If imitation is the sincerest form of flattery, Ryanair's decision to emulate the IAG group structure is perhaps an admission by the great disruptor of European air travel that it can learn from its rival when it comes to effectively managing an increasingly complex business.
A myriad of challenges and opportunities over recent years – from navigating the complexities of Brexit and the collapse of Air Berlin in 2017, to labour problems in Ireland and burgeoning demand for charter travel in Poland – have left Ryanair with four operating units: the main Ryanair operation, Laudamotion, Ryanair Sun and Ryanair UK.
These are now to be put under a more formal management structure, with each airline to be run by its own chief executive reporting to Michael O'Leary as the group's overall boss.
Speaking on an analysts' call on 4 February, O'Leary was unstinting in his praise for Willie Walsh's creation of the IAG group structure to manage his airlines and of his desire to mirror his fellow Irish businessman's achievement.
"I have always been impressed with the way Willie [Walsh] has managed IAG – the turnaround, for example, of Iberia using different brands such as Vueling. He has driven a lot of cost efficiency in Iberia and in BA.
"And looking at [a] kind of management succession, again, I think the way that Willie has taken care of Alex Cruz – [to take him] out of Vueling and put him into BA... There's much more mobility between the management teams. I think [that] also gives us an opportunity," he says.
O'Leary expects that the new structure will allow Ryanair Holdings to allocate capital across its subsidiaries. This will "encourage each of the airlines to compete actively for capital and aircraft", he says.
"I think the critical thing that each of the airline chief executives will need to understand though that if you want to grow, you are going to compete with the other airlines for the next aircraft, or the next 10 aircraft, [or the] next 20 aircraft.
"So go ahead and demonstrate that you can get better growth incentives from airports or better handling deals, you can do a better job, and then we will reward that with more aircraft," he adds.
A key challenge will be finding the right chief executive to succeed him at Ryanair mainline, O'Leary acknowledges. He expects he will need to "hold his or her hand" over the first year so that "we don’t lose the focus".
O'Leary also believes the new group structure will make it easier for Ryanair to pursue "smaller" M&A opportunities, along similar lines to its acquisition of Laudamotion.
The new management team will start out "very small", comprising O'Leary himself and group-level legal and finance functions which will evolve over the next 12 months. "We are not going to have a big group office. There isn't going to be a lot of infrastructure," he says.
Central functions will include the work of Ryanair Labs and some group marketing, which will be "adapted or adopted by the other companies".
In general, though, O'Leary seems to see far more benefits percolating upwards than downwards in the new model, with procurement increasingly done at a local level and more opportunities for individuals to shine.
As an example, he says he is "certainly looking" for the group's Polish arm Ryanair Sun to provide pilot training for the wider business.
He also sees a "big opportunity" for middle management to take advantage of the new model to rise through the ranks.
"While we have a reasonably stable senior management team, there was always a view here – or a kind of a bit of a pushback – that 'My way forward is blocked; I can't get further; how do I rise through the organisation?' And we will be encouraging more people," he says.
O'Leary also says that Ryanair Holdings will seek to nurture the multicultural nature of its operating units to drive future performance, with Laudamotion’s Austrian mindset complementing the Irish business practices at the Dublin-based carrier.
WELCOME MOVE
Market analysts have widely welcomed the move as a tonic to the union and boardroom challenges that the carrier has been experiencing.
In an investor note published today, Andrew Lobbenberg, an analyst at HSBC, write that the new structure will facilitate Ryanair evolution into a "future unionised business".
He describes Ryanair chief operating officer Peter Bellew as an "obvious candidate" to succeed O’Leary as head of the mainline carrier.
Bellew "has consistently taken a firm, yet more conciliatory stance towards organised labour than chief executive O'Leary", Lobbenberg opines.
Gerald Khoo, transport analyst at Liberum, tells FlightGlobal that the new group structure will allow O'Leary to give up the day-to-day management of the airlines and focus on the more "strategic aspects" of the role.
"However, you can bet that he will still be very hands-on if things aren't going the right way. The biggest challenge will be for him to delegate and give the subsidiary CEOs enough room for manoeuvre," he adds.
Peter Morris, chief economist at Flight Ascend Consultancy, says Ryanair has become a "big, if not huge beast" that is now "surely past the point" where it can be run by a single individual.
"It is the classic challenge of business transition which fast-growing, successful companies face, but here multiplied across virtually all European countries and seldom out of the news or political debate," he adds.
In a note issued on 4 February, Neil Glynn, head of European transport equity research at Credit Suisse, predicts that the new structure will afford Ryanair the opportunity to return to "prior profitability levels" having experienced deteriorating financial results in the last quarter.
He says the move will give management more time to "strategise" and will provide a "backdrop" for them to focus on refreshing Ryanair's "Always Getting Better" customer-service programme and provide "greater clarity on medium-term top-line prospects".
BONDERMAN EXIT
Along with the announcement of a new group structure, Ryanair is also rejigging its upper management team, with chairman David Bonderman set to stand step down in 2020.
Bonderman, who joined the board in 1996, will continue in his post this year but will not seek re-election in 2020. Ryanair says Stan McCarthy, former chief executive of food company Kerry Group, will take up the post of deputy chairman from April this year and move to become chairman in summer 2020.
Kyran McLaughlin, who has been on the Ryanair board since 2001, is also to step down from his position as non-executive director in 2020.
Ryanair will no doubt hope the moves will end the shareholder murmurings of last year as to Bonderman's continued suitability for the role. Again, analysts have welcomed the move, with Khoo describing the changes as "long overdue".
He adds: "The extraordinarily long tenure of Bonderman and McLaughlin rightly brought into question whether they were offering sufficient challenge to management, having been closely associated with so many decisions of the past.
"It will be interesting to see whether the commitment to go by the 2020 AGM [annual general meeting] is enough to satisfy those who opposed their re-election at the last AGM, or whether pressure will build for them to go at this year's AGM given the acceptance of the need for change."
Lobbenberg described the board members' "long tenure" as being "out of line with the norms of corporate governance".
The International Transport Workers' Federation and its European counterpart, which wrote to Ryanair shareholders last year urging them to vote against the re-election of Bonderman as chairman, have welcomed the news but with a cautionary note.
Stephen Cotton, ITF general secretary, describes Bonderman's departure as a "great victory for the global trade union movement" and asserts: "Having taken on one of the world's worst employers, workers have shown that collective action can help shift dodgy corporate practices."
He adds: "The new chair will bear a great responsibility for bringing the company's industrial relations into the modern era. Especially in the context of these quarterly results, that means stabilising Ryanair's business model by concluding robust labour agreements with unions in every country the airline operates."
So what are the prospects for the new airline group?
Eduardo Chagas, general secretary of the European Transport Workers' Federation, cautions that it is "vital" that the new group structure "does not become yet another tool for social dumping", and that employees across its various units are entitled to decent pay and working conditions.
Morris says Ryanair Holdings will in years to come become a "classic management textbook study" of how best to select an appropriate character as the main airline chief executive, one capable of both "working with and yet challenging the charismatic figure of O'Leary, who is completely associated with the successful rise of Ryanair".
He concludes: "The challenges for the future may well take different forms and could need different approaches from those that worked in the past."
Source: Cirium Dashboard
