Ryanair chief sees end to pilot crunch

O’Leary pledges to press on with a review of flight rosters, bases and salaries as he seeks a permanent solution

By BLOOMBERG

LONDON • Ryanair Holdings plc CEO Michael O’Leary (picture) said Europe’s biggest discount carrier can raise pay for disgruntled pilots and still retain a pricing advantage over rivals after a staffing crunch led profit to slide in its busiest quarter.

O’Leary pledged yesterday to press on with a review of flight rosters, bases and salaries as he seeks a permanent solution to a meltdown that left Ryanair short of flight crew at the end of the peak summer season.

The stock posted its biggest gain in almost a year after the Irish carrier said it aims to hire pilots from recently failed rivals and is offering 20% more pay than peers such as Norwegian Air Shuttle ASA.

While the proposed salary award would increase annual costs by €100 million (RM492 million) if accepted across the company, O’Leary said that it “will not significantly alter the substantial unit-cost advantage we have over all other European Union airline competitors”.

Ryanair scrapped more than 20,000 flights amid a botched rescheduling of pilot leave in response to changes in labour law and the poaching of staff by competitors including Norwegian. The cuts have slowed expansion plans, encouraged cockpit crew to push for unionisation and sparked a consumer backlash.

Despite those headwinds, O’Leary stood by a forecast for full-year net income between €1.4 billion and €1.45 billion.

Shares of Ryanair rose as much as 5.8%, the biggest gain since Nov 7, and were trading 5.4% higher at €16.60 as of 10:02am in Dublin yesterday, valuing the company at €19.6 billion.

O’Leary said the rostering mess up — which has led to a complete change of all managers involved — resulted from a “perfect storm” that also included an insufficient focus on pilot recruitment over the summer and a bottleneck in deploying new officers following training.

Ryanair should also have responded more quickly to a tightening market by lifting pay for experienced  personnel and improving the range of bases and contracts on offer, he added.

The company said it has seen a surge in pilot applications in recent weeks after insolvency filings at Air Berlin plc, Alitalia SpA and Britain’s Monarch Airlines, and has a waiting list of 2,500 qualified crew wanting to join.

O’Leary stood firm in his opposition to meeting with outside pilot groups, saying negotiations must be through the existing structure of employee representative committees. He dismissed as bizarre the involvement of labour organisations from Southwest Airlines Co and American Airlines Group Inc in a unionisation push.

At the same time, the CEO encouraged pilots at London Stansted, Ryanair’s biggest base, to reconsider their opposition to the pay offer.

New captains will in any case get the improved rate of £135,600 (RM758,004) a year, versus £112,600 for Boeing Co 737 pilots at Norwegian and £110,700 at UK rival Jet2, he said. More than 10 bases have reached a deal.

Net income in the three months to Sept 30 fell 2% to €895 million as Ryanair shelled out €25 million in refunds to more than 700,000 passengers hit by the cancellations. Analysts had anticipated a figure of €937 million, based on the average of eight estimates compiled by Bloomberg.

Punctuality has improved as a result of the steps, with 90% of flights now on time, up from a low of 70% in the first half (1H) of September.

Price declines stabilised over the summer, so that 1H earnings showed an 11% gain, demonstrating the robustness of Ryanair’s business model even amid the “material failure” of pilot rostering, according to O’Leary.

Ryanair will also be buoyed by the industry bankruptcies, he predicted, saying fares will rise as a result of the reduction in capacity and purchase of assets by full-service carriers, both boosting yields and enhancing his company’s pricing edge.

Fares fell 5% in the fiscal 1H, compared to an initial forecast for an 8% slide, and are set to drop by 4% to 6% in the second six months, better than an earlier prediction of 5% to 7%.