February 15, 2019 / 12:09 PM / 3 months ago

Breakingviews - Ryanair CEO’s 100 mln euro bonus is within reach

Ryanair CEO Michael O'Leary poses after a news conference in Machelen near Brussels, Belgium October 9, 2018.

LONDON (Reuters Breakingviews) - Ryanair is notorious for keeping costs low, but its chief executive’s new incentive scheme is anything but frugal. The budget airline has granted Michael O’Leary share options that could be worth almost 100 million euros if he doubles Ryanair’s net profit or share price by 2024. Though the target looks demanding, it’s well within reach.

The 13 billion euro company has been losing altitude for over a year. A botched pilot rota in 2017 led to a wave of strikes that blunted Ryanair’s competitive edge. O’Leary has issued two profit warnings since October and cut winter fares by 7 percent. Ryanair shares are down about 40 percent from their August 2017 high of 19.23 euros.

That makes O’Leary’s bonus look a stretch. Ryanair has granted him options over 10 million shares which he can exercise at 11.12 euros if the airline’s net income reaches 2 billion euros - from an expected 1 billion euros in the current financial year - or the share price rises above 21 euros. If exercised, the options would lift O’Leary’s stake to over 5 percent, making him Ryanair’s largest shareholder.

Yet the targets are not as outlandish as they may seem. Ryanair already plans to boost passenger numbers to 200 million by 2024, from an expected 142 million in the year to March 2019. Lower fares and labour disputes probably dragged net profit per passenger down to about 7 euros this year. But if that figure recovers to 10 euros - less than Ryanair has achieved in the past - and the company hits its passenger targets, O’Leary will collect his reward.

Ryanair can argue that the package is good for shareholders. At 21 euros per share, investors would be more than 11 billion euros better off than they were on Feb. 8, when O’Leary was handed the options. The question, however, is how much of this is within his control. In the cyclical airline industry, earnings are highly dependent on the price of oil and the success or failure of rivals. Ryanair’s management deserves much of the blame for staff strikes that led to widespread flight cancellations. A recovery may be less challenging than it looks.

Breakingviews

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