Ryanair's O'Leary Is In Danger of Outstaying His Welcome: Gadfly
What does a Ryanair flight have in common with a Louis Vuitton handbag? Not much, except the bosses of those companies have been running the show for what seems like forever. Michael O'Leary has been...
What does a Ryanair flight have in common with a Louis Vuitton handbag? Not much, except the bosses of those companies have been running the show for what seems like forever. Michael O'Leary has been chief executive of Ryanair Holdings Plc for almost a quarter century, or about six times longer than the median tenure for European corporate leaders, according to Bloomberg data.
The Irish airline is different, of course, from the Parisian luxury houses in that it's not a family-run affair. But O'Leary does hold 4 percent of Ryanair's stock and -- like fellow long-timer Martin Sorrell at WPP Plc -- it's been impossible to view the company separately from the man. Yet he's looking far from impregnable right now.
On Friday, O'Leary's credibility suffered another big knock when Ryanair was forced to recognize trade unions -- something O'Leary had said wouldn't happen before Hades saw snowfall. It's his second strategic volte-face in recent years, after the 2014 decision to start being nicer to passengers, dubbed the Always Getting Better plan (though, in fairness, that change has worked).
Amid worries that Ryanair's budget mantle is at risk, the shares have fallen more than a quarter since an August peak. Like many a politician before him, O'Leary, 56, may blow his chance of bowing out on a high.
It seems harsh to query the leadership of someone who, in two decades, made Ryanair Europe's biggest airline. Although O'Leary didn't think up budget air travel (he copied Southwest Airlines Co.), Ryanair has almost caught up with its American role model in volume terms. With a near-maniacal focus on cost, the Irish carrier has kept expanding profit. O'Leary was rewarded in 2014 with a five-year contract extension.
But the boss is starting to feel a little like excess baggage, rather than an asset. First, he messed up by failing to anticipate a pilot shortfall and then compounded things by seeming to question how hard it is to fly a plane (he insists his comments were misinterpreted). Later, Ryanair threatened to freeze pilot benefits and move aircraft to other airports if staff went on strike, which probably didn't help.
It's not just a style problem, though. All along, Ryanair has refused to recognize there's anything fundamentally wrong with its approach to labor relations. Pay pilots a little more, tweak other benefits, and the problem would go away, seemed to be the philosophy. But, as with its once-antagonistic customer relations, Ryanair has pushed its highly-productive workers too far.
True, investor worries about unionisation are probably overblown. Ryanair's profit doesn't just reflect its ability to squeeze labor costs. Its parsimony extends to things like landing fees and aircraft maintenance too. Even if its labor bill had increased by 50 percent, which seems unlikely, it would still have reported a 17 percent pretax profit margin last year, by my calculation. Easyjet Plc achieved an 8 percent pretax return on sales.
Indeed, there are several ways Ryanair could soothe staff relations without paying the earth: Providing free coffee and uniforms for all staff as a matter of course , scrapping fees to enroll and train as cabin crew or paying contract staff for the time in-between flights, for example.
Will a man who's spent his professional life trashing trade unions be able to patch things up with recalcitrant workers? O'Leary's never been one to hold back when disparaging others. He might want to turn some of that fearless criticism on himself.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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