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Thursday, October 19, 2017

Ryanair tries to contain damage from cancellation fiasco

Published

By (Bloomberg)

3

Ryanair Holdings Plc sought to contain the damage caused by scrapping hundreds of flights through the end of October, promising to compensate affected passengers and apologizing for the mismanagement that led to a shortage of available crews.

With mass cancellations set to leave about 400,000 passengers in the lurch, Europe’s biggest discount airline is likely to take a 25 million-euro ($30 million) profit hit from refunds and compensation, the Dublin-based company said Monday, three days after announcing the surprise cutbacks that started on Saturday. The disruption stemmed from Ryanair scheduling too many pilots for vacation.

“We f—ed up here, and we have to fix it,” Chief Executive Officer Michael O’Leary said on a conference call. “We should have seen it coming. This will have a reputational impact.”

As a short-term fix, Ryanair will offer a fare sale and payments to pilots who are willing to waive vacation days, while to avert future issues, the company will spend 20 million euros to 30 million euros next year to hire additional crew. The effort includes signing bonuses and poaching from insolvent Alitalia SpA and Air Berlin Plc, with the push taking on greater urgency as Ryanair’s staff gets targeted by competitors, most notably Norwegian Air Shuttle ASA.

Norwegian Spat

The cancellation fiasco exacerbated a two-week-old spat with the Nordic carrier, which claims to have hired about 140 pilots from Ryanair since the start of 2017.

While Norwegian offers the prestige of long-haul flying, “they also have a highly dubious business model that loses money hand over fist,” O’Leary said. “We do need to tactically respond” to the rival’s overtures, adding that Ryanair will be offering “loyalty bonuses” to prevent captains being lured away.

The growing feud took on a new dimension when the Irish carrier said it had ended talks about feeding passengers to Norwegian’s transatlantic routes. That was an about-face from just a week earlier, when O’Leary said he was looking for a deeper relationship than a deal reached between Norwegian and EasyJet Plc at London’s Gatwick airport.

“Given our concerns over Norwegian’s financial viability, we have brought to an end the discussions with Norwegian,” O’Leary told reporters at a press conference in Dublin, adding that talks on feeder deals with Air Europa and Aer Lingus are continuing.

Norwegian confirmed that “previous discussions with Ryanair are no longer active” and reiterated that O’Leary’s comments on the state of its finances “have no root in reality,” a spokesman said.

Scrapped Flights

While Ryanair’s scrapped flights account for only about 2 percent of its usual 2,500 daily services, the cause was avoidable and stems from the company’s aggressive strategy. As it ramped up capacity, Ryanair overscheduled its crews, causing it to scramble to meet holiday requirements by Irish authorities. Prime Minister Leo Varadkar and the Spanish Public Works Ministry said Monday that they intend to ensure the airline respects regulations on compensating passengers for abandoned flights.

The blunder undermines O’Leary’s efforts to improve Ryanair’s image and woo more lucrative customers. Ryanair began its Always Getting Better program in 2014 to make flying with the no-frills carrier less onerous, introducing faster boarding for business travelers, discounts for children and sleeker aircraft cabins.

“It is the potential for long-term damage that concerns us,”  Damian Brewer, an analyst with RBC Capital Markets, said Monday in a note to clients. “The poor PR could deter future bookings and may well put off more time-sensitive higher yielding demand, like business trips, if the carrier is seen as unreliable and less punctual.”

Ryanair shares fell 1.9 percent, paring the stock’s gain this year to 15 percent and valuing the company at 19.9 billion euros.

After initially leaving customers in the dark, the budget carrier released the full list of cancellations through the end of October late Monday. Most of the cuts, which average less than 50 per day, are on routes with heavy frequencies or from busy bases to make rebooking easier.

97% Full

Ryanair has been running its system at the limit, with 97 percent of seats occupied in August, when the carrier flew 12.7 million passengers. Flights are operating as usual for customers who haven’t received emails from the carrier.

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