Business Irish

Saturday 21 October 2017

Richard Curran: Ryanair bosses must shoulder blame for taking eye off the ball amid rapid growth

Ryanair chief executive Michael O’Leary Photo: Colin Keegan
Ryanair chief executive Michael O’Leary Photo: Colin Keegan
Richard Curran

Richard Curran

'We are in the shit now. How are we going to dig our way out of it," Michael O'Leary asked just two weeks after the 9/11 attacks of 2001. His answer was the same as it has always been. "Other companies are grounding flights, laying off staff. We are going to fly our way out of this crisis. Our solution is to get back in the air with more passengers and lower fares."

Well Ryanair appears to be in the proverbial brown stuff once again. But O'Leary's persistent mantra for every crisis, is the one response he cannot give to this particular problem.

Ryanair is the one grounding flights because of a series of problems, some of its own making.

And this is a real crisis, not only because it has wiped over €1.2bn off the market value of the company and may end up costing tens of millions of euro.

The crisis nature of this particular problem is that for the first time, Ryanair made the balls-up.

The airline and its chief executive have been controversial, aggressive, powerful and incredibly successful in the last 25 years.

Problems it faced, such as 9/11 or the ash cloud, tended not to be of its own making. Even when it faced down striking baggage handlers or took on media companies questioning its work practices or approach to safety, it didn't do mistakes.

This time round, a fundamental problem has arisen which will see dozens of flights cancelled in the coming weeks and the blame surely lies with company management themselves.

Getting rostering right is important in any business, whether it's a coffee shop with three staff or Europe's biggest airline with thousands.

It begs a question of how this happened. Several factors are at play but there is a core issue of how Ryanair managed the human resources challenge of rapid expansion.

Was it busy chasing Alitalia or trying to muscle in on Air Berlin, as big strategic plays but took its eye off the ball on the operational implications of expanding its own operations.

It has grown passenger numbers, aircraft fleet numbers, revenues and profits, at a phenomenal rate in recent years. Five years ago, it made a profit of €569m and carried 79 million passengers.

Last year it made a profit of €1.2bn and carried 117 million passengers. It has a fleet of over 400 aircraft. It has delivered on its incredibly ambitious expansion plan and now carries more passengers a year than any other airline in Europe.

Ryanair put in place the deals it needed with airports around Europe. It acquired the right aircraft at the right price as part of its planning. It planned its new routes and European strategy to perfection.

But has it managed the rostering, and supply of pilots correctly by building in wriggle room for unseen events such as poor weather or striking air traffic controllers?

This pilot problem for Ryanair shows how aggressively it has pushed the expansion, and delivered it well but perhaps without the cushion it required for anything to wrong on the rostering front.

The airline has built up a management team with extraordinary capability. But somehow its expansion plans have shown a dent in their ability to deliver on rapid change. Rostering is an operational matter and blame lies squarely within Ryanair's head office. Its initial response to this problem was also all wrong and sent out a bad signal. Just last weekend the airline was emphasising how the flight cancellations only represented 2pc of its schedule.

This is a very relevant point for investors but it is meaningless if you are one of the thousands of people who have had their flight cancelled.

If I was due to be on a flight and it was cancelled, then Ryanair has cancelled 100pc of the flights that I was due to take. The 2pc figure is meaningless to passengers affected by the crisis. In fact, emphasising the 2pc figure carried an arrogance that appears to place shareholder interests above those of affected customers.

You could say Ryanair has always treated its customers in that way.

But that is not the case. Despite the aggressive tone and the "take it or leave it" approach, Ryanair was comfortable in the knowledge that as long as it offered cheap flights, safely and on time, customers would always keep coming back.

Michael O'Leary said on Monday that he didn't give a "rat's ass" about share price.

It's a soundbite that goes some way towards redressing the mistake of the 2pc message emphasised over the weekend.

O'Leary is cleverly trying to switch the messaging back to customers after a bad start. There are lots of extenuating circumstances such as the fact that Norwegian says that over 140 Ryanair pilots joined it in the last year. In the past 18 months, rosters and rotas are said to have caused discontent among some staff at other airlines such as El Al of Israel, Cathay Pacific and India's Jet Airways.

In an industry where people's lives are at stake, it is customary for goodwill by other staff to provide prompt responses to sickness, scheduling issues, or shift changes.

Has Ryanair used up the goodwill? It is now reported to be offering pilots up to €12,000 to step in and not take holidays they are due, in order to get through this.

Ryanair's need to shift to a new calendar-year leave schedule seems to have brought things to a head. Meanwhile, there are reports of possible further industrial unrest brewing among pilots at Ryanair.

The airline's management team failed to forecast and deal with annual leave issues before they reached this level. This is not a good sign because it is a fundamental operational bread and butter issue.

What has changed at Ryanair that it could make this kind of mistake and then appear to handle its response so badly? No doubt the board will ask the same question.

O'Leary has built this multi-billion euro business on staying hungry, staying focused on what counts, not messing up and being confident but not smug. Lack of smugness has been at the core of Ryanair's image and messaging. It delivers without doing hubris.

It might be time to get back to the knitting at Ryanair - focusing on what it takes to get flights off the ground.

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