-passenger emissions through higher load factors;
· better utilizes existing infrastructure by operating out of underutilized secondary and regional airports throughout
Europe, which limits the use of holding patterns and taxiing times, thus reducing fuel burn and emissions and reducing the
need for new airport infrastructure;
· provides direct services as opposed to connecting flights, in order to limit the need for passengers to transfer at
main hubs and thus reduces the number of take-offs and landings per journey from four to two, reducing fuel burn and
emissions per journey;
· has no late-night departures of aircraft, reducing the impact of noise emissions; and
· is currently evaluating the benefits of the Boeing 737 MAX aircraft, a variant of the 737, with new more
fuel-efficient engines.
Emissions Trading. On November 19, 2008, the European Council of Ministers adopted legislation to add aviation to the EU
Emissions Trading Scheme as of 2012. This scheme, which has thus far applied mainly to energy producers, is a cap-and-trade
system for CO2 emissions to encourage industries to improve their CO2 efficiency. Under the legislation, airlines were
granted initial CO2 allowances based on historical "revenue ton kilometers" and a CO2 efficiency benchmark. Any shortage of
allowances has to be purchased in the open market and/or at government auctions. Management believes that this legislation
is likely to have a negative impact on the European airline industry. Ryanair takes its environmental responsibilities
seriously and intends to continue to improve its environmental efficiency and to minimize emissions. Under Regulation 7 of
The UK Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, Ryanair is obliged to state its annual
quantity of emissions in tonnes of carbon dioxide equivalent. Ryanair's EU Emissions Trading Scheme monitoring, reporting
and allowance surrender obligations are mandated on a calendar year basis. For calendar year 2013, Ryanair emitted
7,649,120 tCO2, which equates to 0.094 tCO2 per passenger.
Aviation Taxes. Ryanair is fundamentally opposed to the introduction of any aviation taxes, including any environmental
taxes, fuel taxes or emissions levies. Ryanair has and continues to offer the lowest fares in Europe, to make passenger air
travel affordable and accessible to European consumers. Ryanair believes that the imposition of additional taxes on
airlines will not only increase airfares, but will discourage new entrants into the market, resulting in less choice for
consumers. Ryanair believes this would ultimately have adverse effects on the European economy in general. There is in
particular no justification for any environmental taxes on aviation following the introduction of the Emissions Trading
Scheme for airlines.
As a company, Ryanair believes in free market competition and that the imposition of aviation taxation would favor the less
efficient flag carriers - which generally have smaller and older aircraft, lower load factors, and a much higher fuel burn
per passenger, and which operate primarily into congested airports - and reduce competition. Furthermore, the introduction
of a tax at a European level only would distort competition between airlines operating solely within Europe and those
operating also outside of Europe. We believe that the introduction of such a tax would also be incompatible with
international law.
Airport charges
The EU Airport Charges Directive of March 2009 sets forth general principles that are to be followed by airports with more
than five million passenger per annum, and all capital city airports irrespective of their passenger throughput, when
setting airport charges, and provides for an appeals procedure for airlines in the event they are not satisfied with the
level of charges. However, Ryanair does not believe that this procedure will be effective or that it will constrain those
airports that are currently abusing their dominant position, in part because the legislation was mis-transposed in certain
countries, such as Ireland and Spain, so as to deprive airlines of even the basic safeguards provided for in the Directive.
This legislation may in fact lead to higher airport charges, depending on how its provisions are applied by EU member
states and subsequently by the courts.
Slots
Currently, the majority of Ryanair's bases of operations have no "slot" allocation restrictions; however, traffic at a
substantial number of the airports Ryanair serves, including its primary bases are regulated by means of "slot"
allocations, which represent authorizations to take off or land at a particular airport within a specified time period. In
addition, EU law currently regulates the acquisition, transfer, and loss of slots. Applicable EU regulations currently
prohibit the buying or selling of slots for cash. The European Commission adopted a regulation in April 2004 (Regulation
(EC) No. 793/2004) that made some minor amendments to the current allocation system, allowing for limited transfers of, but
not trading in, slots. Slots may be transferred from one route to another by the same carrier, transferred within a group
or as part of a change of control of a carrier, or swapped between carriers. In April 2008, the European Commission issued
a communication on the application of the slot allocation regulation, signaling the acceptance of secondary trading of
airport slots between airlines. This is expected to allow more flexibility and mobility in the use of slots and will
further enhance possibilities for market entry at slot constrained airports. Any future legislation that might create an
official secondary market for slots could create a potential source of revenue for certain of Ryanair's current and
potential competitors, many of which have many more slots allocated at primary airports at present than Ryanair. The
European Commission proposed a revision to the slots legislation reflecting the principle of secondary trading, which is
currently being negotiated by the EU institutions, and will not be finalized before the middle of 2014. Slot values depend
on several factors, including the airport, time of day covered, the availability of slots and the class of aircraft.
