Industrials

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

Being nice to customers -- or at least not irritating them needlessly with huge fees for overweight bags -- is paying off for Ryanair Holdings Plc. Over the past three years, revenue has jumped more than 30 percent and the stock has more than doubled.

Nice Run
Since Ryanair's charm offensive started, the stock has more than doubled
Source: Bloomberg

But recent events in Germany, where insolvency administrators are beginning the task of carving up the now defunct Air Berlin Plc, suggest the Irish budget airline’s image makeover is only half complete. Within minutes of Air Berlin’s insolvency filing, Ryanair declared it a stitch-up, accusing the German government of conspiring to ensure national flag carrier Lufthansa AG would win most of Air Berlin’s valuable take-off slots.

Big and Getting Bigger
Lufthansa already dominates the German aviation market but now wants parts of Air Berlin
Source: Credit Suisse

To be fair to Ryanair boss Michael O’Leary, someone who isn't slow to anger or provocation, he’s probably right. It does seem likely Lufthansa will pick up a big chunk of Air Berlin’s routes, thus cementing its dominant position in the German market.

Indeed, ministers have made little secret of the fact they’d like a stronger national “aviation champion” to emerge from the wreckage, regardless of the fact that diminished competition will make it easier for Lufthansa to extract higher fares from passengers. O’Leary’s last ditch declaration on Tuesday night that he’d be interested in bidding for all of Air Berlin probably doesn’t stand a chance.

And why not? Ryanair presents itself as the champion of consumers -- its fares are generally much lower than rivals. However, the counterpoint to that is Ryanair's wages are pretty low too, which is one reason why it generates some of the highest profit margins in the aviation business.

Ryanair insists it has good employee relations. Still, it’s hard not to feel uncomfortable with some of its labor practices which include making pilots quasi-self-employed and obliging cabin crew to pay at least 3,600 euros ($4,200) for training.

Low Fares, Low Wages
Ryanair's labor costs are much lower than at Lufthansa
Source: Bloomberg Intelligence
The chart shows airline's labor costs per unit of capacity

Most of Ryanair’s staff have Irish employment contracts, something that has triggered accusations in Denmark, France and elsewhere that the airline is trying to circumvent local labor standards. Ryanair is also pretty sniffy about trade unions, all of which makes it an easy political target. Martin Schulz, the social democrat candidate for German chancellor, complained last week that "in Europe, no one is more of an unbridled capitalist." 

It’s not just the politicians. Several European pension plans pulled investments in Ryanair in May due to worries about its labor practices. O’Leary called the pension funds “idiots."

Ryanair’s image as a labor-scourge is unhelpful because it finally seems like Europe’s fragmented airline market is poised for consolidation: Air Berlin and Alitalia SpA may not be the last airlines in need of restructuring. But when jobs are at risk, Ryanair’s argument that it should be allowed to expand further is likely to fall on deaf ears.

True, the company's low-cost business model means it is never going to be the cuddliest employer: investors and customers implicitly accept this when they buy Ryanair stock or plane tickets. Still, being a bit nicer to staff, not just customers, might help persuade European governments that Ryanair shouldn’t always be kept at bay at all costs. With politicians off its back, the company's top-line might then take off even faster.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Bryant in Berlin at cbryant32@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net