Ryanair problems have taken some wind from beneath O’Leary’s wings
Cancellations crisis rooted in change in approach to governing hours pilots spend in air
At some point over the next year, well after the dust settles from the various crises that have hit Ryanair over the past three weeks, it is likely that chief executive Michael O’Leary and his board will begin work on a succession plan.
His current contract runs until 2019. It is not thought that he will go at that point, and finding and preparing someone to ultimately take his place will not happen overnight. “They will have to identify a successor, groom them and be prepared to give them their head to a certain extent,” says one source.
While it is going to happen some time, the airline is a long way from deciding whether that successor will come from inside or outside the company. Ryanair has plenty of experienced executives itself, many of them with decades in aviation. Those are the sort of questions that Ryanair is likely to begin thrashing out next year.
Questions about when O’Leary will eventually leave the airline that he has led since 1994 crop up regularly. Since the airline announced the first round of cancellations three weeks ago, plenty of journalists have asked him if his position at Ryanair was still sustainable, particularly given the fact that he took full responsibility. He made it pretty clear that he would not be stepping down as a result.
Nevertheless, he lost some of his air of invincibility. Observers say that the airline has not been so vulnerable to its critics, particularly within rival airlines and trade unions, since 1998, when a dispute with baggage handlers hit its operations at Dublin Airport.
That stems from how it handled the crisis and fallout. Ryanair’s first statement, late on Friday, September 15th, said that it would cancel an average of 50 flights a day over six weeks. However, it gave little detail about what flights would be hit.
Instead of annoying the 315,000 people affected, it confused about 18 million passengers due to fly with the airline over the period.
Six days later O’Leary outraged pilots by describing their job as easy at a press conference, described by one insider as a “dog’s dinner”. The airline subsequently ditched a plan to buy back pilots’ leave.
By the middle of last week Ryanair announced that it would fly 25 fewer aircraft than planned this winter, and cancel thousands more flights between November and March, affecting about 400,000 passengers.
It was only at that stage that it appeared to be getting to grips with the overall problem.
All that has left plenty of commentators asking if O’Leary followed the right course as he and Ryanair negotiated their way through the difficulties.
Diverting O’Leary from a course of action on which he has decided is not easy. Sources say that it is not that he does not listen, but convincing him means having a clear, well-prepared and structured argument. “He’s not going to listen to anything that he regards as Mickey Mouse, ” one says.
The crisis is rooted in a change in the approach to governing the hours that pilots spend in the air
As he built Ryanair O’Leary worked closely with former deputy chief executive Michael Cawley, and former chief financial officer Howard Millar. It is acknowledged that he trusted both men, and they were able to rein him in to a degree. However, since they left over the past three years, sources ask if he is subject to the same restraint.
Both are non-executive directors of Ryanair, and were drafted in to help as the airline’s problems unfolded over the past three weeks. It is understood that they prevailed on O’Leary to step back from the idea of buying back pilots’ leave.
The pair may also have been instrumental in the decision to slow expansion this winter. This move is meant to allow the airline to phase in a new system for calculating pilots’ flight time, allow it to start 2018 with a clean sheet and avoid a situation similar to the one in which it now finds itself.
The crisis is rooted in a change in the approach to governing the hours that pilots spend in the air. The rules, known as flight-time limitations, do not allow pilots to fly more than 900 hours in a year, and have been applied across the EU for decades. The Irish Aviation Authority (IAA) regulates this in the Republic.
Up to recently Irish airlines here calculated those hours on the basis of 12 months running from April 1st to March 31st, while other European countries used the calendar year. While some reports suggest that the Irish approach gave Ryanair and others a commercial advantage, the IAA says it did not.
The regulations also govern how many hours someone can fly in a day, week or month. Their focus is safety rather than time off or holidays.
It flew a record 12.7 million passengers in August, an increase of 10 per cent on the same month last year, without a hitch
The authority decided to change the approach here to bring it into line with the rest of the EU because it caused difficulties for pilots moving from an Irish carrier to European airlines. So the IAA agreed in 2016 with the Irish airlines that they would phase in a January to December approach to calculating flying hours.
Aer Lingus agreed with the authority that it would introduce the new system at the start of this year. Ryanair, as it is 10 times larger, needed more time, and so it agreed to phase in the new system by January 2018. The airline kept the IAA up to date on the progress that it was making on this. It never sought a derogation or change in the original arrangement.
Ryanair had no reason to believe that there were any problems. In fact, it flew a record 12.7 million passengers in August, an increase of 10 per cent on the same month last year, without a hitch.
While it was preparing to phase in the new flight-time limitation system the airline stuck with its normal practice of allowing pilots to take holidays in four-week blocks. In common with most airlines, they began taking their leave as the summer season wound down in September. The combination of the leave and the switch to the new system left Ryanair without enough pilots to man scheduled flights and to provide the normal back-up required.