Ryanair's ability to gain access to and develop its operations at slot-controlled airports will be affected by the
availability of slots for takeoffs and landings at these specific airports. New entrants to an airport are currently given
certain privileges in terms of obtaining slots, but such privileges are subject to the grandfathered rights of existing
operators that are utilizing their slots. There is no assurance that Ryanair will be able to obtain a sufficient number of
slots at the slot-controlled airports that it desires to serve in the future at the time it needs them or on acceptable
terms.
Other
Health and occupational safety issues relating to the Company are largely addressed in Ireland by the Safety, Health and
Welfare at Work Act, 2005 and other regulations under that act. Although licenses or permits are not issued under such
legislation, compliance is monitored by the Health and Safety Authority (the "Authority"), which is the regulating body in
this area. The Authority periodically reviews Ryanair's health and safety record and when appropriate, issues improvement
notices or prohibition notices. Ryanair has responded to all such notices to the satisfaction of the Authority. Other
safety issues are covered by the Irish Aviation Orders, which may vary from time to time.
The Company's operations are subject to the general laws of Ireland and, insofar as they are applicable in Ireland, the
laws of the EU. The Company may also become subject to additional regulatory requirements in the future. The Company is
also subject to local laws and regulations at locations where it operates and the regulations of various local authorities
that operate the airports it serves.
DESCRIPTION OF PROPERTY
For certain information about each of the Company's key facilities, see "-Facilities" above. Management believes that the
Company's facilities are suitable for its needs and are well maintained.
Item 4A. Unresolved Staff Comments
There are no unresolved staff comments.
Item 5. Operating and Financial Review and Prospects
The following discussion should be read in conjunction with the audited consolidated financial statements of the Company
and the notes thereto included in Item 18. Those consolidated financial statements have been prepared in accordance with
IFRS.
HISTORY
Ryanair's current business strategy dates to the early 1990s, when a new management team, including the current chief
executive, commenced the restructuring of Ryanair's operations to become a low-fares airline based on the low-cost
operating model pioneered by Southwest Airlines Co. in the United States. During the period between 1992 and 1994, Ryanair
expanded its route network to include scheduled passenger services between Dublin and Birmingham, Manchester and Glasgow
(Prestwick). In 1994, Ryanair began standardizing its fleet by purchasing used Boeing 737-200A aircraft to replace
substantially all of its leased aircraft. Beginning in 1996, Ryanair continued to expand its service from Dublin to new
provincial destinations in the U.K. In August 1996, Irish Air, L.P., an investment vehicle led by David Bonderman and
certain of his associates at the Texas Pacific Group, acquired a minority interest in the Company. Ryanair Holdings
completed its initial public offering in June 1997.
From 1997 through June 30, 2014, Ryanair launched service on more than 1,600 routes throughout Europe and also increased
the frequency of service on a number of its principal routes. During that period, in addition to Dublin, Ryanair
established 69 airports as bases of operations. See "Item 4. Information on the Company-Route System, Scheduling and Fares"
for a list of these bases. Ryanair has increased the number of booked passengers from approximately 4.9 million in the 1999
fiscal year to approximately 81.7 million in the 2014 fiscal year. Ryanair had 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,
and now serves approximately 186 airports.
Ryanair expects to have approximately 426 aircraft in its operating fleet by March 31, 2019. This is subject to lease
handbacks and disposals over the period to March 31, 2019 meeting current expectations. See "¾Liquidity and Capital
Resources" and "Item 4. Information on the Company¾Aircraft" for additional details.
BUSINESS OVERVIEW
Since Ryanair pioneered its low cost operating model in Europe in the early 1990s, its passenger volumes and scheduled
passenger revenues have increased significantly because it has substantially increased capacity and demand has been
sufficient to match the increased capacity. Ryanair's annual booked passenger volume has grown from approximately 945,000
passengers in the calendar year 1992 to approximately 81.7 million passengers in the 2014 fiscal year.
