What's going on?
The stock price of low-cost airline Ryanair fell more than 2% on Monday following its announcement that it would cancel flights due to a shortage of pilots. Mayday mayday!
What does this mean?
Ryanair said that there is a big backlog of pilots that are due vacation days, and that a change to the holiday calendar (forced upon it by the Irish Aviation Authority) made the situation much worse. There are also, however, reports that rival airlines, such as Aer Lingus and Norwegian Air, have hired away hundreds of Ryanair pilots, leaving it short-staffed. Whatever the reason, Ryanair is on the hook for about €25 million in refunds and compensation to passengers.
Why should I care?
For the market: The biggest damage for Ryanair may be to its reputation.
The immediate costs of the cancellations are expected to wipe about 2% off of Ryanair’s profits for the entire year – which is a significant dent but not a severe blow. The bigger costs may come if the airline loses future bookings. It’s been working hard in recent years to overhaul its brand, like by targeting more business travelers. The long-term impact on Ryanair’s profits could be more severe if high-value business travelers are put off flying Ryanair because of a perception that it’s unreliable.
The bigger picture: Ryanair had been doing pretty well in a very competitive space.
Ryanair’s August passenger numbers were up by about 10% versus a year ago, and its stock, even after Monday’s selloff, is up 16% this year. Its success has come despite the European airline industry becoming even more competitive as airlines like Norwegian Air expand their offerings (the increased competition has, for example, helped push German budget airline Air Berlin into bankruptcy). Ryanair is a victim of its own poor planning, but also of its own success – it’s expanding faster than it can hire/retain pilots.