Michael O'Leary

by Alan Ruddock

  The airline’s inaugural route would be from Christy Ryan’s hometown of Waterford to Gatwick. That route was never going to make their fortune – Waterford in 1985 was a small coastal town known for its port and its hand-blown crystal glass, not a burgeoning metropolis – and Ryan decided to operate a fifteen-seat propellor aircraft which he brought in from GPA.

  In July the new Ryanair took to the skies for its inaugural service, operating one return trip a day between the two airports. If Ryan managed to sell every seat on the plane every day of the week he would carry no more than 10,000 passengers a year – a tiny fraction of the overall market between Ireland and the UK – but it was a start. The initial response was encouraging: within weeks Ryanair had achieved load factors of 50 per cent – an impressive way of saying that an average of seven people flew on each leg of the route. Ryan was encouraged enough to double the daily frequency to two return flights and add a Sunday operation as well.

  The Waterford–Gatwick route was always just an entry point. Ryanair had to demonstrate to the Irish government, which granted the airline licences, that it could operate a simple route safely and efficiently. Ryan’s target from the very beginning was the lucrative Dublin–London market. That, he knew, would be the real battleground with Aer Lingus, and Ryanair’s entry as a competitor would inevitably provoke a ferocious response. Direct competition on flights to Heathrow was out of the question – apart from the expense of flying to a major airport, simply getting landing slots was beyond the means of a small start-up airline – so Ryan and O’Neill had to find an airport from which to launch a Dublin–London service.

  Their choice was Luton, a small and underutilized airport which lay to the north of London. It could be reached by the MI motorway, and by train from London’s King’s Cross station. Most important of all, Luton, though close to London, was technically not a London airport. If it had been a London airport, Ryanair would have been legally bound to charge fares in line with those of other airlines who were flying between London and Dublin. But as Luton was legally perceived as a different destination, and as Ryanair was the only airline flying to that destination, the only fares Ryanair had to match were its own.

  Luton was not ideal – passengers would have to take a bus from the airport to the train station before travelling on to central London – but it was more than adequate for Ryan’s purposes. It would allow Ryanair to charge whatever fares it chose and the journey time to London, at just over an hour, was not excessive. In December 1985, just five months after the first flights from Waterford, Ryan applied for and received a licence to fly between Dublin and Luton, with the new route scheduled for take-off from August 1986.

  The route gave the airline its first opportunity to compete directly with Aer Lingus. Ryan was acutely aware of the significance of the development and described it as ‘the most exciting route opportunity ever to be given to any independent airline operating into or out of Ireland’.

  The breakthrough prompted Ryan to revisit his strategy for his airline. In January 1986 the revised business plan for Ryanair was completed. It envisaged an airline focused firmly on expansion with the resources to carve out a market. The company had set aside £1.5 million to develop its route network, which it hoped would soon expand to include a route from Shannon to Gatwick, and added a further £500,000 in buffer funding to cover any extra costs. Plans for services to America and Australia had been shelved in favour of developing short-haul services from Ryan’s three favoured airports, Luton, Shannon and Waterford.

  The company had high hopes for its Dublin–Luton route, commenting that even though Ryanair’s flight time would ‘admittedly be slower’ than Aer Lingus (or ‘marginally slower’ as Ryan amended it by hand in his own copy of the proposal), their lower price would attract plenty of passengers. The proposed Shannon– Gatwick route was ‘an essentially proven route’, the document noted, but it was more vulnerable to price competition because Dan Air, a UK-based early pioneer of low-priced flights, held a licence on the route. On its one existing route, Waterford to Gatwick, the document noted that it was a ‘fundamentally high yield route…with a proven traffic potential of at least 15,000 passengers annually’. But despite its ‘fundamentally high yield’, the business plan showed that the airline was heading for a loss of about £150,000 during its ‘first formative year’.

  The losses had eaten into Tony Ryan’s original investment of £313,000, made by the trust which he had established for his sons, and within a year a third of his money – £109,000 – had already been lost. Ryanair owned fixtures and fittings valued at just £12,000, while the cost of establishing the Waterford route was £300,000. On the plus side, the airline also had stocks valued at £33,000 and debtors owed it £77,000. But it was also grappling with a £75,000 bank overdraft, and £211,000 was owed to trade creditors.

