Ryanair Cuts 3,000 Jobs, Challenges $33 Billion in State Aid

(Bloomberg) -- Ryanair Holdings Plc will cut 3,000 jobs and said it will challenge some 30 billion euros ($33 billion) in state aid being doled out to keep its European competitors afloat during the coronavirus pandemic.

The Irish discount carrier on Friday added to a mounting employment toll that includes 12,000 cuts at British Airways and 5,000 at SAS AB. The reductions represent about 15% of Ryanair's workforce, and would include pilots and cabin crew.

The remaining staff will take a 20% pay cut, Chief Executive Officer Michael O'Leary said in an interview with Bloomberg TV. O'Leary expects demand to bounce back slowly, while warning that government bailouts of airlines will spur ticket discounts, worsening the effects of weak demand on pricing and industry profit.

“The people who went in weakest, which is the legacy airlines, Air France, Alitalia, Lufthansa, have either been nationalized or are receiving extraordinary volumes of state aid,” O'Leary said. “These are going to hugely distort the level playing field for aviation in Europe for three to five years. What we're facing now is a historic decline in air traffic in Europe for the next 12-18 months.”

Ryanair shares fell as much as 6% in London, with markets closed in Dublin and other European cities because of the May 1 holiday. U.K. discounter EasyJet Plc dropped as much as 8.3%, while IAG SA, the parent of British Airways, declined as much as 5%.

Ryanair said in a statement that it will carry less than 1% of its normal passenger volume in its fiscal first quarter and doesn't expect a full recovery until summer 2022 at the earliest.

O'Leary has consistently railed against bailouts, saying that they are in breach of European Union competition and state aid rules, and said the carrier will challenge them in court. Carriers across the region are asking for help to survive the coronavirus crisis that has grounded much of Europe's air traffic, endangering not only the airlines but connections that keep tourists flowing to Rome and Paris and help power Germany's export economy.

British Airways sister airlines Iberia and Vueling on Friday said they reached agreements for a combined 1 billion euros ($1.1 billion) in Spanish government-backed loans. Lufthansa, Germany's flagship carrier, remains locked in negotiations over a mutibillion-euro package of assistance. In the U.K., billionaire Richard Branson is seeking additional investors in a bid to gain access to state-backed loans. The French and Dutch governments last week extended a lifeline to Air-France-KLM valued at as much as 11 billion euros.

The fight over who eventually gets access to state aid will expose the creeping protectionism in Europe, where most if not all carriers were at some point state owned, enmeshed in a sense of national pride when air travel was still a novel and exciting concept. The question becomes whether national governments will come to the rescue of their favorite carriers, especially when many of them were already struggling with overcapacity and cut-throat competition.

Much of the future of the aviation industry will depend on when there will be a common international standard for resumption of flights, according to Heathrow Airport CEO John Holland-Kaye. “If we can't agree that and we require social distancing until a vaccine or cure comes in – it's 12 to 18 months in time -- then I think many airlines and airports will have gone bankrupt in that time or will be nationalized.”

Union Reaction

Balpa, which represents some of Ryanair's pilot said that there had been no warning or consultation by Ryanair about the job losses.

“Ryanair seems to have done a U-turn on its ability to weather the COVID storm,” Brian Strutton, general secretary of Balpa, said in a statement. “Aviation workers are now facing a tsunami of job losses.”

Ryanair said it expects flights to resume in July, and that “it will take some time for passenger volumes to return.” The company is working on reducing deliveries of 737 Max narrow-bodies from Boeing Co. and Airbus SE A320-series jets from leasing firms.

Ryanair has 150 higher-capacity Boeing jets on order with options from another 60. The Max has been grounded for over a year following two fatal crashes and Boeing now expects the plane to return to service in the third quarter of 2020.

“We would still like to take some if not all of those aircraft,” O'Leary said. “We need to rightsize the company for what is going to be 3-5 years of very grim trading for Ryanair.”