Ryanair PLC (LON:RYA) saw its shares retreat again Thursday as investors attended its 2017 AGM today, amid worries over a protracted battle after the discount airline’s pilots rejected a one-off bonus to work extra hours to help it overcome an issue which has led to the cancellation of a large number of flights.
In a statement issued ahead of the meeting, Ryanair’s CEO Michael O'Leary apologised to shareholders, and again to customers, for the cancellation of 2,100 of its over 103,000 flights over a 6 week period in September and October, due to a failure within its pilot rostering function.
READ: Ryanair shares nose higher as under-pressure airline publishes list of flight cancellations
He said Ryanair expects by the end of this week to have re-accommodated (or authorised refund requests to) over 95% of the 315,000 customers affected by the cancellations.
Shares in Ryanair have dropped 10% since it announced plans to cancel flights last week, with the stock down another 0.7% or €0.1 at €16.40 today in London
Neil Wilson, senior market analyst at ETX Capital said: “The sell-off this morning is all about mounting concern over rising cost pressures which are likely to hit margins and profits.”
Worries Ryanair “walking into a protracted battle with pilots”
He added: “Pilots’ rejection of a one-off bonus to work extra hours – a move that management would have liked to pull off in order to lessen the damage being done – has investors worried that not only may more flights be cancelled, but also that Ryanair is walking into a protracted battle with pilots at the very worst moment.”
Wilson continued: “At the very least, getting pilots to work more hours might have resulted in the airline not having to cancel any more flights. At present there is a risk that Ryanair will be forced to cancel more flights over the coming weeks.
“But the damage is growing beyond the cancelled flights – there appears to be a dual threat to Ryanair’s model beyond the reputational damage and upfront compensation costs.”
European Court of Justice’s ruling also an issue
The analyst pointed out that the brewing spat with pilots coincides with a European Court of Justice’s (ECJ) ruling on employment contracts which will serve to weaken Ryanair’s low-cost model which depends heavily on the airline keeping a very firm grip on employment costs.
Wilson concluded: “Reputational damage is clearly a factor but it is a lot harder to assess and quantify and it may take some time for the true impact of the debacle to be known.“
Meanwhile, in a note to clients today, French broker Kepler Cheuvreux downgraded its rating for Ryanair to ‘reduce’ to ‘hold’ while leaving its target price unchanged at €14.50.
The French broker’s analysts said: “We consider the ruling of the ECJ a risk to Ryanair’s cost base going forward.”