The shock announcement by Ryanair late last week that it would recognise unions for the first time in its 32 years in existence sent shockwaves across the industrial relations world. But what does it mean for the future of the airline's business model?

David Holohan, chief investment officer with Merrion Capital, said the decision by pilots to suspend their strike action for now likely arose from their satisfaction at having entered talks, accompanied with the airline's desire to avoid strike action in the run into Christmas. "What's likely for the future is that labour costs at Ryanair will increase. Ryanair will have the choice of absorbing those costs or seeking to increase fares to offset labour costs," the analyst said.


David Holohan said EasyJet and other competitor airlines recognise unions and that as a result, they have greater labour costs per passenger. "The fear is that the gap will close over time where Ryanair's efficiency gains will start to deplete and on that basis, labour costs per passenger will increase and that's something investors should be concerned about," he explained.

The near 9% drop in the share price on Friday reflects the uncertainty as to where the airline goes from here, according to David Holohan. "Acknowledging unions is a big departure for Ryanair. It's a seminal moment like the 'Always Getting Better' programme. Investors will wait and see what guidance they offer for next year before they become comfortable as to what the profitability will be."

Mr Holohan also said he believed Michael O'Leary's position at the top of the airline was safe, despite a torrid 2017. "He has a strong track record in generating growth in value for shareholders. As long as he's willing to stay, shareholders will likely back him," he concluded.

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