Ryanair: O’Leary’s move is succession planning by another name

Michael O’Leary to stay as CEO until 2024, as airline is restructured to be four carriers

Ryanair chief executive Michael O’Leary, aboard one of his aircraft at Stansted Airport.  Photograph: Stefan Rousseau/PA Wire

Ryanair chief executive Michael O’Leary, aboard one of his aircraft at Stansted Airport. Photograph: Stefan Rousseau/PA Wire

 

Michael O’Leary will stay on as chief executive of Ryanair until at least 2024, but the airline will shortly be a different organisation to the one he now runs.

The business plans to restructure as a group, comprising a holding company, run by Mr O’Leary, and four carriers with individual chief executives, Ryanair Designated Activity Company (DAC), Ryanair UK, Poland-based Ryanair Sun and Austria’s Laudamotion. These already have airline licences or air operator certificates (AOCs).

Ryanair Holdings will therefore resemble International Consolidated Airlines’ Group (IAG), the owner of Aer Lingus and British Airways among others. It will buy aircraft, allocate them to subsidiaries, acquire smaller rivals, determine strategy, and manage legal and regulatory affairs and investor relations.

The subsidiaries will do the flying, competing with each other for cash and aircraft from the parent and, analysts say, handle industrial relations. O’Leary is not directly involved in this, which became difficult last year with strikes here and elsewhere as Ryanair began unionising, but this would see him at a further remove from that area.

Mr O’Leary, who is friendly with IAG chief executive and fellow Irishman Willie Walsh, is known to have begun seeing advantages to that group’s approach, even though he has frequently poked fun at the legacy airlines it owns.

He has been chief executive of the airline for 25 years, a remarkable timeframe in today’s world of public companies.

Some observers call the plan succession by another name. They argue the idea is “that the chief executives will have the chance to prove themselves and then take over from O’Leary in five or six years, or whenever”.

The DAC is the Irish-registered airline that most people know. Ryanair Sun, run by chief executive Michal Kaczmarczyk, handles most of Ryanair’s Polish traffic, and has grown from a small charter business to 25 aircraft.

Andreas Gruber runs Laudamotion, which the Irish company recently acquired. It will have 25 planes and fly 7.5 million passengers annually by 2021.

Ryanair recently got a UK AOC to protect domestic routes there post-Brexit. Overall, Britain is the company’s biggest market, accounting for more than 35 million passengers a year, potentially a sizeable airline on its own.

Whoever becomes chief executive of the DAC will be seen as “succeeding” Mr O’Leary, but the job will be different, particularly as they will answer to him.

He recently noted there were good internal and external candidates for his job. Ryanair insiders tipped for this role include chief commercial officer David O’Brien, finance head Neil Sorahan, and chief operations officer Peter Bellew.

Mr O’Leary will row back from the media and public eye. For investors, the change means a costlier structure. Some suggest that it could cut margins to around 15 per cent from the 20 per cent that Ryanair generally earns.

As this plays out over the next year, Stan McCarthy, former Kerry Group chief executive, will become deputy chairman in April before succeeding David Bonderman, who will step down along with senior independent director Kyran McLaughlin in summer 2020.

At the annual general meeting last September, Alison Kennedy of Aberdeen Standard, which owned 11 million Ryanair shares, argued that fund managers wanted to see Ryanair plan for the succession of both men as a condition of continued support. Should the issue come up when shareholders gather again next September, the company can say that it has complied with those concerns.