  Despite its bumpy financial start Ryanair said that it was confident of making a profit of £600,000 in its second year, a profit which would be driven largely by the Dublin–Luton route. Route creation, though, was temporarily consigned to the backburner when Ryanair’s application for a Shannon–Gatwick licence was refused, leaving the airline to focus on the launch of the Luton route.

  The expected demand for the new route meant Ryanair would need to serve it with more than a fifteen-seat turboprop, and as a short-term measure Ryan took in two ageing Viscounts which could handle forty-three passengers each. He planned to introduce a jet service as soon as he could, but his first priority was to get in the air and establish a presence.

  The initial Waterford route may have been below Aer Lingus’s radar, but Dublin to Luton was not. In the run-up to the route launch Aer Lingus and British Airways introduced a new cheap fare of £95 return, prompting Ryanair to introduce its first cheap fare of £94.99. Competition was already beginning to bite, and Ryanair’s planes had yet to take off from Dublin.

  Ryanair’s first flight from Dublin to Luton was delayed for forty-two minutes, but finally, at 8.42 on 31 May 1986, FR201 taxied to the runway and took to the skies. It was a quiet start to a revolution that would change the fundamentals of European air travel.

  The service quickly proved popular, and within weeks it was hitting its passenger targets. The response was so positive that the airline introduced extra flights. Its planes were small and slow, its destination airport was a long way out of London, but Ryanair tickets were cheap and, just as important, easy to get hold of – a new phenomenon for air travellers.

  Now that Ryanair had a foothold, however slight, in the Dublin–London market, Ryan wanted more. The airline applied to the Irish government for permission to launch five more routes, with its expansion strategy based firmly on cherry-picking the busiest routes out of Ireland. Ryan wanted to fly from Dublin to Paris, Amsterdam and Manchester, as well as from Cork and Shannon to Luton. The choice of continental routes was based purely on existing traffic volumes. Figures from ICAO (International Civil Aviation Organisation) for 1984 showed that Paris and Amsterdam were the two biggest European routes from Ireland, accounting for 48.3 per cent of that traffic.

  At the time the Dublin–Paris route was usually served twice daily – in the morning by Aer Lingus and in the evening by Air France. During peak season, July and August, there were four extra afternoon flights a week and an additional flight each on Saturday and Sunday. In its application to launch the new routes, Ryanair projected that on the Paris route it would stimulate the market by at least one third, and that Ryanair would carry 20 per cent of the newly enlarged market, giving it a projected 27,930 passengers and a load factor of 63.9 per cent.

  The Dublin–Amsterdam route was served by just Aer Lingus, with Dutch carrier KLM operating no services. Aer Lingus operated two daily services – morning and evening. Despite facing no competition the national carrier had not fared well on the route – Ryanair said that the ICAO data for 1984 showed the outbound load factor was ‘a disappointing 40 per cent’. Once again Ryanair projected a 33 per cent increase in the
market, with Ryanair taking a 20 per cent share of the newly expanded market.

  The Ryanair application stated,

  Having seen the unprecedented demand for Ryanair’s Dublin to Luton service, and bearing in mind the EEC’s attitudes to competition in air travel within Europe and in particular the recent European Court ruling on air fares, it makes obvious sense to consider the extension of Ryanair’s low-fare concept to other parts of Ireland and Europe besides Dublin and London; especially now that Ryanair has itself made the commitment to jets and high utilization of this equipment is key to success.

  It said its early experiences on the Luton route ‘vastly exceeded even our most optimistic predictions’. In its first week it carried 1,525 passengers (a load factor of 72 per cent), rising to 1,777 passengers and an 80 per cent load factor in week two. ‘In week three the load factor was even higher,’ it said, without specifying the numbers. It also claimed that Waterford–Luton had ‘proved more popular than anticipated’.

  Price would once again be Ryanair’s weapon of choice, and on the continental routes it had plenty of room to manoeuvre. Aer Lingus’s return fare to Paris Charles de Gaulle airport was £434 – more than a return flight to New York – and Ryanair said it would charge just £159. It argued that price would stimulate demand and that if granted the new routes it would carry 340,000 extra passengers in the first year.

