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EU Regulation on Passenger Compensation Could Significantly Increase Related Costs. EU Regulation (EC) No. 261/2004 requires airlines to compensate passengers (holding a valid ticket) who have been denied boarding or whose flight has been cancelled or delayed more than 3 hours on arrival (even where the reason for the delay or cancellation is beyond the control of the airline). This legislation, which came into force on February 17, 2005, imposes fixed levels of compensation to be paid to passengers in the event of the situations described above. In November 2009, the Court of Justice of the EU in the Sturgeon case decided that provisions of the legislation in relation to monetary compensation are not only applicable to denied boarding and flight cancellations but also to flight delays (over three hours on arrival). However, such provisions do not apply when the flight cancellation or delay (over three hours on arrival), is caused for reasons outside of the control of the airline (extraordinary circumstances) such as unsafe weather conditions, air-traffic control strikes/delays, unexpected flight safety shortcomings, sabotage, aircraft manufacturing defects, security risks, political instability. A recent UK court case - Huzar vs.
Volcanic Ash Emissions Could Affect the Company and Have a Material Adverse Effect on the Company’s Results of Operations. Between April 15 and April 20, 2010 and May 4 and May 17, 2010, a significant portion of the airspace over northern Europe was closed by authorities as a result of safety concerns presented by emissions of ash from an Icelandic volcano. This closure forced Ryanair to cancel 9,490 flights. In May 2011, there were further periodic closures of parts of the European airspace due to emissions of ash from another Icelandic volcano, which resulted in the cancellation of 96 flights.
Under the terms of Regulation (EC) No. 261/2004, described above, Ryanair has certain duties to passengers whose flights are cancelled. In particular, Ryanair is required to reimburse passengers who have had their flights cancelled for certain reasonable, documented expenses – primarily for accommodation and food.
Volcanic emissions may happen again and could lead to further significant flight cancellation costs which could have a material adverse impact on the Company‘s financial condition and results of operations. Furthermore, volcanic emissions (whether from current or new sources) or similar atmospheric disturbances and resulting cancellations due to the closure of airports could also have a material adverse effect on the Company‘s financial performance indirectly, as a consequence of changes in the public‘s willingness to travel within Europe due to the risk of flight disruptions.
Any Significant Outbreak of any Airborne Disease Could Significantly Damage Ryanair’s Business. Worldwide, there has, from time to time, been substantial publicity in recent years regarding certain potent influenza viruses and other disease epidemics. Publicity of this type may have a negative impact on demand for air travel in Europe. Past outbreaks of MERS, SARS, foot-and-mouth disease, avian flu and swine flu have adversely impacted the travel industries, including aviation, in certain regions of the world, including Europe. The Company believes that if any influenza or other pandemic becomes severe in Europe, its effect on demand for air travel in the markets in which Ryanair operates could be material, and it could therefore have a significantly adverse impact on the Company. A severe outbreak of swine flu, MERS, SARS, foot-and-mouth disease, avian flu or another pandemic or livestock-related disease also may result in European or national authorities imposing restrictions on travel, further damaging Ryanair‘s business. A serious pandemic could therefore severely disrupt Ryanair‘s business, resulting in the cancellation or loss of bookings, and adversely affecting Ryanair‘s financial condition and results of operations.
The Company is Dependent on the Continued Acceptance of Low-fares Airlines. Ryanair has an excellent 30 year safety record. In past years, however, accidents or other safety-related incidents involving certain low-fares airlines have had a negative impact on the public‘s acceptance of such airlines. Any adverse event potentially relating to the safety or reliability of low-fares airlines (including accidents or negative reports from regulatory authorities) could adversely impact the public‘s perception of, and confidence in, low-fares airlines like Ryanair, and could have a material adverse effect on Ryanair‘s financial condition and results of operations.
Terrorism in the United Kingdom or Elsewhere in Europe Could Have a Material Detrimental Effect on the Company. On August 10, 2006, U.K. security authorities arrested and subsequently charged eight individuals in connection with an alleged plot to attack aircraft operating on transatlantic routes. As a result of these arrests, U.K. authorities introduced increased security measures, which resulted in all passengers being body-searched, and a ban on the transportation in carry-on baggage of certain liquids and gels. The introduction of these measures led to passengers suffering severe delays while passing through these airport security checks. As a result, Ryanair cancelled 279 flights in the days following the incident and refunded a total of €2.7 million in fares to approximately 40,000 passengers. In the days following the arrests, Ryanair also suffered reductions in bookings estimated to have resulted in the loss of approximately €1.9 million of additional revenue. As in the past, the Company reacted to these adverse events by initiating system-wide fare sales to stimulate demand for air travel.
