Member Article

Rostering mess-up could cost Ryanair £22 million

A simple rostering mistake could end up costing Ryanair in excess of £22 million in pay-outs and lost revenues as the airline confirms the cancellation of 40-50 flights per day over the next six weeks, according to cost analysis by management consultancy, Vendigital.

Chief executive of Ryanair, Michael O’Leary has confirmed that mistakes in planning holiday arrangements for its pilots is the cause of the problem. According to Ryanair’s website a total of 2,657 flights have been cancelled. The company has also confirmed that while the majority of the 400,000 passengers affected by the disruption will be re-routed free of charge, within a day of their planned departure date, compensation payments would also be made available. The airline has confirmed that the cost of compensation payments alone could amount to 20 million Euros (£17.8 million), with lost or missed revenues costing a further 5 million Euros (£4.4 million).

Mark Waterman, industrial sector specialist at management consultancy, Vendigital, said:

“This is an extremely costly mistake for the airline and it will have a major impact on its financial performance in the coming weeks and months. Clawing back lost revenues on this scale, especially after disenfranchising many of their customers will not be easy within a low-margin operating model, particularly at a time when costs such as aviation fuel and taxes are increasing.

“It is ironic that just a few weeks ago, Michael O’Leary was warning of an impending post-Brexit ‘flightmare’ if Government negotiators fail to secure a new air transport service agreement in good time, ahead of the March 2019 deadline. His prediction of disruption is coming true earlier than expected.”

The Government is being warned to prioritise the negotiation of a new air transport service agreement with the EU in order to keep planes in the air after Brexit. Other agreements will also need to be struck, including a replacement for the ‘open skies’ agreement with the US. Ryanair has stated that legal certainty must be achieved by autumn 2018 to avoid disruption to schedules from March 2019 onwards.

A cost analysis of the ash cloud incident in 2010, when flights into and out of the UK were grounded for most of the month of April, suggests that post-Brexit cancellations could cost as much as £3.3 million per day, in lost GDP – but only if the delay was short lived. Included in this analysis is lost revenue due to cancelled and missed bookings and lost revenue at airports due to grounded flights and a fall-off in passenger numbers. If aircraft are grounded for a longer period, there could be significant social and financial implications.

Mark Waterman added:

“The airline industry makes a significant contribution to UK GDP. For example, air freight accounts for just half of one percent of international goods movements into and out of the UK by weight, and 25 per cent by value, which amounts to around £180 billion.

“Three quarters of foreign visitors arrive in the UK by air, supporting a tourism industry which employs 480 thousand people and generates 20 billion GDP. These visitors use airlines that employ 200 thousand people and generate £11 billion GDP and they arrive in airports that employ another 440 thousand people and generate another £21 billion GDP.

“Given the incredibly high stakes involved it is unlikely that we will actually see aircraft grounded and some sort of deal will have to be struck, perhaps in true EU fashion at the eleventh hour.

“However, given the slow and fractious nature of the Brexit negotiations thus far it is important that operators don’t sit back and wait. Airlines need to develop contingency plans now and as well as keeping a close eye on costs, they should consider altering their operating model. Easyjet’s recent decision to establish a new hub in Austria to keep flights moving after Brexit could prove a wise move.”

This was posted in Bdaily's Members' News section by Vendigital .