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Richard Curran: 'O'Leary will remain in the Ryanair cockpit despite changes'


New route: Michael O’Leary has shown a willingness to adapt over the last 24 years but it is hard to see him stepping back

New route: Michael O’Leary has shown a willingness to adapt over the last 24 years but it is hard to see him stepping back

New route: Michael O’Leary has shown a willingness to adapt over the last 24 years but it is hard to see him stepping back

When a new chief executive takes over the top job from a predecessor, it is often referred to as 'succession'. And when a company makes arrangements to ensure it has the right person available to take over in the future it is commonly referred to as "succession planning".

But this may be the wrong way to look at when it comes to the role of chief executive of a publicly quoted company. Succession by definition is about the process of inheriting a title or a position.

Investors should rightly hope that nobody would "inherit" the top position at a company in which they have invested. It should be based on merit and the top job should have to be earned.

Nowhere could this be more true than at Ryanair. Michael O'Leary has been chief executive for over two decades. Everybody has watched as he continues to run the airline with no sign of ever giving up.

This week he announced a five-year contract to remain as chief executive of the Ryanair group of companies. As recently as last September Mr O'Leary said he had been offered a longer contract by the board but was looking at 12-month rolling contracts.

He has also said in the past that he didn't want to stay on at Ryanair until he was an old man. But he spoke very plainly last September about how he feels about the job.

"I have no idea when I'll have had enough. I like this company. I like working for this company. I don't do it for the pay I get. But as long as it remains interesting and fun and challenging, I see no reason not to continue to try to lead it and lead it forward positively."

Clearly, O'Leary is still having fun, despite the difficulties the airline has faced from industrial action, a lower fares environment and the uncertainty over Brexit.

In fact, it is exactly this kind of maelstrom that he seems to enjoy the most.

For the company there is a genuine issue about succession, but only if the chief executive is thinking about leaving. By the time his new contract ends in 2024, he will have been chief executive for 30 years.

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Of course this week's announcement involved a lot more than simply a new contract for Michael O'Leary. It set in place a series of changes which will appease some investor critics of the company, while continuing to play to its strengths.

O'Leary will become chief executive of the main holding company of Ryanair Group. It, in turn, will have individual chief executives for its main airline and smaller carriers - Laudamotion in Austria, Ryanair Sun in Poland and Ryanair UK, the entity formed to surmount obstacles thrown up by Brexit.

Obviously the biggest change will be the appointment of a new chief executive to the main Ryanair airline who will report in to O'Leary.

As one commentator put it, O'Leary will be handing over the controls but will remain in the cockpit. O'Leary will still be overall boss and will have direct responsibility for big issues like mergers and acquisition opportunities, reducing costs and buying aircraft.

This means his judgement will remain vital when it comes to identifying what companies to buy and for how much, keeping pressure on cutting costs, and driving hard bargains on aircraft purchases.

It should free him up somewhat to be less involved in the day-to-day running of the airlines, while allowing other executives to step that bit closer to the top job.

If Ryanair announced that O'Leary was staying on in the current role for another five years, would some senior management have considered leaving on the basis that it would be at least 2024 before they got a shot at the top job?

At least this way, there will be greater individual autonomy for chief executives of those divisions, yet investors have the stability of knowing O'Leary is still very much there. He is a massive figure in the culture, operations and success of the airline.

Investors would be very nervous of him retiring. His re-appointment to the board received the backing of 98pc of shareholder votes last year.

Ryanair also announced that its chairman of 20 years, David Bonderman will be retiring from the role next year, as will long-serving deputy chairman Kyran McLaughlin.

Based on best corporate governance practice, he has been there too long. Around 30pc of investors voted against Bonderman's re-appointment to the position at the annual general meeting last year.

With this announcement, critics of Bonderman can point to the fact that he is going next year. Fans of Bonderman can point to the fact that he is at least going to remain in the role for another year.

Taken as a whole, the Ryanair announcement gives a real impression that changes are afoot, yet nobody is actually going anywhere yet, which provides stability at a tricky time in the sector.

The most insightful comment about the new structure came from one analyst who said the move does not represent a diminution of O'Leary's authority but does make the whole organisation less dependent on one person.

For O'Leary to survive and thrive in the job for this long he has had to deliver results but also be prepared to change tack when he needed to.

For example, the low-cost model was built on an approach to customer service that had to be overhauled when the airline got bigger. O'Leary did not really believe in doing acquisitions but instead wanted to grow the airline under the Ryanair brand as a single organic business.

The big exception to this was Aer Lingus, which he sought, almost obsessively, to acquire. In recent years Ryanair has become more about acquisition opportunities.

The airline under O'Leary was built on no trade union recognition. That too had to change. Last year O'Leary described the move to recognising unions as "not one of my best days in Ryanair, but it was inevitable at some point".

The other big change in this new arrangement is the group structure. Ryanair will not be very dissimilar to IAG, which owns British Airways, Aer Lingus and Iberia and is headed up by Willie Walsh.

This means greater overhead, more layers, and higher costs. It costs more to have a holding company and divisional CEOs with the apparatus of greater operational autonomy for them.

Like any federalised multi-national, different parts of the business will have to compete against each other to win more resources.

In theory it means the smaller Ryanair operations perhaps with more growth potential, will fight hard to get more aircraft. To succeed they will need to keep their costs down.

In some ways the new structure reflects how the bigger future growth opportunities may well be outside of the main traditional Ryanair operations.

O'Leary has had to adapt to succeed over the last 24 years. He has shown a willingness to do that. But it is hard to see him stepping back. It just isn't his style.

Perhaps more pages will have to be torn out of the O'Leary bible of corporate management.

Who knows, he may end up accepting non-executive directorships or even hiring consultants.

Heaven forbid.

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