One group within the airline prepares pilots’ rosters weeks in advance. As the time for each roster approaches, a second group, crew control, then deals with nuts and bolts problems such as unexpected absences due to sickness and other issues.
Those staff have the responsibility of ensuring that there are pilots for every flight and enough back-up crew to call on in case of delays caused by all the usual factors such as strikes and weather. Both groups report to senior management.
Those senior managers meet every Monday morning. Sources say that it is a group of about eight people which would normally include O’Leary himself, chief operations officer Michael Hickey, chief commercial officer David O’Brien, chief financial officer Niel Sorahan, chief marketing officer Kenny Jacobs and others.
The phasing in of the new flight-time limitation system frequently featured on the agendas for those meetings. However, there was no inkling of any issue on Monday, September 11th.
Its rivals have not been slow to cash in. Aer Lingus extended its normal winter sale when Ryanair’s difficulties first emerged
O’Leary subsequently said that management had been assured that the airline had the pilots needed to cover its schedules. It appears that staff only first spotted a problem 24 or 48 hours before Ryanair announced the first batch of cancellations. “It just crept up on them,” one source says.
There is still no clear explanation of how a crisis managed to creep up on what is one of the country’s best-run companies. Whatever the final trigger it has damaged its reputation for providing cheap, reliable flights and set back efforts to remodel the airline as more customer-friendly.
Ryanair declined to comment for this article, citing previous press statements.
Its rivals have not been slow to cash in. Aer Lingus extended its normal winter sale when Ryanair’s difficulties first emerged. Its short-haul bookings are said to be up 30 per cent, not just during the periods hit by its competitor’s cancellations but beyond that again.
The problems also gave Ryanair’s old foes in the trade unions an opportunity to highlight what they believe is wrong with the airline’s way of doing business. At one point there were suggestions that pilots could organise, but various calls said to be from pilots for better conditions appear to have receded.
As it restores equilibrium Ryanair’s answer to its critics is likely to be one on which O’Leary has always relied to demonstrate that its approach works – seat sales . As one observer says: “The one thing the rest of the industry does not want from all this is seat sales, so you can expect a wave of them.”
TURBULENT FEW MONTHS AT RYANAIR
A row over seat-allocation charges, a brush with the European Court of Justice and two waves of cancellations have all contributed to a turbulent few months at Ryanair.
June: The Irish Times Pricewatch column reports that passengers are complaining that Ryanair’s free seat-allocation policy separates those travelling together, forcing them to pay charges beginning at €2 if they want to sit alongside each other.
July: Chief executive Michael O’Leary turns up on RTÉ radio’s Liveline show and tells passengers not willing to pay for allocated seats to stop whingeing.
July: Ryanair’s timekeeping deteriorated. Bad weather and air-traffic control strikes delayed 11,730 flights. The number of customer complaints also rose.
September: Share advisory firms question the independence of Ryanair chairman David Bonderman and most of its board, and urge shareholders to oppose their re-election at the company’s upcoming annual general meeting.
September 6th: Ryanair announced that it would change its cabin bags policy from November. The new rules cause confusion amongst passengers.
September 14th: Ryanair shares fall 4.4 per cent following a European Court of Justice ruling on employee disputes which analysts say could cost up to €100 million a year. The airline says it will make no difference to costs.
September 15th: Ryanair announces late on a Friday that it would cancel an average of 50 flights a day for the succeeding six weeks, affecting about 315,000 passengers.
September 18th: O’Leary apologises for the problem, confirms that it relates to pilots’ leave, and the company begins to clarify what flights it intends cancelling.
September 21st: O’Leary apologises to shareholders at Ryanair’s annual general meeting. More than 90 per cent of investors support the re-election of all board members.
September 21st: O’Leary prompts outrage when he suggests at a press conference that pilots have an easy job. The remarks overshadow several conciliatory comments made about pilots.
September 27th: Ryanair announces that it will fly 25 fewer aircraft than planned over the winter season, leading to cancellations affecting about 400,000 passengers from November through to March.
RYANAIR PLC BOARD
David Bonderman, chairman, joined 1996, 21 years
Michael O’Leary, chief executive, joined 1994, 23 years
Kyran McLaughlin, non-executive, joined 2001, 16 years
Michael Cawley, non-executive, joined 2014, three years
Howard Millar, non-executive, joined 2015, two years
Julie O’Neill, non-executive, joined 2012, five years
Louise Phelan, non-executive, joined 2012, five years
Charlie McCreevy, non-executive, joined 2010, seven years
Declan McKeon, non-executive, joined 2010, seven years
Dick Milliken, non-executive, joined 2013, four years
Stan McCarthy, non-executive, joined 2017
The UK’s combined code of corporate governance, to which Irish plcs are meant to subscribe, recommends that non-executive directors should serve no more than nine years on an individual company’s board.