Effects of Unionization on Ryanair
Unionization will likely cause Ryanair's labor costs to rise, forcing the company to evaluate and possibly modify its current business model. A lower profit margin and shift towards more traditional working practices could threaten its advantage over competitors. Nonetheless, the company assures the public that it will maintain its low cost and high productivity.
Given a current pilot shortage and the need to hire an estimated 600,000 pilots in the next 20 years to meet demand, the free collective bargaining agreements resulting from unionization may drive up Ryanair's labor costs.
According to the airline's chief financial officer Neil Sorahan, new pay deals will cost €100 million annually from 2019. The move to recognize pilot unions could also incite more staff to become unionized, costing even more time for management, and a continual demand for improved pay and working conditions may lower the airline's cost advantage over time. Furthermore, despite Ryanair's chief executive Michael O‘Leary warning investors that localized disruptions and unfavorable PR may result from the airline's decision, investor concern over a potential rise in costs caused market shares to drop the most they had in nearly 18 months.
Ryanair has, in part, previously maintained its low-cost business model by hiring a proportion of independent contractors and full-time employees. The unionization of the airlines, however, may demand a change in the fundamental core of this model.
HSBC aviation analyst Andrew Lobbenberg, for example, expects the company to shift toward traditional industry working practices with more local and permanent employment contracts. In other words, Ryanair may be forced to operate like "normal" airlines, risking its productivity advantage over competitors. Regardless of these views, chief executive O‘Leary stated that the company's annual profit forecast will not be affected, nor will staff costs increase solely due to unionization. He claims the company will still reach its yearly objective of 200 million passengers by 2024 and annual profit after tax of $1.65-1.71 billion (€1.4-1.45 billion).
POTENTIAL LONG-TERM BENEFITS
Proponents of Ryanair's choice to recognize unions insist that the move could create new opportunities for the airlines. It could allow the company to work in highly unionized countries, such as Denmark and France, and may even lower the growth rate of labor costs, as the airlines can stop paying a premium to hire pilots who tend to prefer unionized employers.