‘Max’ crisis has a silver lining for Ryanair

Scholars of management have long pondered the dangling of bonuses to motivate employees. Psychologists have suggested incentivising staff with one-off rewards is counterproductive, killing interest in the actual work they are doing. There’s an alternative theory, too, that bonuses breed resentment when they disappear due to factors beyond workers’ control.

Investors were aghast earlier this year when Ryanair revealed its boss Michael O’leary was in line for €100m (£90m) in shares if annual profits double to €2bn “and/or” the share price reaches €21 over the next five years. The pay bonanza would be one of the biggest in British corporate history, but O’leary has a bit of a mountain to climb just yet; Ryanair shares are trading at just over €10 and pre-tax profits stood at €1.1bn last year.

The timing of the bonus announcement was somewhat baffling, given the barrage of negative headlines that have buffeted the airline in the last 12 months, from protracted wrangles with pilots’ unions to a brace of profit warnings. It came only days after Ryanair outlined a management reshuffle that saw the departure of long-standing chairman David Bonderman and O’leary himself stepping back from day-to-day running to fill a broader chief executive role. Perhaps O’leary (also the company’s third biggest shareholder) just needed to cheer himself up.

It hasn’t gone particularly well since. Shares are down 3pc in the year to date but by more than a third over the last year. Yesterday the airline ripped up

growth targets and warned it would have to axe bases, routes and jobs because it won’t have all the aircraft it needs for its planned expansion. The culprit in this instance is Boeing, which can’t deliver its grounded 737 Max planes on time. Ryanair is an avowed Boeing fan, and has up to 135 of the new aircraft on order.

Indeed, it’s the latest chapter in a tempestuous love affair. “You keep building them, we’ll keep buying them,” O’leary once said to Boeing of its jets. “We love Boeing.” Though this didn’t stop him calling them “a bunch of idiots” and “numpties” for stalling over a plane order. He has been a cheerleader for the much-maligned 737 Max, too, declaring it a “gamechanging aircraft” because it uses 16pc less fuel and offers 4pc more seats. Even after the plane was grounded earlier this year for safety checks following two fatal crashes, O’leary espoused his “utmost confidence” in the craft. Ryanair would be “at the front of the queue” for whatever the Seattle-based manufacturer has to offer, he added.

O’leary has dialled down the colourful language in recent years, and Ryanair has even flirted with the concept of customer service. It’s nevertheless possible he turned the air a little blue when the extent of the 737 Max complications became clear.

Ryanair is the first major airline to confirm the plane’s grounding will have a lasting effect into 2020. It sounds like more bad news for O’leary and his megabonus, but in truth the 737 Max hold-up provides him with air cover to make cuts to capacity that the market is crying out for.

Industry experts have warned there are simply too many seats in the skies, and margins are under pressure on all sides. Ryanair hasn’t been immune to that challenge.

It will now be flying five million fewer passengers in the year to March 2021, and it won’t be able to bank the lower costs it can make from flying the newer planes it had ordered from Boeing (it has pencilled in 30 Max deliveries next year, down from 58). But it could benefit from higher prices by offering fewer routes.

The move will boost O’leary’s rivals too, including under-pressure easyjet. The latter can also take comfort from the fact it has an Airbus-only fleet, so isn’t affected by the Boeing grounding. And the biggest winner of all could be Wizz Air, which likewise operates Airbus jets, and has a huge order of A321 planes on hand; like the 737 Max, these promise greater fuel efficiency.

A certain amount of relief that Ryanair’s capacity will fall short of targets helps explain the share price rise yesterday. But O’leary will need bigger ideas if he’s to reach his bonus milestone. At least he can enjoy a silver lining to the 737 Max delay. And, after all, Ryanair is no stranger to delays.

‘Ryanair is an avowed Boeing fan, and has up to 135 of the new aircraft on order’