October 31, 2017 / 11:04 AM / 2 months ago

Breakingviews - Twin tailwinds help Ryanair weather pilot crisis

LONDON (Reuters Breakingviews) - Twin tailwinds are helping Ryanair to weather its pilot crisis. The 20 billion euro no-frills airline will meet its full-year profit goal, despite a rostering mess that led to the cancellation of thousands of flights. Passenger numbers were up 11 percent to 72.1 million in the six months to Sept. 30, according to Tuesday’s half-year report from the company. Ryanair’s fare cuts helped, but it also got lucky with rivals’ bankruptcies.

Despite cancelled flights that will affect more than 700,000 passengers, Ryanair looks on track for record profit in the financial year to March. A bet that fare cuts of 5 percent in the first half would drive bookings and offset some of the negative public relations looks to have paid off. Ryanair’s lean business model gives it that kind of leverage. Where its staff costs are equivalent to 5 euros per passenger excluding fuel, low-cost rival Norwegian Air Shuttle’s are three times higher. A one-off hit of 25 million euros to compensate passengers is manageable at under 2 percent of half-year profit, which rose 11 percent year-on-year to 1.3 billion euros.

Pugnacious Chief Executive Michael O’Leary did get a helping hand from competitors, however. Ryanair is adding more aircraft to bases in the United Kingdom, Germany and Italy to pick up extra business from the bankruptcies of Monarch, Air Berlin and Alitalia, which together carried close to 60 million passengers per year. Their exit from the market is a gift to Ryanair’s ambitions to fly 200 million customers annually by 2024.

The bankruptcies also ease Ryanair’s labour issues. An influx of applications from former Air Berlin and Monarch employees may help offset pilot shortages. Ryanair needs to hire 600 to 700 new pilots per year to keep its growth plans on track, according to Bernstein estimates. That gives pilots leverage in skirmishes over pay – O’Leary announced that captains based in certain airports will be paid a fifth more than Norwegian from November, adding 100 million euros to its annual payroll bill.  As long as Ryanair can keep its other costs down and passengers queuing up, that’s a small price to pay to ensure enough pilots are on hand for the future.

Breakingviews

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