Within hours of warning shareholders this week that profits would fall below what they were expecting, Ryanair was advertising 25 per cent off flights and extolling the virtues of Lanzarote and Bruges in January.
The airline landed in stock market trouble on Monday by announcing that profits for the financial year – which ends on March 31st next – were likely to fall to between €1.1 billion and €1.2 billion, instead of the €1.25 billion to €1.35 billion that it originally predicted.
A paragraph indicating that further such warnings could follow, and the fact that this one arrived less than two weeks after Ryanair’s agm, spooked investors.
Shareholders’ offloaded around 13 million shares on the Dublin market. Two days of selling wiped slightly more than €2 billion off the company’s market value, which fell from €14.89 billion at the close of business on Friday to €12.86 billion at 5pm on Tuesday.
Ryanair blamed the pilot and cabin crew strikes that blighted its summer, along with rising fuel prices for the €150 million reduction in predicted profit.
Of that, industrial unrest accounted for €120 million. This embraces the cost of re-routing or refunding affected customers and the lower fares that will result from sales which are designed to lure back passengers who fear industrial action could cancel their flights.
It was not Ryanair's first profit warning – it issued two in as many months five years ago – but it followed a year of bad news. That began with botched pilot rosters in September 2017, forcing the carrier to cancel thousands of flights last winter. Unrest, principally among pilots, followed. This led to strike threats in Germany and Ireland just before Christmas, prompting Ryanair to agree to recognise trade unions.
In the summer a dispute with about 100 members of the Irish Airline Pilots' Association (Ialpa) led to five one-day strikes in July and August. Their colleagues in Belgium, Germany, the Netherlands and Sweden joined them on the picket line on the last of those days. The row was only settled after industrial relations troubleshooter Kieran Mulvey was drafted in to mediate.
Cabin crew also organised. They held a one-day strike on September 28th in Belgium, Germany, Portugal, Italy, the Netherlands and Spain. Dutch and German pilots decided last week to down tools at the same time.
Speaking to reporters after Ryanair’s agm in Co Meath, chief executive Michael O’Leary noted that winter was not a good time for airline staff to strike. So there was a sense that last Friday’s strikes were the end of the bad news, at least for now. Yet Monday’s warning left investors wondering if there was more to come.
Much depends on where Ryanair’s relationship with the unions goes next. Since December it has signed recognition agreements covering pilots with Fórsa, with which Ialpa is affiliated, the British Airline Pilots’ Association (Balpa) in the UK, and several unions in Italy.
It has done similar deals covering cabin crew with Fórsa in the Republic, Unite in the UK, Verdi in Germany and three Italian unions. Following the summer's dispute it also reached an agreement covering pilot seniority, promotions and base transfers with Ialpa-Fórsa.
Ryanair maintains that these deals are significant as they include unions in big markets such as Britain and Italy, but those labour groups and others argue that they are just a first step.
Darren McKinley, an industry analyst with Dublin brokers Merrion, says the airline has agreed nothing in the way of hard terms and conditions with several of these unions.
That appears to be the next step. In the Republic, while it has agreed a seniority deal covering pilots, Fórsa is also in talks with Ryanair about the cabin crew it represents. "We are entering a normal industrial relations process," its spokesman Niall Shanahan says. That means management and union sitting across from each other and negotiating terms and conditions.
My sense is that Ryanair is willing to give up some profitability this year before they surrender productivity and their low-cost base
Similar moves are afoot elsewhere. Balpa has submitted a claim covering seniority, harmonising pay across Ryanair’s UK bases and a limit on the number of contract – as opposed to directly-employed – pilots that the airline hires.
German pilots’ union Vereinegung Cockpit (VC) has also submitted a claim featuring pay and contracts.
Liz Blackshaw, campaign organiser with trade union umbrella body, the International Transport Workers' Federation, to which most of the groups representing Ryanair workers are affiliated, points out that the airline is facing this across its network.
“Most claims have been made and are public,” she says. “Ryanair are not going to face anything new, they are just dealing with the industry norms that their workforce are trying to achieve.”
