Darren McKinley, senior equity analyst at Merrion, said the 30-year legacy of the Ryanair boss — who has built Ryanair into one of the largest airlines in the world — is at risk if he remains at the helm.
Mr McKinley’s assessment comes at the end of an extraordinary three months as a self-inflicted crisis enveloped the airline.
It was forced to recognise pilots’ unions in the face of a threat of cockpit strikes in Dublin and other major bases in the UK, Germany, Italy, Spain, and Portugal.
Ryanair shares continued to slide yesterday, bringing the losses since Friday to over 10%. That stripped about €2bn from its value in only two days. The airline is now valued at €17bn.
In September, Ryanair admitted a failed pilots’ roster had led to it cancelling 20,000 flights and forced it to offer pilots large bonuses of over €10,000 to keep many other planes flying.
The bargaining power of the fledgling unions was boosted, and in the last few days, the airline was forced to concede recognition and negotiate for the first time with pilots’ unions, a concession Mr O’Leary had steadfastly blocked since succeeding as chief executive in the early 1990s.
“He has clearly made a bit of a mess of this to some degree,” said Mr McKinley.
“He has said in the past that hell would freeze over before he would recognise unions. Basically, I think he’s obviously managed an incredibly well-run ship and has delivered fantastic growth but he has a lot of issues: Pilots aren’t happy dealing with him [and have] maybe lost respect for him.”
Mr McKinley said he believes Mr O’Leary will face problems in maintaining the rapid pace of growth at the airline. He predicted Mr O’Leary would stay for 12-14 months to see how the airline evolves under unionisation.
“Signing up with the unions means less room for manoeuvre in the future. So he would run the risk of ruining his legacy,” said Mr McKinley.
Credit Suisse downgraded the stock to neutral from outperform, citing concern that staff expenses will rise “significantly” beyond the €100m forecast by Ryanair for 2019. That could mean the carrier would lose much of its cost advantage over rival EasyJet, said analysts, including Neil Glynn, cutting their price target to €16.18 from €19.32.
Unions remain sceptical, though. Germany’s Vereinigung Cockpit said it will hold off on any walkouts until meeting with Ryanair management on December 20.
The pilots’ group is weary the company may merely be trying to buy time, said spokesman Markus Wahl.
Not all analysts view the changes as so strongly negative. Stephen Furlong at Davy cut his price target to €17 from €20 while maintaining his outperform rating.
Damian Brewer at RBC Capital Markets said there may be negative repercussions for other carriers as more pilots begin to push pay claims, “creating tensions for the entire industry”.
Others say the lower value may mark a buying opportunity. The shares are now taking into consideration an “overly punitive” increase in staff costs of about 30%, on top of the €100m the airline had already flagged for better pilot pay, said JP Morgan analyst Christopher Combe. “The market reaction at this stage appears overdone.”