Ryanair Hits Back With Summer Fare War Pledge, Union Warning

Updated on
  • Carriers banking on softer price competition mistaken: CFO
  • Investors should prepare for labor disruptions, ‘adverse PR’
Ryanair CFO Neil Sorahan discusses the impact of rising fuel costs on the airline.

Ryanair Holdings Plc is girding for battle with its pilots and competitors alike.

The budget carrier is committed to a price war in the crucial summer period, in an attack on the likes of EasyJet Plc, which has said easing competition will help mitigate higher fuel charges. At the same time, Chief Executive Officer Michael O’Leary warned Monday he’s prepared to endure pilot walkouts rather than bend to union demands that would threaten the low-cost giant’s business model.

“We expect some localized disruptions and adverse PR so investors should be prepared for same,” O’Leary said in an earnings statement. “We are fully prepared to face down any such disruption if it means defending our cost base or our high-productivity model.”

The Dublin-based airline is returning to its familiar hardball stance after months of introspection. While it’s reached a deal with pilots in the U.K., its largest market, talks in Ireland and Germany have been tougher. The company said some disruptions are “inevitable” and could endanger its full-year profit forecast as it grinds out deals across Europe.

“Management are preparing investors for possible strike action in Dublin,” Goodbody Stockbrokers analyst Mark Simpson said in a note to clients. “Bottom line: this is Ryanair drawing the line in the sand so as to establish a sustainable relationship with unions.”

To ease investors’ concerns, Ryanair said it plans to buy back as much as 750 million euros ($933 million) in stock. Still, the shares fell 3.2 percent to 15.62 euros at 9:26 a.m. in Dublin, valuing the discounter at 18.5 billion euros.

Brexit Headwinds

With Brexit uncertainty dampening demand between the U.K. and Europe, the carrier vowed not to pass on the added costs of labor or rising fuel prices to its customers. That’s going to put pressure on competitors like EasyJet, which is forecasting summer fare increases amid the demise of rivals like Air Berlin.

“There is over-optimism from the other airlines that they’re going to cover their additional fuel costs and then add on massive fare hikes on top of that,” Chief Financial Officer Neil Sorahan said in an interview. “I can’t see it happening. Fares will be under pressure.”

Ryanair hit a crisis in September, canceling public events to focus on shoring up its business after a scheduling mess-up forced it to cancel flights for some 700,000 passengers. The issue was compounded by a shortage of experienced captains, leaving the carrier exposed to a unionization push that ultimately succeeded.

Recognizing unions and agreeing to new pay deals will cost 100 million euros a year from 2019, according to the CFO. That figure includes any deals reached with cabin crew Ryanair has committed to meeting with after reaching an agreement with its pilots.

While prices will rise this quarter, O’Leary urged “extreme caution” on the fare outlook for the fiscal year starting in April. The carrier is committed to keeping its planes at close-to-full capacity, even if it requires bargain-basement prices, he said.

— With assistance by Anna Edwards, and Manus Cranny

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