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Cliff Taylor: Will Michael O’Leary be able to stick it in a unionised Ryanair?

Capitulation in face of threatened strike a challenge to chief’s buccaneering approach

Will Michael O’Leary be able to stick it in a unionised Ryanair? This is one of the big questions in the wake of the dramatic U-turn by the airline on union recognition and, given the chief executive’s previous stance on the issue, it is a legitimate one.

Like many a chief executive before him, O’Leary can decide to adapt to changed circumstances. He previously embraced the company’s 2013 strategy to be more customer-friendly, after all. But the question, for a man who said he would rather cut off his hand than deal with trade unions, is whether he will want to operate in a unionised world which is so alien to where the airline has come from.

Investors are confused, explaining the fall in the share price from more than €17.50 a month ago to €14.95 now. The move to union recognition took the market by surprise. Most appeared to think Ryanair would take on a strike rather than go down this route.

Straw in the wind

The trade unions had clearly spotted a soft spot in Ryanair’s “no unions” resolve. It now appears that the rostering fiasco during September was a straw in the wind, as opposed to a one off. Ryanair needs to hold on to its pilots and this is driving its actions.

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The return in October of Peter Bellew, who was running Malaysia Airlines having previously spent eight years at Ryanair, is clearly significant part. According to a recording of a recent meeting with pilots in Stansted, reported by Independent.ie, he told those attending that the airline had grown too fast and had lost the trust of its pilots and that his biggest concern was trying to retain them.

This is a big change from the message O’Leary has been selling and raises questions about whether the top team are all on the one page about how the world of union recognition will work. Company representatives told Impact and Ialpa at a meeting on Tuesday evening that they would recognise them for collective bargaining purposes, but the unions expressed disappointment that the company would not state this in writing.

Investors will wonder what is going on here. Will Ryanair be able to find a way of working with trade unions and are all the company’s senior executives at one on how this will happen? Will there be industrial upheaval as this all beds in?

Investors are also asking questions about the company’s long-term strategy. Inviting in trade unions will not end the Ryanair “story”. But investors fear it will push up costs, damage flexibility and slow the growth of earnings.

Ryanair's non-fuel costs, as Davy Stockbrokers pointed out, are 50 per cent lower per passenger than costs at EasyJet, but less than a fifth of the difference is made up of staff costs. Ryanair can still mine cost advantages to expand, but higher staff costs could eat into earnings and lower its market premium.

Ryanair’s growth has been built on extraordinary flexibility and a relentless drive to keep costs down. This has delivered for investors – and for customers, too. O’Leary is one of the very few Irish business leaders to build a world-class company from an Irish base. He upended an industry previously built on gouging the customer. Everyone loves to give out about Ryanair, but we put up with the scratch-card hassle and the trumpets for the convenience and cost.

Cheap and cheerful

Central to the company’s extraordinary growth has been O’Leary and his persona. It was a culture built on selling a “cheap and cheerful” message to passengers. He once said that a Ryanair flight was not meant to be a calm experience: “We . . . bombard you with as many in-flight announcements and trolleys as we can. Anyone who looks like sleeping, we wake them up to sell them things.”

The company relented a bit at the end of 2013, announcing a more customer-friendly approach and the end of the millimetre-level measurement of cabin baggage. Growth continued apace.

Employee relations were centred on the company’s enduring drive to keep costs down and on a tough style. Even in the middle of the recent rostering crisis, O’Leary could not resist telling journalists at the company’s annual general meeting that pilots “are very skilled professionals. But are they hard-worked? No.”

Maybe some of the change now under way is the inevitable result of Ryanair’s growth. O’Leary has held on to the buccaneering approach typical of a much smaller company, even as Ryanair grew to an industry giant. Perhaps you can’t be the growling underdog forever.

The question now is whether O’Leary can become – or wants to become – the leader of what looks like becoming a more conventional-looking and behaving company.

Can the chief executive sign up for managing in a trade-union environment, after years of preaching the evils of this route? A week ago, that looked about as likely as Donald Trump sitting down with Kim Jong-un. O’Leary’s current five-year contract runs to September 2019, but you would have the feeling that the next few months will tell a lot.