Ryanair today pledged to take up the slack left by Monarch’s collapse by deploying more aircraft from the UK next summer and warned of further failures.
The disclosure came as Europe’s largest budget carrier admitted that its pilot holiday rostering “mess up” will cost at least €70 million in compensation and increased crew costs as its seeks to recover from the debacle.
Chief executive Michael O’Leary admitted to a “material failure in the management of pilot rostering” which caused punctuality to plummet to low 70% levels in the first half of September.
This triggered the sudden cancellation of 2% of 2,200 daily flights for the last six weeks of September and October and the grounding of 25 aircraft for the winter causing disruption to 700,000 passengers.
A series of poor planning decisions created a “perfect storm” of one-off pilot shortages, he admitted.
“While we deeply regret these flight cancellations and winter schedule changes, and the disruption they caused to some 700,000 of our 129 million customers, we have worked hard to re-accommodate or refund all affected customer requests within 18 days of notifying them.
“The overwhelming majority have chosen re-accommodation on alternative Ryanair flights, but we have also provided refunds, and met our EU261 obligations in full, at a cost of some €25 million.”
O’Leary revealed that Ryanair would move from being “competitive” on pilot pay to offering over 20% more than rivals Jet2 and Norwegian, “with better career prospects, superior rosters, and much better job security than Norwegian, among others, can offer”.
However, this will add €45 million to its crew costs and up to €100 million in a full year “but will not significantly alter the substantial unit cost advantage we have over all other EU airline competitors,” O’Leary claimed.
He indicated that Ryanair captains based at Stansted from November would be paid a total package of £135,600 a year against £110,700 paid by Jet 2 and £112,600 by Norwegian.
The airline has drafted in former executive Peter Bellew from his role as chief executive of Malaysia Airlines to head a new operations management team.
“We have added resources to our pilot recruitment, base manager and rostering teams so that we can respond quickly to the needs of our pilots and cabin crew, promptly address their requests, and work more closely with them to facilitate opportunities at those bases where they wish to live and develop their careers,” O’Leary said.
The disruption caused by the enforced cancellations failed to blow the airline off course, with passenger carryings in the six months to September 30 up by 11% to 72.1 million and after tax profit rising by a similar percentage to almost €1.3 billion.
The half year performance was assisted by a strong Easter and a 5% cut in fares, saving passengers €160 million in the period.
Revenue grew by 7% year-on-year to €4.4 billion with ancillary revenue up by 14%.
Spending by passengers rose by 2% as more chose optional services such as reserved seats, priority boarding and car hire.
O’Leary said this morning: “These strong H1 results reinforce the robust nature of Ryanair’s low fare, pan-European growth model even during a period which suffered a material failure in our pilot rostering function in early September.
“Prior to this event, we were on track to deliver strong H1 results during which we opened three new bases and 80 new routes.“
Ryanair had “no reason” to alter its full year profit guidance which remains in a range of €1.40 billion to €1.45 billion, O’Leary said.
But the grounding of 25 aircraft means growth in the second half of the airline’s financial year will slow to around 4% from 11%.
As a result, full year traffic will decline from a previously forecast 131 million to 129 million passengers.
“Ex-fuel unit costs will be adversely impacted by €25 million in non-recurring EU261 costs and some €45 million of additional pilot costs arising from the September rostering failure.” O’Leary said.
The underlying trend towards consolidation among European airlines continues with Monarch going bankrupt in September, followed by Air Berlin in October and Alitalia remaining in bankruptcy, according to O’Leary.
“There are other financially troubled EU airlines who will, we believe, follow them,” he warned.
“We are responding to these opportunities by continuing to grow in Germany where Lufthansa’s purchase of Air Berlin gives them an anti-competitive 95% share of the large German domestic market.
“We will add more aircraft to our UK passenger bases for summer 2018 to take up any slack created by Monarch’s collapse, and we continue to grow strongly in Italy where we are poised to be the main beneficiary of the inevitable contraction in Alitalia’s short haul services.
“These trends, particularly where they allow high fare airlines like Lufthansa, BA and Air France to acquire local competitors, while constraining capacity and raising prices, can only be good for Ryanair’s yield and traffic growth, as our fleet rises to 600 aircraft, and our traffic grows from 129 million to 200 million a year by 2024.”
O’Leary added: “:We remain concerned at the continuing uncertainty surrounding the terms of the UK’s departure from the EU in March 2019.
“There remains a worrying risk of a serious disruption to UK-EU flights in April 2019 unless a timely UK-EU bilateral is agreed in advance of September 2018.
“We, like other airlines, need clarity on this issue before we publish our summer 2019 schedules in mid-2018 and time is running short for the UK to develop a bilateral solution.
“We worry that the UK government continues to under-estimate the likelihood of such a flight disruption to/from the UK.”
He claimed that Ryanair.com has become the world’s largest airline website with 94% of customers visiting directly rather than via search engines.
Fiona Cincotta, senior market analyst at spread betting firm City Index said: “These strong first-half numbers are no big surprise, given the staffing debacle didn’t really start biting until the tail end of the reporting period.
“Crucially, Ryanair has kept its annual earnings guidance intact, suggesting management believes it can keep personnel costs under control.
“Extra costs have indeed been created as a result of the cancellations, but the company expects them to be offset by a lower-than-anticipated fall in ticket prices.
“Rumblings about pay and conditions from pilot groups are continuing, so it could take a resolution to fully convince investors that this market darling hasn’t lost its mojo.
“But overall, today’s update will come as a big relief to investors fearful that a profit downgrade was imminent.”
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