Cancellations cause turbulence at Ryanair, but they won't bring down the airline

(c) Sky News 2017: <a href="http://news.sky.com/story/why-ryanairs-own-goal-is-no-ratner-moment-for-the-brand-11043192">Cancellations cause turbulence at Ryanair, but they won't bring down the airline</a>
 

Some people, who should probably know better, are describing Ryanair's current difficulties as a "Ratner moment".

That, to say the least, is over-egging things.

Is this hugely embarrassing to Ryanair? Yes.

Is this going to hit its sales and profits this year? Yes.

Is this going to damage the confidence of some customers to the extent that they will never again fly with the airline? Yes.

But does this situation pose an existential threat to Ryanair? Absolutely not.

Gerald Ratner, who ran a jewellery chain bearing his name, made some ill-judged remarks at an after-dinner speech to the Institute of Directors in April 1991 that knocked £500m from his company's stock market value.

It almost collapsed in the aftermath and, within 18 months, Mr Ratner had left the business, which shortly afterwards changed its name to Signet Group.

:: Ryanair passengers livid over cancellations

The only thing that Ryanair's current turmoil has in common with the "Ratner moment" - an expression which has become shorthand for a catastrophic error of judgement that threatens the existence of a business - is that roughly the same amount of money, £500m, has been knocked off the airline's stock market value.

However, this sum represented nearly 90% of Ratner's stock market value at the time, while Ryanair is a €20bn (£17.7bn) business.

However much some financial commentators - most of whom seldom travel economy class, let alone fly with a budget airline - may fulminate, Ryanair's brand is robust and will survive this turbulence.

Consumer attitudes have moved on since 1991. When Mr Ratner made his gaffe, describing some of his products as "total cr**", it was genuinely shocking.

By contrast, Ryanair's mercurial chief executive, Michael O'Leary, has never pretended that the airline offered the last word in passenger comforts.

For him, it has always been about the price. Offer the lowest seats in the business and people will travel with you, even when they have foresworn never to do so. Customers have accepted it.

As long ago as 2002, Mr O'Leary was telling The Independent newspaper: "Do we sometimes p*** people off? Of course we do.

"But 60% of the complaints we get are people looking for refunds of what everyone knows is a non-refundable ticket. And the answer to that will always be 'No, you're not getting a refund, we told you it was non-refundable, go away'."

He went further than this a year later when he told the Financial Times: "We don't fall over ourselves if, say, they say 'My granny fell ill'. What part of no refund don't you understand? You are not getting a refund so f*** off."

Those claiming this latest crisis will bring down Ryanair should read the history books. The low-cost airline has gone through worse problems than this in the past.

Back in 2001, when foot-and-mouth disease caused the cancellation of the Cheltenham Festival - the equivalent of a religious pilgrimage for tens of thousands of Irish racing fans - Ryanair refused to give refunds unless customers had bought a changeable ticket.

Mr O'Leary himself is a racing nut who owns a number of previous winners at Cheltenham and who well understands the importance of the event to customers in the market that first helped Ryanair become the world's most profitable airline.

He knew this would make Ryanair unpopular but stuck to his guns. And the airline came through it.

There have been numerous other incidents down the years.

The only time that Ryanair has softened its attitude towards customer service came in 2013 when easyJet, a rival that Mr O'Leary had routinely disparaged, began offering services such as allocated seating.

It quickly won over millions of people who were avoiding Ryanair due to its perceived poor service. So Mr O'Leary, as any good businessman does, adapted to the demands of the market.

Ryanair became, in his words, less "irritating and confrontational", making changes such as improving its website, offering allocated seating itself and reducing penalties for customers - previously described as "stupid" - who forgot to print out their boarding passes.

Being "nice" to passengers paid off, and Ryanair soon made up ground lost to easyJet. By this summer, it was even complaining that it had become a "victim of our own niceness", suggesting customers were abusing the increased on-board baggage allowances it was now offering.

These recent flight cancellations imply a return to the bad old days. They are not. They are more a result of the tight margins for error in the way businesses like Ryanair are now run.

The so-called "just in time" supply chains used by supermarkets are another example. If something goes wrong, problems can swiftly escalate.

In Ryanair's instance, it appears that changing the basis on which pilot and crew's flying hours were calculated from an April-to-March basis to a calendar year has led to shortages of pilots, possibly exacerbated by defections of some pilots to the rival airline Norwegian.

But the cancellations do need to be put in context. As Mr O'Leary has pointed out, 2,000 flights sounds like a lot, but less than 2% of Ryanair's customers will suffer disruption.

"In the context of an operation in which we operate 2,500 flights every day, it is reasonably small," he has said.

Analysts at stockbroker JP Morgan Cazenove told their clients this morning to buy the shares following Monday's sell-off.

They added: "While the cancellations are likely to take a toll on Ryanair's reputation, our long-term bullish thesis remains intact."

With (Other OTC: WWTH - news) the shares in positive territory this afternoon, that looks to have been good advice. This is a short-term row that will blow over.

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