Ryanair's revenue passenger miles ("RPMs") increased approximately 8% from 59,865.6 million in the 2013 fiscal year to
64,470.4 million in the 2014 fiscal year due primarily to an increase of approximately 7% in scheduled available seat miles
("ASMs") from 72,829.9 million in the 2013 fiscal year to 77,916.5 million in the 2014 fiscal year. Scheduled passenger
revenues decreased approximately 1% from E3,819.8 million in the 2013 fiscal year to E3,789.5 million in the 2014 fiscal
year. Average booked passenger fare decreased from E48.20 in the 2013 fiscal year to E46.40 in the 2014 fiscal year.
Expanding passenger volumes and capacity, high load factors and aggressive cost containment have enabled Ryanair to
continue to generate operating profits despite increasing price competition and increases in certain costs. Ryanair's total
break-even load factor was 70% in the 2013 fiscal year and 72% in the 2014 fiscal year. Cost per passenger was E52.56 in
the 2013 fiscal year and E53.61 in the 2014 fiscal year, with the increase primarily reflecting the higher fuel cost per
passenger of E24.65in the 2014 fiscal year, as compared to E23.79 in the 2013 fiscal year. Ryanair recorded operating
profits of E718.2 million in the 2013 fiscal year and E658.6 million in the 2014 fiscal year. The Company recorded a profit
after taxation of E569.3 million in the 2013 fiscal year and profit after taxation of E522.8 million in the 2014 fiscal
year. Ryanair will take delivery of 11 Boeing 737-800 aircraft in 2015 fiscal year and expects that these deliveries, along
with its plan to ground fewer aircraft in the winter of 2015 fiscal year and increased load factors will allow for an
approximately 4% increase in fiscal 2015 traffic See "Item 3. Key Information-Risk Factors-Risks Related to the Company-
Ryanair Has Decided to Seasonally Ground Aircraft."
Investment in Aer Lingus
The Company owns 29.8% of Aer Lingus, which it acquired in fiscal years 2007, 2008 and 2009 at a total cost of E407.2
million. Following the approval of its shareholders, management proposed in the 2007 fiscal year to effect a tender offer
to acquire the entire share capital of Aer Lingus. This 2006 offer was, however, prohibited by the European Commission on
competition grounds in June 2007. Ryanair's management viewed the acquisition of Aer Lingus in the context of the overall
trend of consolidation among airlines in Europe and believed that the acquisition would lead to the formation of one strong
Irish airline group able to compete with large carriers such as Lufthansa, Air France/KLM and British Airways/Iberia (now
"International Airlines Group"). During the EU competition review, the Company made a commitment that if the acquisition
was approved, Ryanair would eliminate Aer Lingus' fuel surcharges and reduce its fares, which would have resulted in Aer
Lingus passengers saving approximately E100 million per year. The Company was therefore disappointed by the European
Commission's decision to prohibit this offer. This decision was the first adverse decision taken in respect of any EU
airline merger and the first-ever adverse decision in respect of a proposed merger of two companies with less than 5% of
the EU market for their services. Ryanair filed an appeal with the CFI, which was heard in July 2009. On July 6, 2010, the
CFI upheld the Commission's decision.
In October 2007, the European Commission also reached a formal decision that it would not force Ryanair to sell its shares
in Aer Lingus. Aer Lingus appealed this decision before the CFI. This case was heard in July 2009 and on July 6, 2010 the
court rejected Aer Lingus' appeal and confirmed that Ryanair cannot be forced to dispose of its 29.8% stake in Aer Lingus
under the European Merger Regulation. However, EU legislation may change in the future to require such a forced
disposition. If eventually forced to dispose of its stake in Aer Lingus, Ryanair could suffer significant losses due to the
negative impact on market prices of the forced sale of such a significant portion of Aer Lingus' shares.
On December 1, 2008, Ryanair made a new offer to acquire all of the ordinary shares of Aer Lingus it did not own at a price
of E1.40 per ordinary share. Ryanair offered to keep Aer Lingus as a separate company, maintain the Aer Lingus brand, and
retain its Heathrow slots and connectivity. Ryanair also proposed to double Aer Lingus' short-haul fleet from 33 to 66
aircraft and to create 1,000 associated new jobs over a five-year period. If the offer had been accepted, the Irish
government would have received over E180 million in cash. The employee share ownership trust and employees, who owned 18%
of Aer Lingus, would have received over E137 million in cash. The Company met Aer Lingus management, representatives of the
employee share ownership trust and other parties, including members of the Irish Government. The offer of E1.40 per share
represented a premium of approximately 25% over the closing price of E1.12 for Aer Lingus shares on November 28, 2008. As
the Company was unable to secure the shareholders' support, it decided on January 28, 2009 to withdraw its offer for Aer
Lingus.
