As Ryanair Holdings Plc handed out its latest pilot rosters for the closing weeks of its summer schedule in mid-August, the packed timetable looked like business as usual for the hard-driving airline.
But when planners crunched the numbers for the coming weeks, an uncomfortable reality began to dawn: Europe’s biggest discount carrier lacked sufficient cockpit crew to see it through the tail end of the busy travel season.
An already stretched pilot corps was further strained by the loss of scores of personnel to low-cost rival Norwegian Air Shuttle ASA. On top of that, there was a change to Irish labor laws that meant squeezing a year’s worth of vacation into nine months, something Ryanair was unable to do given the need to accommodate training days and stand-by shifts as well as actual flights.
Things came to a head last Friday. At 4:30 p.m at Ryanair’s headquarters in Dublin, Chief Executive Officer Michael O’Leary made the decision to cancel more than 2,000 flights before its lighter winter timetable starts in November. The notice published to investors came an hour later. The sudden announcement of cancellations, which began the next day, unsettled millions of customers who were kept in the dark about which flights were affected.
The confusion and outrage that followed prompted Ryanair to rush to stem damage to its brand. In a statement Wednesday, the carrier said that by the end of the day it will have re-accommodated more than 55 percent of the 315,000 passengers affected by the cancellations on other Ryanair flights, and to have processed 63,000 refunds. It hired more customer service agents to work through the backlog of requests.
While Ryanair’s renowned efficiency, built on cheap seats and punctuality, helped turn the company into Europe’s largest airline by market value, it left little room for maneuver when circumstances changed. The carrier has about 5 pilots per plane, nearly one fewer than discount rival EasyJet Plc, analysts estimate, and lacks the partnerships and alliances that might have eased the strain.
“When things are working efficiently, as they normally do, it goes well, but they’ve certainly been caught out by this one,” John Strickland, director at JLS Consulting Ltd., said by phone from London.
Just a day earlier, Ryanair had wrapped up a week-long marketing blitz with eight press conferences across Europe. In Berlin on Thursday, O’Leary was in top form as Ryanair’s leading showman: cracking jokes, jumping on chairs and slagging off the competition, in this case German giant Deutsche Lufthansa AG.
On Monday, after a weekend of chaos, he struck a different tone, offering up an unfiltered mea culpa. “We f—ed up,” he said on a conference call. Putting self-promotion on hold, Ryanair canceled three press briefings scheduled for Tuesday. Yet the sudden mood change doesn’t explain why Ryanair didn’t see the meltdown coming sooner.
One thing that wasn’t accounted for was the success of Norwegian’s poaching tactics. Bolstered by the prospects of long-haul flying to destinations including the U.S., Argentina and Thailand—a lucrative enticement for pilots that contrasts with the steady diet of short hops on Ryanair—the budget rival lured away about 140 cockpit crew this year.
While the Irish carrier insists that the number of defecting pilots was “well under” 100, the departures were enough to strain the bare-bones organization, focused on quick turnarounds to keep planes flying with as little overhead as possible.
Amid the pilot row with its competitors, Ryanair also came up against the European Union’s top court last week for its practice of employing all crew on Irish labor contracts. That’s allowed it to circumvent costs from additional holiday and sick pay and national insurance charges in some jurisdictions where its staff are based.
Ryanair’s shares have fallen 5.7 percent since the court ruling, even as O’Leary tried to bat away claims that it could result in increased employee costs and risk the type of unionization that has stymied management at other European carriers. Easyjet’s stock climbed 2.1 percent in the period on speculation it will benefit from Ryanair’s woes.
Pilots have always been a powerful force at airlines, and have been in increasingly short supply in recent years as capacity surged on cheap fuel prices. It takes three years of costly training, and a slowdown in 2014 of Boeing 737 deliveries—the planes Ryanair flies— has made it tougher for pilots to accrue the hours needed for promotion to captain this year.
That puts Ryanair in the uncomfortable position of having to throw money at the problem. It’s offering loyalty payments to pilots willing to forego two weeks of vacation and agreeing to stay for a certain period of time. To swell the ranks, Ryanair will spend as much as 30 million euros ($36 million) on recruiting, including offering signing bonuses of about 10,000 euros for new captains, according to O’Leary.
The sensitive nature of the shortage is evident in O’Leary’s reaction. The CEO lashed out at Norwegian, saying he would “tactically respond” to the poaching efforts and would tell his pilots that Ryanair’s rival has “a highly dubious business model that loses money hand over fist.” He also abruptly canceled talks on cooperating to connect flights with Norwegian, a prospect he touted as recently as Thursday in Berlin.
He also insisted on taking the blame rather than pointing the finger at any weakness in Ryanair’s access to skilled crew, saying the management messed up and “it’s not a pilot shortage. We need to get to the bottom of where the gap arose, why the warning systems didn’t trigger. But villainizing myself or someone down the food chain isn’t for today.”
Pilots in Europe are restricted to flying 900 hours a year, or 18 hours a week. Even at Ryanair, they earn between 150,000 euros and 180,000 euros annually. “People being paid that kind of money, you will never run out of supply,” he said.