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Ryan Air: Transactional, Operational and Translational Exposures - Essay Example

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Ryan Air: Transactional, Operational and Translational Exposures

Significant Hedging in relation to Debt Obligations Owing to the debt obligations which are related to the acquisition of the new aircrafts by the company, there have been considerable derivative transactions being carried out by the company in order to hedge its financial obligations. Such derivative transactions have exposed the company to greater market risks and can pose unfavourable effects on the operational and financial position of the company (Ryan Air 2011, Madura 2009). Operational Exposure (Economic / Competitive / Strategic Exposure) Increased Competitiveness in Market One of the most significant areas of concern for Ryan Air is the increasing competition in the airline industry across Europe. Considering the need to be proactive in this scenario, the Ryan Air aims at competing in a robust manner with its competitors in the industry in relation to pricing and attracting more passengers. However, in such a scenario it is possible that the competitors of the company may compete in price and acquire the company’s passengers and thereby reducing the overall revenue of the company and thus a lower profitability. Apart from this type of competition, the company also faces competition from other forms of transportation which include railways and travelling by sea (Ryan Air 2011, Madura 2009, Koller and Goedhart 2010). Effects of Variations in Fuel Costs and Availability The company’s ability to generate profits is largely dependent on its ability to control costs and in turn maintain itself a low-fare airline. In this regard, it is pertinent to consider that in case the fuel prices rise in future, there is a possibility that the company’s operating profits may decline. In order to reduce its exposure to volatile and potentially rising fuel costs, Ryan Air places hedges on the jet fuel prices on a regular basis (Ryan Air 2011, Madura 2009). The forward contracts for the last three years for jet fuel are as follows: At March 31, 2011 2010 2009 €M €M €M Jet fuel forward contracts – fair value 383.8 42.6 (106.7) Source: (Ryan Air 2011) In addition to controlling fuel costs, ensuring the timely availability of fuel is also an area on which the operations of Ryan Air are dependent and therefore there is always an operational risk that in case fuel is not readily available, the operations of the company will be significantly affected (Ryan Air 2011, Kevin 2009). Launching of New Routes The company plans to commence its operations on new routes in the days to come and in this regard it is expected that apart from the increase in turnover of the company, there will be more costs involved. The launch of new routes will involve the conduct of marketing activities to attract passengers on board. These costs will definitely lower down the profits of the company and it is also not assured that the policy of low fares of Ryan Air will be successful on new routes or not. In addition to these areas of concern, owing to the launch of new routes, the company will require additional cash reserves in order to finance the ...Show more

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Ryan Air – Transactional, Operational and Translational Exposures [Instructor Name] Ryan Air – Transactional, Operational and Translational Exposures While reviewing the annual report and the financial statements of Ryan Air, there are various issues which are faced by the company and the resulting exposures can be understood from such issues…
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