The United Kingdom's Office of Fair Trading ("OFT") wrote to Ryanair in September 2010, advising that it intended to
investigate Ryanair's minority stake in Aer Lingus. Ryanair objected on the basis that the OFT's investigation was
time-barred. Ryanair contended that the OFT had the opportunity, which it missed, to investigate Ryanair's minority stake
within four months from the European Commission's June 2007 decision to prohibit Ryanair's takeover of Aer Lingus. The OFT
agreed in October 2010 to suspend its investigation pending the outcome of Ryanair's appeal against the OFT's decision that
its investigation is within time. On July 28, 2011, the Competition Appeal Tribunal ruled that the OFT was not time barred
when it attempted in September 2010 to open an investigation into Ryanair's 2006 acquisition of a minority non-controlling
stake in Aer Lingus. Ryanair subsequently appealed the Competition Appeal Tribunal's decision. On November 24, 2011, the
UK Court of Appeal ordered a stay of the OFT's investigation pending the Courts review of whether the OFT's investigation
was time barred. On May 22, 2012, the UK Court of Appeal found that the OFT was not time barred to investigate Ryanair's
minority stake in Aer Lingus in September 2010. Ryanair subsequently sought permission to appeal that ruling to the UK
Supreme Court, but permission was refused. On June 15, 2012, the OFT referred the investigation of Ryanair's minority stake
in Aer Lingus to the UK Competition Commission. On August 28, 2013, the UKCC issued its final decision in which it stated
that Ryanair's shareholding "gave it the ability to exercise material influence over Aer Lingus" and "had led or may be
expected to lead to a substantial lessening of competition in the markets for air passenger services between Great Britain
and Ireland." As a result of its findings, the UKCC ordered Ryanair to reduce its shareholding in Aer Lingus to below 5
percent of Aer Lingus' issued ordinary shares. Ryanair appealed the UKCC's final decision to the CAT on September 23,
2013. The CAT rejected Ryanair's appeal on March 7, 2014. On April 23, 2014, the CAT granted Ryanair permission to appeal
the CAT's judgment to the UK Court of Appeal. Should this appeal, or any subsequent appeal to the UK Supreme Court be
unsuccessful, Ryanair could suffer losses due to the negative impact on market prices of the forced sale of such a
significant portion of Aer Lingus' shares. Ryanair believes that the enforcement of any such decision should be delayed
until the outcome of Ryanair's appeal against the European Commission's February 2013 prohibition decision of Ryanair's
2012 offer for Aer Lingus, as described below, and the conclusion of any appeals against the UKCC's decision in the UK
courts. However, it is possible that the UKCC will seek to enforce any such sell-down remedy at an earlier date.
On June 19, 2012, Ryanair made a third offer to acquire all of the ordinary shares of Aer Lingus it did not own at a price
of E1.30 per ordinary share. The timing of the offer was influenced by: (i) the continued consolidation of European
airlines, and more recently the International Airlines Group (the parent company of British Airways) takeover of British
Midland International, where the No. 1 airline at Heathrow was allowed to acquire the No. 2; (ii) the additional capacity
available at Dublin airport following the opening of Terminal 2 and the decline in traffic from 23.3 million passengers per
annum in 2007 to 18.7 million in 2011, has resulted in Dublin airport operating at approximately 50% capacity; (iii) the
change in the Irish government policy since 2006 in that the Irish government indicated that it had decided to sell its
stake in Aer Lingus; (iv) the fact that under the terms of the bailout agreement provided by the European Commission,
European Central Bank and the International Monetary Fund to Ireland, the Irish government committed to sell its stake in
Aer Lingus; (v) the fact that the ESOT (Employee Share Ownership Trust), which at the time of the unsuccessful 2006 offer
controlled 15% of Aer Lingus, had been disbanded since December 2010 and the shares distributed to the individual members,
with the result that Ryanair's new offer was, in Ryanair's view, capable of reaching over 50% acceptance either with or
without government acceptance; and (vi) the fact that Etihad, an Abu Dhabi based airline, had recently acquired a 3% stake
in Aer Lingus and had expressed an interest in buying the government's 25% stake in Aer Lingus (the offer therefore
provided Etihad or any other potential bidder the opportunity to purchase the government's stake).