Ryanair says that it has addressed pilots’ pay by awarding 20 per cent increases this year. Unions say this was agreed before they came on board. Outside the Republic and the UK, workers want to switch from Irish employment contracts to local agreements. The airline says that it is willing to do this. A third strand is the unions’ desire to limit or end the use of agency and self-employed workers.
Ryanair is managing all this union by union, jurisdiction by jurisdiction. So there is plenty of scope for disputes. Pilot groups such as VC and Dutch Alpa say there has been little progress in addressing their grievances. In the UK, Balpa has issued a failure-to-agree notice, the first stage in a process that could potentially lead to a dispute, although it is likely that conciliation would take place first.
O’Leary summed up the airline’s position on all union demands at the agm. It is not prepared to jeopardise its low-cost approach to business, and will not simply roll over. However, he stressed that the company would be reasonable where unions were reasonable.
He warned that further strikes were inevitable, something this week’s statement echoed when it did not rule out further disruption.
McKinley suggests that the airline is telling shareholders to expect more strife. “My sense is that Ryanair is willing to give up some profitability this year before they surrender productivity and their low-cost base. You are probably going to see more strikes. I think that’s what this announcement is about.”
Analysts expect Ryanair to continue cutting fares to counter industrial unrest. “They are just going to grill the market,” says one.
This will hit profits. O’Leary said two weeks ago that forward bookings were good, but yields, that is, the money the airline makes from selling seats on its flights, were weak.
It is also cutting back. On Monday, Ryanair said it was responding to falling fares, higher costs and increased compensation by closing bases in Eindhoven in the Netherlands and Bremen in Germany, and serving them with craft from elsewhere.
Also in Germany, the airline will reduce its Neiderrhein operation to three planes from five. The company said it would offer staff redeployment and options such as unpaid leave to minimise job losses. Ryanair did not rule out trimming further “loss-making winter capacity” in Monday’s statement, leaving the door open for more base closures and cutbacks.
Blackshaw warns that closing bases will only inflame the situation further, and cause more problems at the negotiating table. She argues that Ryanair’s fragmented approach to dealing with unions means it could take years before the airline gains some sort of industrial relations equilibrium.
This is happening against a background where European aviation is heading for turbulence. Rising oil prices means higher costs, potentially €400 million extra for Ryanair next year. Airlines are buying more craft, adding more seats that they will have to sell. EasyJet is boosting capacity by 10 per cent, and Wizz Air by 16 per cent.
Ryanair itself is adding 20 new craft this winter, a 4.45 per cent increase, but took on 50 new planes last year and will step back up to that number from 2020, when it begins taking on the new Boeing 737 Max. However, it will be retiring older models at the same time.
Observers believe the expansion leaves the industry ripe for casualties, particularly as they believe demand is falling. “I wouldn’t be surprised to see some of the other airlines go bust in this environment,” McKinley says.
He suggests that the tighter labour market that could result could aid Ryanair in talks with unions. While O’Leary has predicted that weaker carriers, including Norwegian, would go under as costs rise, he has not said that this plays any role in the company’s industrial relations strategy.
In any case it may not be the safest bet. The market absorbed the loss of Monarch and Air Berlin, which both went to the wall in 2017. In fact, a shortage of crews caused cancellations at several airlines over the past year, including Irish-based Cityjet and Norwegian Air International.
As with any crisis in Ryanair, the past few months have prompted speculation about O'Leary's future at the helm. Ahead of the agm, union groups and investment advisers such as Pension and Investment Research Consultants called on shareholders to oust both the chief executive and chairman David Bonderman.
In the end 99.7 per cent of shareholders voted for O’Leary, while Bonderman drew 70 per cent support. However, some investors indicated that they would not necessarily vote for the chairman next year.
Alison Kennedy of Aberdeen Standard, which owns 11 million Ryanair shares, told the meeting that governance needed to "evolve" in light of the company's industrial relations challenges. Her company wants to see succession plans for Bonderman, and senior independent director Kyran McLaughlin.
Nobody questioned O’Leary’s position. His current five-year contract ends in September 2019, but he wants to remain on past that, albeit on rolling 12-month contracts.
While investors’ nerves are frayed this week, analysts believe 99.7 per cent of them would still back the chief executive. Yet they warn that another year of unrest could shake some of that faith.