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Ryanair Reaching on Web Crackdown
Thursday September 9, 7:03 am ET
By Peter Eavis, Senior Columnist
Discontent among Ryanair's (NasdaqNM:RYAAY - News) pilots must be a source of great concern to the company's chief executive, Michael O'Leary. Why else would Europe's largest budget airline have threatened a U.K.-based Web site with legal action if it didn't take down comments pertaining to Ryanair's pilots?
O'Leary has been one of the most combative CEOs to ever run a public company. He has launched abuse-ridden tirades against critics, airports, competitors and regulators. In July, he called the company that runs Stansted airport outside London a "bunch of overcharging rapists." Back in January, O'Leary labeled as "Stalinist" a European Union ruling that one of Ryanair's airport deals was anticompetitive.
But despite his penchant for dishing out insults and criticism, he doesn't seem able to tolerate any brickbats thrown his way. When the Professional Pilots Rumour Network, a Web forum popular with Europe-based pilots, posted a discussion thread containing a mixture of informed insights and raucous comments on Ryanair's relations with its pilots, the company's lawyers sent the Web site a letter demanding that it take down the thread. Howrey Europe, a law firm acting on behalf of Ryanair, sent the letter to PPruNe, as the Web site calls itself, on Aug. 24.
The letter argued that the statements on the thread were "untrue, unfounded, malicious and deeply damaging to the good name and trading reputation of Ryanair." The letter added that Ryanair would move to gain an "immediate injunction" against PPruNe and claim damages if the Web site didn't remove the thread, which discussed pilot unionization and pilot pay -- hot button issues for Ryanair right now.
PPruNe removed the thread, but a new thread has appeared on the Web site concerning unionization at Ryanair. Ryanair didn't immediately comment when asked why it acted to remove the thread. PPruNe owner Danny Fyne said: "Tactics like this never work in the long term. If we didn't publish it, someone else would."
After an earnings warning in January, Ryanair stock has been languishing and its ADRs are nearly 50% below their 52-week high. Wednesday they fell 38 cents to $30.43.
O'Leary has massively underestimated the harshness of competition in the European budget airline sector. Fares have slumped at a time when Ryanair was bringing on a huge number of new planes. That problem wasn't helped by the fact that Ryanair flies to many cheap, out-of-the-way airports that there is insufficient demand for. And after one of Ryanair's cheap deals with a remote airport was judged by the EU to break its competition laws, investors now wonder how many other airport deals may also become invalid.
To revive its fortunes, Ryanair has been doing all it can to cut costs and boost revenue. One sensible-seeming cost-cutting move is the fitting of non-reclining seats. But one move that is generating criticism, both among customers and in the market, is a wheelchair levy on every ticket that Ryanair said it was charging to cover the cost of transporting disabled passengers to and from its planes. The levy appears to still be in place. It's not clear if it is around 70 euro cents or 50 euro cents, but if it is the lower number, the levy accounted for around 22% of the increase in operating profits at Ryanair in its June quarter, compared with the year-ago period.
The wheelchair levy is a clear sign of desperation, but so are moves to cut the most basic of pilots' perks. One measure has Ryanair pilots buying their own uniforms. Cost-cutting ceases to have beneficial effects if it causes a company's best employees to leave. And discontent does seem to be growing. Ryanair management is currently waging a bare-fisted propaganda war to keep pilots from opting for their union to represent them in pay negotiations. In a recent memo, a Ryanair manager at Stansted airport said that paying union dues would amount to a waste of money: "If you want to waste 1,000 pounds we recommend fast women, slow horses or even greyhound racing. At least you'll have a few minutes of fun," the memo said.
Ryanair can always find inexperienced pilots eager to clock up miles, and it can employ them on a nonsalaried basis. But all airlines need a solid base of experienced pilots to meet aviation regulations and provide training. Ryanair cannot risk an exodus of these. And alleged hardball tactics may cause this to happen. Experienced pilots who need to receive expensive top-up training to fly Ryanair's new series of Boeings have been told that the company won't pay for their training if they opt for union representation, according to a person familiar with employee relations at Ryanair.
To be sure, the PPruNe thread that was taken down contained the sort moronic chatter common on message boards. But it also had some interesting viewpoints, including a calculation by a poster called "St. Savior" that showed that the removal of basic perks could erode the pay rises awarded to certain Ryanair pilots.
What does this mean for investors? Detox's take: Ryanair's revenue outlook must be so lackluster that the company is now trying to silence Web sites as part of an almighty effort to keep costs down.