Ryanair offered to keep Aer Lingus as a separate company, maintain the Aer Lingus brand, and to grow its traffic from 9.5
million to over 14.5 million passengers over a five year period post acquisition, by growing Aer Lingus' short haul traffic
at some of Europe's major airports where Aer Lingus currently operates and Ryanair does not. Ryanair also intended to
increase Aer Lingus' transatlantic traffic from Ireland, which has fallen in recent years, by investing in operations. If
the offer was accepted, the Irish government would have received E173 million in cash. The offer of E1.30 per share
represented a premium of approximately 38% over the closing price of E0.94 for Aer Lingus shares as of June 19, 2012. The
offer was conditional on competition approval by the European Commission. However, on February 27, 2013, the European
Commission prohibited the acquisition by Ryanair of the remaining share capital of Aer Lingus. Ryanair appealed this
prohibition to the EU General Court on May 8, 2013. A judgment in this appeal is expected in 2015.
The available-for-sale financial asset balance sheet value of E260.3 million reflects the market value of the Company's
stake in Aer Lingus as of March 31, 2014, as compared to a value of E221.2 million as of March 31, 2013. In accordance with
the company's accounting policy, this investment is held at fair value. This investment is classified as
available-for-sale, rather than as an investment in an associate, because the Company does not have the power to exercise
any influence over Aer Lingus. The increase in the amount of the available for sale financial asset from E221.2 million at
March 31, 2013 to E260.3 million at March 31, 2014 is comprised of a gain of E39.1 million, recognized through other
comprehensive income, reflecting the increase in Aer Lingus' share price from E1.39 per share at March 31, 2013 to E1.64
per share at March 31, 2014. All impairment losses are required to be recognized in the income statement for investments in
an equity instrument classified for available for sale and are not subsequently reversed, while gains are recognized
through other comprehensive income. The investment had in prior periods been impaired to E0.50 per share.
The Company's determination that it does not have control, or even exercise a "significant influence," over Aer Lingus
through its minority shareholding has been based on the following factors:
(i) Ryanair does not have any representation on the Aer Lingus Board of Directors; nor does it have a right to appoint a
director;
(ii) Ryanair does not participate in Aer Lingus policy-making decisions; nor does it have a right to participate in such
policy-making decisions;
(iii) There are no material transactions between Ryanair and Aer Lingus, there is no interchange of personnel between the
two companies and there is no sharing of technical information between the companies;
(iv) Aer Lingus and its significant shareholder (the Irish government: 25.1%) have historically openly opposed Ryanair's
investment or participation in the company;
(v) In 2007, 2009 and 2010, Aer Lingus refused Ryanair's attempt to assert its statutory right to requisition a general
meeting (a legal right of any 5% shareholder under Irish law);
(vi) On April 15, 2011, the High Court in Dublin ruled that Aer Lingus was not obliged to accede to Ryanair's request that
two additional resolutions (on the payment of a dividend and on payments to pension schemes) be put to vote at Aer Lingus'
annual general meeting; and
(vii) The European Commission has formally found that Ryanair's shareholding in Aer Lingus does not grant Ryanair "de jure
or de facto control of Aer Lingus" and that "Ryanair's rights as a minority shareholder…are associated exclusively to
rights related to the protection of minority shareholders" (Commission Decision Case No. COMP/M.4439 dated October 11,
2007). The European Commission's finding has been confirmed by the European Union's General Court which issued a decision
on July 6, 2010 that the European Commission was justified to use the required legal and factual standard in its refusal to
order Ryanair to divest its minority shareholding in Aer Lingus and that, as part of that decision, Ryanair's shareholding
did not confer control of Aer Lingus (Judgment of the General Court (Third Chamber) Case No. T-411/07 dated July 6, 2010).
Historical Results Are Not Predictive of Future Results
The historical results of operations discussed herein may not be indicative of Ryanair's future operating performance.
