More pay

Ryanair's low-cost principle at stake as pilots prepare for union fight

A Ryanair plane at Luxembourg Airport

(Bloomberg) Michael O’Leary built Ryanair Holdings into Europe’s most valuable airline by being cheap, right down to charging pilots for coffee on their own flights. Now those aviators are pushing back.

A group of disgruntled flight crew is demanding more pay, better conditions and the ability to bargain collectively across Europe. They’re emboldened by rising demand for pilots at rivals and a scheduling foul-up that forced Ryanair to scrap more than 20,000 flights, unleashing an outcry by aggrieved customers and a rebuke from Britain’s aviation regulator.

Most of the shareholders would rather Ryanair doesn’t fly any planes for six months

That’s left O’Leary caught between his rebellious pilots, whose demands threaten to erode Ryanair’s low-cost advantage over rivals, and the potential wrath of investors should he make concessions that undermine the airline’s business model. He’s responded by offering his cockpit crew a raise while recruiting aggressively and vowing to remain union-free.

"Frankly, most of the shareholders would rather Ryanair doesn’t fly any planes for six months than the workforce becomes unionised," said Barry Norris, who oversees about $500 million at Argonaut Partners in London, including Ryanair shares.

Pilots, who often enjoy a privileged position at airlines, have never been exempt from Ryanair’s penny-pinching. In private discussions, current and former aviators who asked to remain anonymous said that many crew members are employed as contractors on a month-to-month basis and must foot the bill for uniforms, mobile phone use, ground transport and hotel costs when working from other bases as well as other costs typically covered by an airline. A Ryanair spokesman disputed those claims.

Wing of Ryanair plane i flight
Wing of Ryanair plane i flight
Photo: AFP

One voice

In a letter last week, a group of 59 aviators said their pay and conditions fall short of the industry standard. In particular, they complained that an "overwhelming majority" of Ryanair contracts permit the carrier to move them to any base in Europe, without notice or relocation payments.

"We simply want to be represented with one collective voice," the pilots wrote. "We seek direct negotiations with the company management."

Ryanair, in a written response, said the airline "will not engage" with this or "any other group fronting for the pilot unions of competitor airlines."

For decades the Dublin-based carrier’s low-cost, low-fare philosophy has fuelled growth and profitability and made Ryanair a darling of investors, even if O’Leary’s brash statements sometimes offended customers and staff and made it a magnet for criticism.

Yet even O’Leary has learned to adapt. As other low-cost carriers around him started to be more accommodating to cater to the business crowd and travellers looking for a fuller service, Ryanair followed suit. It went on a push dubbed "Always Getting Better" that touted improved customer service and did away with some of the most aggravating requirements, like charging sky-high fees to print out a missing boarding pass.

But at its heart Ryanair air remained laser-focused on its discount roots. The limits of that bare-bones approach were exposed in September, when management admitted to botching annual holiday planning, leaving it with too few pilots to fly its planes. Bumping more than 700,000 people from their flights unleashed a backlash from consumers and forced Ryanair to trim its growth forecast. The carrier posted the slowest pace of customer expansion in three years in October.

Poaching pilots

Yet now cheap tickets are starting to win back customers and the network hiccups have subsided, leaving the uprising by flight crew as O’Leary’s biggest headache. The aviators want to upend a divide-and-conquer approach that has defined Ryanair’s employee relations.

Their effort comes at a moment when pilots are in demand. Carriers like China Eastern Airlines Corp. and China Southern Airlines are driving growth in Asia, while in Europe operators such as Norwegian Air Shuttle ASA and Iceland’s Wow are racing to expand even as established carriers push to win market share while fuel prices stay low. Ryanair is in expansion mode too.

Its pilots, paid less than counterparts at other international carriers but respected for their skills and work ethic, are prized by rivals. And some competitors hold out the promise of longer flights as an alternative to the Irish carrier’s regimen of ultra-quick turnarounds on short-hop European routes.

‘Highly skilled’

A Ryanair plane at Luxembourg Airport
A Ryanair plane at Luxembourg Airport
Photo: Lex Kleren

"Ryanair pilots are very good. They are very highly trained, highly skilled," Norwegian Air CEO Bjorn Kjos said in an interview in London. "If they come, they are super pilots."

Kjos should know. Norwegian Air, which is expanding long-haul operations with Boeing’s 787 Dreamliner, had brought on about 160 pilots from Ryanair this year, he said.

The competition for cockpit crew has prompted Ryanair to step up recruitment to replace those leaving and meet expansion needs. The company said it has hired more than 1,000 new pilots in 2017, and is "inundated" with applications from flight crew at a trio of European airlines that failed this year: Italy’s Alitalia, Germany’s Air Berlin and Monarch Airlines of the UK.

We will remain a non-union company

O’Leary, who has said he’d rather cut off his own hands than sign a deal with a union, proposed an unprecedented 22 percent annual raise to flight crew to lure recruits and throw cold water on organising efforts. He said the company can raise pay and still retain a pricing advantage over competitors.

"We will remain a non-union company by paying our people more and by fixing the broken elements of communication with pilots," O’Leary said October 31, after Ryanair reported a decline in profit during the key summer-holiday quarter.

New team

Photo: LW archive

Yet the response to his offer, which Ryanair says would lift compensation beyond rivals such as Norwegian Air, has been cool. Crew at only about 20 of the carrier’s 86 European bases, including some of the smallest, have accepted it. Madrid, Glasgow, Naples and its biggest, London Stansted, rejected it, while others have refused to put the proposal to a vote.

Ryanair also committed to more staff on full-time contracts, and it hired a new team to oversee rosters and pledged to be more flexible about where it bases crew members. It’s bringing back Peter Bellew as chief operations officer to patch up labour relations. He was Ryanair’s director of operations until leaving for Malaysia Airlines two years ago.

"He brings a face that the pilots will know," said O’Leary, who beat back efforts to unionise twice before, in 2004 and 2012.

The pilots are massively overplaying their hand

Recent stumbles notwithstanding, few observers are willing to bet against Ryanair, or O’Leary, after a record of success headlined by a 3,800 percent total return to shareholders over the past two decades. By comparison, Air France registered a negative return during the same period.

The stock is up 14% in 2017, valuing the company at €19.5 billion, the most among European airlines.

"O’Leary’s had a great track record over a number of years," said Norris at Argonaut Partners. "The pilots are massively overplaying their hand."

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