Wednesday, 4 October 2017

Costs and risks are not clearly defined at the start of a crisis

Sometimes a purely bottom line focused company ends up coming to conclusions that make it spend more than if it took a more overall view. When Ryanair discovered it had scheduled more flights than it could man, it decided to cancel a number of them instead of the alternatives like;  temporarily wet-leasing (hiring with crew) aircraft from a different airline. And there was plenty of them around, proved by that the CAA could only a week later hire in a fleet of them to ferry home stranded customers after the Monarch collapse.
From a purely financial decision that might have been the correct thing to do if you where a company operating strictly by the book. However Ryanair are not exactly inundated with friends. Even their customers use them because they are the cheapest, completetly according to the Ryanair strategy, but still do not hold back in regular criticism on social media. And their enemies have been waiting for the right time to pounce. When that is the case you don't serve them up an opportunity on a silver platter.

Little could be done with the initial cancellations if it was a sudden realisation of lack of crew, or parts of management had already made the anouncement without mulling it over for a day or two. But there was just 2100 of them. The company had plenty of time to consider what to do with the rest of the season.
First they could have taken away the flights that had no seats sold on them. And according to their own statement and a simple calculation since 400 000 seats was sold on 18 000 flights, this could have meant at least halving the number to about 9000. 
Then consider political implications and UK pm May's dependence on Northern Irish support to stay in government and Scottish transport links to keep the country together. Political pressure is always more difficult to diffuse than bargain hunters that forget their principals when the next seat sale comes along.  
Then consider different financial scenarios where the best is that we get away with cancelling and everybody want refunds. A middle where a percentage is happy to take the buss and a voucher for goodwill. And the worst is we have to stick strictly to the letter/intention of the law and reaccommodate all 400 000 on competitors flights at grossly inflated prices plus sustenance and accomodation. And the likelihood of each one.
Is cancelling all still the best option, leasing in planes and crews to do all the flights, or a combination of the two.  What about when the risk associated with lack of goodwill, investors confidence, internal rumblings and future costs when new rules must be adhered to where before they could be diffused. 

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