Ryanair's future results of operations will be affected by, among other things, overall passenger traffic volume; the
availability of new airports for expansion; fuel prices; the airline pricing environment in a period of increased
competition; the ability of Ryanair to finance its planned acquisition of aircraft and to discharge the resulting debt
service obligations; economic and political conditions in Ireland, the U.K. and the EU; terrorist threats or attacks within
the EU; seasonal variations in travel; developments in government regulations, litigation and labor relations; foreign
currency fluctuations, the impact of the banking crisis and potential break-up of the euro; competition and the public's
perception regarding the safety of low-fares airlines; the value of its equity stake in Aer Lingus; changes in aircraft
acquisition, leasing, and other operating costs; flight interruptions caused by volcanic ash emissions or other atmospheric
disruptions; flight disruptions caused by periodic and prolonged air traffic controller strikes in Europe; the rates of
income and corporate taxes paid, and the impact of the financial and Eurozone crisis. Ryanair expects its depreciation,
staff and fuel charges to increase as additional aircraft and related flight equipment are acquired. Future fuel costs may
also increase as a result of the depletion of petroleum reserves, the shortage of fuel production capacity and/or
production restrictions imposed by fuel oil producers. Maintenance expenses may also increase as a result of Ryanair's
fleet expansion and replacement program. In addition, the financing of new Boeing 737-800 aircraft will increase the total
amount of the Company's outstanding debt and the payments it is obliged to make to service such debt. The cost of insurance
coverage for certain third-party liabilities arising from "acts of war" or terrorism increased dramatically following the
September 11, 2001 terrorist attacks. Although Ryanair currently passes on increased insurance costs to passengers by means
of a special "insurance levy" on each ticket, there can be no assurance that it will continue to be successful in doing so.
See "Item 3. Key Information-Risk Factors-The 2001 Terrorist Attacks on the United States Had a Severe Negative Impact on
the International Airline Industry."
RECENT OPERATING RESULTS
The Company's profit after tax for the quarter ended June 30, 2014 (the first quarter of the Company's 2014 fiscal year)
was E196.8 million, as compared to E78.1 million for the corresponding period of the previous year. The Company recorded an
increase in operating profit, from E103.3 million in the first quarter of the 2014 fiscal year to E231.8 million in the
recently completed quarter. Total operating revenues increased from E1,342.2 million in the first quarter of 2014 to
E1,495.7 million in the first quarter of 2015. The increase in operating profit was primarily due to a 9% increase in
average fares and a stronger load factor (up 4 points to 86%) and a 2% increase in total operating expenses. Operating
expenses increased from E1,238.9 million in the first quarter of 2014 to E1,263.9 million in the first quarter of 2015, due
primarily to the 2% decrease in fuel costs and an increase in other operating costs associated with a higher level of
activity in line with the growth of the airline. The Company's cash and cash equivalents, restricted cash and financial
assets with terms of less than three months amounted to E4,483.3 million at June 30, 2014 as compared with E3,592.7 million
at June 30, 2013.
CRITICAL ACCOUNTING POLICIES
The following discussion and analysis of Ryanair's financial condition and results of operations is based on its
consolidated financial statements, which are included in Item 18 and prepared in accordance with IFRS.
The preparation of the Company's financial statements requires the use of estimates, judgments, and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the periods presented. Actual results may differ from these estimates.
The Company believes that its critical accounting policies, which are those that require management's most difficult,
subjective and complex judgments, are those described in this section. These critical accounting policies, the judgments
and other uncertainties affecting application of these policies and the sensitivity of reported results to changes in
conditions and assumptions are factors to be considered in reviewing the consolidated financial statements included in Item
18 and the discussion and analysis below. For additional detail on these policies, see Note 1, "Basis of preparation and
significant accounting policies," to the consolidated financial statements included in Item 18.
Long-lived Assets
As of March 31, 2014, Ryanair had E5.1 billion of long-lived assets, virtually all of which were aircraft. In accounting
for long-lived assets, Ryanair must make estimates about the expected useful lives of the assets, the expected residual
values of the assets, and the potential for impairment based on the fair value of the assets and the cash flows they
generate.
In estimating the lives and expected residual values of its aircraft, Ryanair has primarily relied on its own and industry
experience, recommendations from Boeing, the manufacturer of all of the Company's aircraft, valuations from appraisers and
other available marketplace information. Subsequent revisions to these estimates, which can be significant, could be caused
by changes to Ryanair's maintenance program, changes in utilization of the aircraft, governmental regulations on aging of
aircraft, changes in new aircraft technology, changes in governmental and environmental taxes, changes in new aircraft fuel
efficiency and changing market prices for new and used aircraft of the same or similar types. Ryanair evaluates its
estimates and assumptions in each reporting period, and, when warranted, adjusts these assumptions. Generally, these
adjustments are accounted for on a prospective basis, through depreciation expense.
Ryanair periodically evaluates its long-lived assets for impairment. Factors that would indicate potential impairment would
include, but are not limited to, significant decreases in the market value of an aircraft, a significant change in an
aircraft's physical condition and operating or cash flow losses associated with the use of the aircraft. While the airline
industry as a whole has experienced many of these factors from time to time, Ryanair has not yet been seriously impacted
and continues to record positive cash flows from these long-lived assets. Consequently, Ryanair has not yet identified any
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