By Peter Thal Larsen
LONDON (Reuters Breakingviews) - Ryanair is living down to its cheapskate reputation. The budget airline is facing irate passengers and an angry regulator after cancelling more than 20,000 flights over the coming seven months. This combination could be an existential threat for most companies. For the Irish carrier, however, indifference to customers is an integral part of its discount offering.
For an airline that expects to carry 129 million passengers this year, the cancellations are little more than short-term turbulence. Grounding flights in September and October will affect 315,000 customers, while schedule changes between November and March will force a further 400,000 to make alternative plans. Ryanair thinks rebooking flights, paying compensation and giving affected passengers a voucher worth 40 euros will cost it less than 50 million euros altogether. That’s an air pocket for a carrier that expects to earn at least 1.4 billion euros in the year to March.
True, the financial pain could spread. Britain’s Civil Aviation Authority has launched enforcement action against Ryanair for misleading passengers; the watchdog’s chief executive say he is “furious”. The regulator could impose fines if the company does not change course, and offering affected passengers more might increase the total bill. Meanwhile, the bad publicity has drowned out the stated goal of the cancellations – to improve Ryanair’s punctuality record. The airline’s shares have fallen 7 percent in the past fortnight, wiping out roughly 1.4 billion euros of value. The MSCI Europe Airlines index is flat over the same period.
The cock-up in pilot scheduling that Ryanair says triggered the cancellations doesn’t so far look like a deeper problem. That leaves the risk to the brand. In order for a company to suffer tangible damage to its image, however, it must have a reputation to lose. The airline industry in general gets away with treating customers poorly: United Continental experienced little visible financial trouble after airport police dragged a passenger off one of its planes in April.
For the airline run by Michael O’Leary, disdain for customers is part of a corporate strategy designed to deliver the lowest fares. As long as holidaymakers prioritise cheap prices over service, Ryanair’s planes will remain full.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.