Ryanair cancelled thousands of flights last year, insulted its pilots but then was forced to recognise their unions, and generally generated an above-average level of bad publicity, even by its own elevated standards. The financial effect of the disharmony? Roughly zero. At the after-tax level, profits rose 10% to €1.45bn (£1.27bn).
Indeed, the most eye-catching development in Monday’s full-year statement was Ryanair’s new habit of referring to its passengers as “guests”, which is the wrong word for paying customers but may be another of Michael O’Leary’s little jokes.
Despite Ryanair’s resilience in the 12 months to March, the chief executive said he was “on the pessimistic side of cautious” about this year, which he is obliged to say because oil prices, and thus jet fuel prices, are rising and Ryanair must absorb the full-year costs of the pay rises for staff that it was shamed into awarding. Even so, O’Leary’s version of pessimism doesn’t look so awful. He still expects profits to arrive between €1.25bn to €1.35bn, which is hardly a collapse.
It is possible because the customers keep coming and, for all the turmoil, Ryanair’s business model is not seriously imperilled. Staff costs will rise by almost €200m this year, but only half that sum represents higher pay for “frontline” staff – the rest is the natural effect of expansion. Ryanair may suffer a few strikes (Spain and Ireland are the current focus) but, if €100m is the cost of relative peace in the ranks, that’s not a bad result for the company. Ryanair will remain Europe’s lowest-cost operator.
Brexit, as ever, is another of O’Leary’s complaints but he may have found a solution to the problem of how to meet EU ownership rules for airlines – if necessary, just disenfranchise non-EU investors from voting on shareholder resolutions. The shares rose 5%, suggesting shareholders are happy-ish again. O’Leary ought to be more perky than he sounds. By rights, the shambles of last year’s cancellations should have prompted serious pressure to reform a boardroom lineup that looks too cosy. Instead, he seems to be in the clear again.
Retail winners irked at a system that favours losers
A backlash against company voluntary arrangements, or CVAs, was only a matter of time. A system that allows a struggling store or restaurant group to escape collapse by asking its landlords for a big reduction in rent is clearly useful in protecting jobs and giving companies a shot at saving themselves, but CVAs also seem fundamentally unfair on rivals. If landlords are happy to hand out rent reduction, why should retailing winners not get prizes?
It’s no surprise that Next, as reported by the Sunday Times, is now lobbying for “CVA clauses” to be included in the new lease contracts so it can enjoy the same benefit if a direct competitor on a high street or retail park, or in a shopping centre, gets a helping hand from a landlord. From Next’s point of view, it’s another way to reduce its rent bill and extend the life of profitable shops in the age of internet shopping.
In its last full-year results, the Next chief executive, Lord Wolfson, reported that leases on 19 stores had been renewed with net rents falling by an average of 28%. He was expecting a similar outcome from renegotiations on 29 stores this year. In his shoes, you can understand why he would be irritated if rivals can sometimes get 50% cuts by threatening to go bust.
It’s hard to see how landlords can resist the pressure from operators with strong covenants. Yes, landlords can complain – legitimately – that internet-only retailers like Amazon are grossly undertaxed in terms of business rates. But CVAs have become normal only because landlords have embraced them as a least-bad option to minimise the short-term pain for themselves of empty shops. In a retail property market where healthy tenants now hold more aces, there were bound to be long-term consequences.
Italy’s government bond yield won’t cow the populist coalition
The yield on 10-year Italian government debt has risen from 1.8% at the start of this month to 2.39%, prompting some to assert that the market has spoken and the new populist coalition won’t dare to pick a fight with the EU over fiscal rules.
This sounds like wishful thinking. The anti-establishment Five Star Movement and the far-right League might point out that yields were 7% in 2012 in the depths of the eurozone debt crisis. They might draw the conclusion that their big spending plans are going down rather well, all things considered.
If bond market vigilantes want to send a message, they will have to throw a proper tantrum: 2.39% probably doesn’t even register on the populists’ radar.
