Ryanair investors berate O'Leary but fear his leaving

2013-11-08 08:27
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Ryanair's raunchy cabin crew calendar

The budget Irish airline hand-picked a few of their sexiest air hostesses to pose for their raunchy 2014 charity calendar. Take a look.

Dublin - When one Ryanair shareholder made a stinging attack on Chief Executive Michael O'Leary at the airline's annual meeting for scaring off customers with his "bullying" and "macho" style, there was one thing he didn't mention.

That O'Leary's leaving was one of his biggest fears.

As Ryanair scrambles to reinvent itself and woo customers from higher-cost rivals to fill hundreds of new planes, there are growing concerns about the cost of what O'Leary recently described as his "personal character deformities".

But with his heir apparent about to leave - and as a series of profit warnings eat away at O'Leary's air of invincibility - a bigger worry is that Europe's largest airline has left itself over-dependent on a single personality.

"On the main issues he has been hugely successful ... but there is some really bad stuff," said Alan Marlborough, a private shareholder with a sizeable portion of his savings in Ryanair, a month after his AGM outburst. "Is the company over-dependent on him? I think it is."

Asked, however, if O'Leary's departure was one of the biggest concerns for Ryanair, he told Reuters: "I totally agree."

O'Leary, an outspoken and hard-charging 52-year-old who used to run newsagent shops, has been in charge of Ryanair since 1994 and is described by executives who have worked with him as a workaholic with a forensic knowledge of every aspect of the company.

A near-religious devotion to cost-cutting has allowed him to transform a small loss-making regional airline into the biggest carrier by passenger numbers in Europe, and in turn transform the industry. But now budget airlines' customer care is under scrutiny, particularly at Ryanair.

Critics say O'Leary's brusque personality and expletive-filled rants have helped to alienate swathes of potential customers, while his domination of decision-making has meant a number of strategic mistakes.

The stress of no-frills flying and rigid enforcement of fines for baggage size has left some passengers sobbing at the airport gate, and the Irish firm was voted the worst of the 100 biggest brands serving the British market by readers of consumer magazine Which?

Other shareholders chimed in at the AGM with anecdotes about family members refusing to fly Ryanair and verbal attacks they had suffered at dinner parties. O'Leary nodded sheepishly as he faced up to the concerns about the "abrupt" culture.

COMMITTEE OF ONE

"It's a committee of one in most instances," said one of Ryanair's 10 largest shareholders, who blames O'Leary for costly decisions like "screwing up" fuel hedging in 2009 and a "disastrous" push into in-flight entertainment.

But the shareholder, who requested anonymity, is resigned to taking the bad with the good and cannot see many worthy alternative leaders to take the place of the man who has overseen a tenfold rise in the share price in 15 years.

"Replacing O'Leary is like replacing Alex Ferguson," he said, a comparison with the manager of Manchester United soccer team, who retired this year after nearly 27 trophy-filled years. "It will be extremely tough for anyone to replicate what he has achieved."

O'Leary has said repeatedly he would leave when Ryanair ends its fast growth stage and enters comfortable middle age, but he said in an interview last week that would not be soon, with the deliveries of 175 new planes starting next year.

The replacement of retiring deputy chief executive Michael Cawley with two senior executives in March will give signs of O'Leary's thinking on strategy and succession.

Shareholders trust that with most of O'Leary's wealth - around 275 million euros - tied up in Ryanair shares, there will be no shocks.

And some believe his cost-cutting dogma has been embedded so deeply in the company's DNA that when he does leave, the company's core strength will remain undiminished.

"His personality isn't why the business does so well. It does so well because everything is about low cost," said Donal O'Neill, an analyst with Goodbody Stockbrokers in Dublin.

PROFIT WARNINGS

The latest questions about O'Leary's management have been raised after the company announced a series of major policy reversals weeks after their first profit warning in a decade - a tacit admission for many that O'Leary had taken cost-cutting and harsh penalties for passengers too far.

This has allowed rivals like easyJet and Aer Lingus to build their sales pitches on being less uncomfortable than Ryanair, though O'Leary says this has not forced the airline to engage in a price war, blaming a general weakness across Europe instead.

O'Leary has impressed airline industry analysts by the scale of the U-turn, cutting baggage and boarding card fees and introducing assigned seating on all planes - copying easyJet and tearing up some of the basic tenets of his low-cost bible.

But he has shown no sign of changing the brash style that many travellers cite as a reason for not flying with Ryanair; he said in an interview with Reuters that he had no intention of overhauling the company's core culture.

When he made his debut on Twitter to demonstrate a new openness in an airline that long took complaints only by post, he donned an Irish leprechaun costume to post messages, some of them crude, jokingly threatening to break a customer's ankle if she didn't fly again soon with Ryanair. The airline's planes, he said, were powered by his "bulls**t".

"The approach for the last 25 years has been, 'We hate customers, but you shouldn't care because we have the cheapest ticket'," said an executive who has known O'Leary for years and who declined to be named.

"I would deeply question whether under Michael's leadership they have the ability to transform into that more soft, cuddly airline."

Other strategies that have annoyed some shareholders include Ryanair's dogged pursuit of a takeover of Aer Lingus, which has led O'Leary to bring lawsuits against British and EU regulators and induced a slowness to return a cash pile to shareholders.

"Constantly fighting the EU does not help Ryanair execute its strategy," said one of Ryanair's 40 largest investors, who requested anonymity.

"(But) we differentiate between operational excellence and the strategy. O'Leary still has a great team around him."

Read more on:    flights  |  air travel  |  travel  |  travel international

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