Recent news regarding European budget airlines are full of despair, with the collapse of the several airlines such as AirBerlin, Alitalia, and Monarch. In addition to this, Ryanair was forced to cancel 20,000 of its flights in recent months due to mismanagement with pilot rosters, calling this event ‘perfect storm’ by Ryanair. As expected, this led to bad publicity among the press and a mob of furious customers, with Ryanair shares dipping from €19 in August to under €16 by the end of October. Nevertheless, in spite of this chaos, Ryanair has forecasted to make a record high annual profit this year.
For Ryanair, getting a bad press over its practice is becoming a regular occurrence now. But the latest event could be one of the most impactful one, sending shockwaves to the entire organisation with news media headlines calling for CEO Michael O’Leary to quit. In September, Ryanair was forced to cancel around 20,000 flights effecting 700,000 passengers due to staff shortages and error among pilots’ annual leave. To a certain extent, this affirms the rumour of pilots leaving Ryanair for its competitors such as Norwegian and Easyjet, and highlights one of the internal challenges of Ryanair regarding its labour. After all, Ryanair is not known to have best pay and working condition in the industry. This is worrying for Ryanair, because if the labour problem continues into long run, events would ensue similar to September and it could prove to be one too many ‘perfect storm’ as the customers would turn away from them in the future. In order to tackle this, Ryanair has decided to increase their pilots’ salary.
There are also major financial implications associated with this episode, as Ryanair decided to increase their pilots’ salary by 20% above its competitors pay package. As a result, this could cost up to €100m, driving up its operating cost which could have an impact on its cost advantage competitiveness. Furthermore, under EU regulations, cancellations cost them €25m in addition to €40 and €80 vouchers given to 700,000 customers, which could cost them up to €50m in total. Consequently, Ryanair’s H2 performance is likely to suffer, as traffic is expected to drop by up to 4% with their rivals — Easyjet and Norwegian are experiencing a 10% and 14% surge respectively in their passengers in October .
However, not everything is doom and gloom for Ryanair. Its H1 performance showed the strong performance and the company is still forecasted to make a record high annual profit. Ryanair’s profit went up by 11% to €1.29bn from €1.17bn in 2016. It’s traffic also increased by 11% to 72.1m passengers. This is due to a strong Easter performance, the collapse of competitors such as Monarch, and reduction in fares by 5%, saving customers €160m. This proves that Ryanair’s robust low-cost business model is working and is profitable within the competitive environment. Still, the H1 performance’s limited impact on current cancellations should be considered. Nevertheless, Ryanair still experiences a rise in passenger numbers in October to 11.8m from 10.9m last year. It has increased by 8% year on year considering cancellations. This displays that even with bad press and reports of furious customers, passengers still return to Ryanair and ‘perfect storm’ seems to have no impact on its performance as the company is still forecasted to make record high full year profit of at least €1.4bn. Consequently, Ryanair’s shares climbed back again above €17 after the release of its financial performance.
Regarding labour shortage problems and rumours, Ryanair replied that it has employed around 1,000 pilots this year and its CFO, Neil Sorahan, said he is ‘absolutely confident’ that there would be enough pilots. With the decision to pay higher salaries than its competitors by 20%, Ryanair might able to attract more pilots and persuade the current ones to stay. More importantly, with the collapse of Monarch, Air Berlin and Alitalia there’s a surplus of pilots in the labour market.
Bearing in mind the paradoxes of Ryanair, its future seems uncertain. Even though the higher salary might attract pilots for the short term, in the long run, if the relationship between management and staff is not improved, it might lead to incidents like ‘perfect storm’ to unfold again. Nonetheless, passengers return to Ryanair due to the competitive nature of the industry, and H1 performance shows that Ryanair’s business model is performing well — whilst the rival firms are failing. More importantly, we have seen yet another Michael O’Leary’s wizardry and Ryanair has yet to grow more.