In addition, reservations on Ryanair‘s flights to London dropped materially for a number of days in the immediate aftermath of the terrorist attacks in London on July 7, 2005. Although the terrorist attack in Glasgow on June 30, 2007 and the failed terrorist attacks in London on July 21, 2005 and June 29, 2007 had no material impact on bookings, there can be no assurance that future such attacks will not affect passenger traffic. In the 2014 fiscal year, 16.6 million passengers were booked on Ryanair‘s flights into and out of London, representing approximately 20.4% of the total passengers booked on all of the Company‘s flights in the fiscal year. Future acts of terrorism or significant terrorist threats, particularly in London or other markets that are significant to Ryanair, could have a material adverse effect on the Company‘s profitability or financial condition should the public‘s willingness to travel to and from those markets decline as a result. See also ―—The 2001 Terrorist Attacks on the United States Had a Severe Negative Impact on the International Airline Industry‖ below.
The 2001 Terrorist Attacks on the United States Had a Severe Negative Impact on the International Airline Industry. The terrorist attacks on the United States on September 11, 2001, in which four commercial aircraft were hijacked, had a severe negative impact on the international airline industry, particularly on U.S. carriers and carriers operating international services to and from the United States. Although carriers such as Ryanair that operate primarily or exclusively in Europe were generally spared from such material adverse impacts on their businesses, the cost to all commercial airlines of insurance coverage for certain third-party liabilities arising from ―acts of war‖ or terrorism increased dramatically after the September 11 attacks. See ―Item 4. Information on the Company— Insurance.‖ In addition, Ryanair‘s insurers have indicated that the scope of the Company‘s current ―act of war‖-related insurance may exclude certain types of catastrophic incidents, such as certain forms of biological, chemical or ―dirty bomb‖ attacks. This could result in the Company‘s seeking alternative coverage, including government insurance or self-insurance, which could lead to further increases in costs. Although Ryanair to date has included increased insurance costs in the ticket price charged to passengers, there can be no assurance that it will continue to be successful in doing so.
Because a substantial portion of airline travel (both business and personal) is discretionary and because Ryanair is substantially dependent on discretionary air travel, any prolonged general reduction in airline passenger traffic may adversely affect the Company. Similarly, any significant increase in expenses related to security, insurance or related costs could have a material adverse effect on the Company. Any further terrorist attacks in the U.S. or in Europe, particularly in London or other markets that are significant to Ryanair, any significant military actions by the United States or EU nations or any related economic downturn may have a material adverse effect on demand for air travel and thus on Ryanair‘s business, operating results, and financial condition. See also ―—Terrorism in the United Kingdom or Elsewhere in Europe Could have a Material Detrimental Effect on the Company.‖ The Company Faces the Risk of Loss and Liability. Ryanair has an excellent 30 year safety record, however, it is exposed to potential catastrophic losses that may be incurred in the event of an aircraft accident or terrorist incident. Any such accident or incident could involve costs related to the repair or replacement of a damaged aircraft and its consequent temporary or permanent loss from service. In addition, an accident or incident could result in significant legal claims against the Company from injured passengers and others who experienced injury or property damage as a result of the accident or incident, including ground victims. Ryanair currently maintains passenger liability insurance, employer liability insurance, aircraft insurance for aircraft loss or damage, and other business insurance in amounts per occurrence that are consistent with industry standards.
Ryanair currently believes its insurance coverage is adequate (although not comprehensive).
However, there can be no assurance that the amount of insurance coverage will not need to be increased, that insurance premiums will not increase significantly, or that Ryanair will not be forced to bear substantial losses from any accidents not covered by its insurance. Airline insurance costs increased dramatically following the September 2001 terrorist attacks on the United States. See ―—The 2001 Terrorist Attacks on the United States Had a Severe Negative Impact on the International Airline Industry‖ above. Substantial claims resulting from an accident in excess of related insurance coverage could have a material adverse effect on the Company‘s results of operations and financial condition.
Moreover, any aircraft accident, even if fully insured, could lead to the public perception that Ryanair‘s aircraft were less safe or reliable than those operated by other airlines, which could have a material adverse effect on Ryanair‘s business.
EU Regulation No. 2027/97, as amended by Regulation No. 889/2002, governs air carrier liability. See ―Item 4. Information on the Company—Insurance‖ for details of this regulation. This regulation increased the potential liability exposure of air carriers such as Ryanair. Although Ryanair has extended its liability insurance to meet the requirements of the regulation, no assurance can be given that other laws, regulations, or policies will not be applied, modified or amended in a manner that has a material adverse effect on Ryanair‘s business, operating results, and financial condition.