What Ryanair needs now

When Ryanair doesn’t have pilots to fly all of its routes on time, and has to cancel the flights of hundreds of thousands of passengers, one has to ask if its management, including chief executive Michael O’Leary, is up to the job.

O’Leary has made the airline the runaway success it is. However, the current pilot shortage shows that a can-do attitude and unconventional management style are not enough to avert a major crisis.

And as the company gets even bigger the last thing it needs is unpredictability when the going gets tough.

For example, when the company last week realised it lacked pilots to fly all its routes, memos were issued politely exhorting them to give up their holliers and come back to work. The memos initially contained no incentives like cash or extra time off in lieu. Neither did they contain threats but, as one pilot explained to me, they didn’t need to.

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In earlier days pilots who rocked the boat felt they became marked men and women who risked being passed over for promotion, or, in the case of the contractors who comprise more than half of all pilots, losing flying hours or being transferred overnight to other less salubrious postings.

These unspoken sanctions had proved so effective that they served as an invisible undercurrent reinforcing management’s reach to all levels of the company.

Last week’s response by pilots suggests the old way of running personnel relations may no longer work. Large organisations cannot operate by constantly shooting from the hip, as Ryanair does, indefinitely. There comes a point when they need reliable structures and the compliance of their employees, suppliers and customers.

This is not to say that Ryanair lacks brilliant managers: it has many, but all take their lead from the chief executive. Can he – or another person – change the company’s management style? And could such a change of style undermine the very reasons the company is so profitable?

Ripping up the rule book

There is no instruction manual for doing what O’Leary did in helping create Ryanair, except for one overriding directive which reads: tear up the rule book.

Ripping it up meant scrapping the maxim that the customer is always right. It meant challenging the assumption that one must strive to keep highly trained staff at almost any cost. It meant questioning whether a company needed to employ people in a conventional sense in the first place.

It meant hassling and hectoring everyone you dealt with, from staff to regulators to airports to governments. It meant threatening to make people stand on flights, saying you’d charge them for having a pee, and adopting garish clashing colours for your decor – all in the name of saying your company is aggressive and mean and cheap.

One of the first major initiatives that O’Leary undertook was to tell airports they should pay him for serving them, not, as convention dictated, the other way around. Guess what? European regional airports, desperate to attract tourists who customarily headed for larger cities, queued around the block to offer him deals. Millions were sometimes earned before a single passenger was carried.

And passengers were, O’Leary soon discovered, equally eager. In return for value fares they tolerated landing at regional airports miles from their ultimate destinations, poor service, long check-in queues, high baggage fees, and zero sympathy if things went wrong and they were stranded.

Gig economy

O’Leary didn’t whistle up cheap fares from thin air. For that he needed to cut costs dramatically.

He reduced the numbers employed directly by the airline to a core group. The remainder, more than half of all pilots and cabin crew, were farmed out to agencies as freelance contractors whose services could be used, or dispensed with, depending on the numbers of passengers at any given time.

New pilots registered as directors of a shelf company which in turn offered their services to a recruitment agency, such as Brookfield Aviation, which in turn hired them out to Ryanair.

Of course, just as O’Leary’s Ryanair broadened the horizons of millions who previously couldn’t afford to take regular flights, it also appealed to thousands of people for whom a dream of becoming a pilot could at last become a reality.

Instead of waiting for an airline to advertise for cadets and hope they made the cut, they could put themselves through flying school and then offer their services to Ryanair which would complete their education.

This cost money, and fledgling pilots still had to pay Ryanair for their final training. It was not unusual for pilots to get their final qualifications with a €150,000 debt hanging over them, upwards of €30,000 of which was payable to the airline.

Cabin-crew jobs were similarly constructed, although here aspirants were trained by one of several employment agencies that hired their services back to Ryanair.

Contract cabin and cockpit crew are paid only when the aircraft is moving. Time between flights is unpaid, as is time on the job when flights are delayed by poor weather or air-traffic-control problems. Ryanair is consequently one of Europe’s largest beneficiaries of the so-called “gig economy”, in which workers are paid piece rates.

