Ryanair’s emergency plan for a hard Brexit sounds dramatic but airworthy. The Irish group can restrict the voting rights of non-EU shareholders, which would include UK investors, in order to comply with ownership rules of EU-based airlines. It can also be confident that a UK operating licence to protect its UK domestic routes will be forthcoming. The show will go on.
A greater long-term risk, at least for shareholders, is that the chief executive, Michael O’Leary, could struggle to adapt to his unfamiliar role of negotiating with trade unions. Union recognition is new at Ryanair and the experience is proving less than happy. Monday’s first-quarter trading update contained three paragraphs on strikes and one on Brexit, which may reflect on how much time the management is spending on each issue.
O’Leary veered between championing Ryanair’s supposed generosity, in the form of a 20% five-year pay deal for pilots, and belligerence. Ryanair is “not prepared to concede to unreasonable demands that will compromise either our low fares or our highly efficient model”, he stated.
The City will applaud the tough stance only as long as it gets results. The 6% fall in the share price betrayed the worries. One factor behind the current “weaker” environment for prices was described as “customer uncertainty about pilot strikes”, meaning some fares have had to be trimmed to keep planes 96% full.
Meanwhile, O’Leary is already threatening to move planes out of Ireland this winter and force job losses if strikes by a “small minority” of Irish pilots continue. These scraps could fizzle out, of course, and the group is sticking to its forecast that after-tax profits will arrive at €1.25bn (£1.1bn) to €1.35bn for the full-year. However, it seems equally possible that industrial relations at Ryanair becomes a long-running saga. Indeed in one sense it already has. The rostering errors that led to the airline recognising unions happened 10 months ago – and still the fallout continues.
GlaxoSmithKline can afford to be patient
Emma Walmsley, the chief executive of GlaxoSmithKline, probably thought she had already killed the idea of breaking up the company. A year ago, fresh in post, she set out her thinking: GSK would stick with its strategy of housing three businesses – pharmaceuticals, vaccines and consumer products – under one roof.
Vaccines and consumer brands such as Sensodyne toothpaste produced reliable cashflows, she argued, and thus provided a natural balance to the more volatile game of developing prescription medicines. Besides, there are benefits that come from being able to switch drugs to the consumer category when patents expire. The stance seemed very reasonable.
Yet the breakup lobby was never wholly silenced and could be heard again at the weekend as the FT reported that some big investors were lobbying GSK’s chairman, Sir Philip Hampton, to consider spinning off the consumer division. Walmsley will thus have to revisit the subject at Wednesday’s half-year figures. She should stick to her guns: a grand de-merger would be a distraction that GSK does not need at this moment.
Walmsley’s plan A is to reinvigorate the drug pipeline and she has hired some big pharma names on even bigger pay packages, including Hal Barron as chief scientific officer, to get results. If that’s the strategy, give it time to work. GSK shareholders are being paid to be patient in the form of an 80p-a-share annual dividend that has been maintained through major patent hits and asset shuffles under her predecessor. Now is not the moment to change direction.
Whiff of the past for water industry
United Utilities, as it prepares to pay £181m in dividends to shareholders next month, two days before the likely start of a hosepipe ban, should recall a cautionary tale from the water industry a generation ago.
It was in 1995 that Trevor Newton, the then boss of Yorkshire Water, failed to show the necessary sympathy for customers during a drought when he urged them to save water with these stirring words: “I personally haven’t had a bath or a shower for three months.”
Cue many jokes about “the filthy rich”. Newton became a laughing stock and was gone within a year.
Steve Mogford, the current chief executive of United Utilities, has avoided such PR howlers but he can surely appreciate that record shareholder dividends do not sit well with hosepipe bans, especially when your pipes are the second most leaky in the industry.
The fact that United’s leakage rates are Ofwat-compliant is interesting but, in the end, irrelevant. A boss who has earned £12m in five years is expected to look out for the company’s reputation. A personal pledge not to take a bonus this year is the minimum requirement.