‘Hidden employment’

Many of these practices would be resisted by trade unions but O’Leary has successfully employed every weapon in his legal armoury to ensure unions never get a toehold in Ryanair. This has included a successful constitutional action, in which his lawyers brilliantly argued that, while the “Freedom of Association” article of the Irish Constitution guaranteed workers the right to form unions, it also guaranteed an employer the right to have absolutely nothing to with them.

O’Leary ensured Ireland’s weakened labour laws governed all its activities, even in countries with much more demanding labour regulations such as France and Germany. All employees, even those who never set foot in Ireland, have to sign contracts governed by Irish law, even thought they might be, for example, Latvians working in Poland.

However, authorities in France, Germany and Italy have claimed that pilots should be paying higher local taxes, not Irish ones. There have been raids by revenue authorities on airports, and even pilots’ homes, where documents and even laptops were seized.

There have also been allegations in Europe that Ryanair is breaking laws relating to so-called “hidden employment”, where an employer avoids paying its share of social taxes or creates employee insecurity.

Hitherto O’Leary’s defence against these allegations has been watertight. He has consistently and competently repelled numerous actions taken under local or EU law in other countries. While the fine print of the way Ryanair runs its business might not be acceptable if done by, say, a German-based airline in Germany or some of the countries it flies to, the fact that Irish law automatically translates into EU law makes everything it does perfectly legal throughout the community.

But there are signs that chinks may be about to appear in Ryanair’s armour.

Weak spot

The European Court of Justice recently declared that Ryanair employees could henceforth take legal action against the company through local courts, and under local law, in Europe, rather than having to trek to Dublin to brief counsel and attend hearings under Irish law in Irish courts.

Another weak spot to emerge is via Ryanair’s Employee Representative Councils (ERCs) which O’Leary established in place of trade unions. They operate as works councils, mostly in the large Ryanair bases, and – O’Leary maintains – give lie to the claim that Ryanair staff lack any collective bargaining mechanisms whatsoever.

Efforts to unionise Ryanair workers have consistently failed in the face of ferocious opposition from the company. Occasional proposals for wildcat industrial action have similarly withered.

That appeared to change last Tuesday, when 17 Ryanair ERCs rejected Ryanair’s bid to solve its pilot shortage problems with an offer to buy back leave with a €12,000 bonus offer for captains, and a smaller sum for co-pilots. It wasn’t so much the refusal that mattered, but was the way the ERCs handled it.

First, they acted as a group. Second, they demanded radical change in the way they were employed and paid.

There was more. They also declared that in future negotiations they reserved the right to bring expertise to the table on their behalf. This could be read as thinly disguised code for saying “we are bringing a union on board.”

O’Leary’s not unexpected response was to throw down his own glove at the Ryanair agm last Thursday by telling shareholders that the problem would be solved by Ryanair taking back a week’s holiday from the pilots, whether they liked it or not.

Rough-and-tumble

In the normal course of events one might say “game, set, and match to O’Leary”. This is the sort of rough-and-tumble he excels at, and if previous form is any guide, he will win again.

However, this time he may have underestimated both the pilots’ resolve (some are muttering darkly on the sidelines about industrial action) and the impact of the European Court of Justice decision. Analysts have estimated that it could cost the airline €100 million, far higher than the €25 million cost that O’Leary has put on the pilot crisis.

O’Leary depends on the rule of Irish law to prop up his way of doing things and if the court’s decision starts to tug that comforting rug from under his feet it also destroys much of his ability to keep his personnel costs lower than his rivals. Ryanair can no longer afford to slash fares if the cost of pilots and cabin crew rises to that of, say, Lufthansa.

If O’Leary wins this round he will have copperfastened his well-deserved reputation as one of the greatest crisis managers in commercial history. If he loses, it could mark the beginning of the dismantling of the kind of Ryanair he has built.