  The applications were a clear signal of intent. Ryanair wanted to evolve quickly from a low-key regional operator into a serious potential competitor for Aer Lingus. Its business plan was consciously predatory – it wanted to identify Aer Lingus’s most profitable routes and then challenge the national airline on each one, undercutting its fares and stealing its passengers. But Ryan knew too, from his study of the effects of US deregulation on the domestic market, that low fares stimulated air travel and encouraged people to fly. Ryanair would steal passengers from Aer Lingus, but it would also start to introduce a new generation of customers to the airline business.

  Ryan was confident that the government would grant permission for the new routes, but Aer Lingus, already stung by Ryanair’s success in attracting passengers to its Dublin–Luton route, was on full alert. The national airline now believed that Ryanair posed a serious threat, and after years of operating in the comfort zone of a stagnant but profitable market did not believe that the market would grow. Instead, it argued to government and to officials in the department of transport, Ryanair would simply cannibalize Aer Lingus’s market and rob it of profits. The upstart, it decided, had to be stopped in its tracks.

  At the time Ireland’s department of transport was known as Aer Lingus’s downtown office; the relationship between the department and the airline it owned was seamless. Aer Lingus executives were routinely asked to provide information for the department and allowed, in effect, to dictate government policy. Ryan’s confidence that the new routes would be granted was entirely misplaced; he understood markets but he had no feel for the politics of the situation. The department of transport sought, and took, Aer Lingus’s advice. The new routes would be refused.

  The official reason for the refusal was that Ryanair had yet to prove itself as an airline. The Luton route, however, had quickly established itself. In Waterford early teething problems had also been countered. Poor weather conditions – Waterford airport is prone to fog – caused almost one in five flights to be diverted to other airports, but the introduction of the larger Viscount reduced the diversion rate.

  Passenger numbers continued to grow as Ryanair introduced larger jet aircraft from the end of 1986. By early February 1987 the airline had carried its 100,000th passenger on the Dublin–Luton route. Ryan and his team were ready to expand further, but the rules of the day were that the government called the shots. New routes had to be approved, and getting that approval required convincing the department of transport that Aer Lingus, the fount of all its knowledge, was wrong.

  A former Aer Lingus executive says that the airline was divided internally by the threat of competition, with conservatives arguing that it had to be killed at source and some liberal elements relishing the prospect of a livelier, expanding market. ‘But management was dominated by the conservatives,’ he says.

  Ryanair had yet to prove itself to a hostile government but it had made its mark on an equally important constituency. The travelling public and initially the Irish media embraced the new company with an enthusiasm that unnerved its detractors. Eugene O’Neill, young, handsome and dynamic, captured the imagination; he was a David taking on the Aer Lingus Goliath, offering cheap flights and friendly service. His image was burnished by the skills of Anne O’Callaghan, his public relations adviser, who charmed the media and made it possible for O’Neill to shine. Significantly, too, the public wanted Ryanair to succeed because they had tasted low fares, and seen the immediate impact that Ryanair had had on Aer Lingus’s fares, and they liked what they saw.

  ‘Our customers were extremely forgiving because they genuinely wanted Ryanair to succeed,’ says Charlie Clifton, who worked his way through the ranks at Ryanair from 1986 to 2002. We had very very good public relations – Eugene was excellent at that – and the whole company really got a lot of public support. They could see that we were trying to break the monopoly. And they could also see that we were a bunch of kids as well, so it wasn’t like you had crusty old folk who’d been there for years doing the stuff. We were just out of school, with no experience, trying to be as nice as we could. So you rarely got your head taken off. And people were pretty forgiving.

  In just two years the company grew from being a one-plane operation out of Waterford into a serious player on the Dublin–London route. Its ability to survive, despite a deteriorating financial position, was a source of deep irritation to Aer Lingus. Hostilities were not restricted to the executive teams in both companies. Ryanair’s young workforce was committed and passionate, and had no time for the patronizing disdain of the state-owned airline and its comfortable, well-paid staff. On the ground the battles were just as intense as in the boardrooms and Ryanair’s people needled their Aer Lingus counterparts at every opportunity.

  Clifton recalls the skirmishes, and Ryanair’s minor victories still bring a smile to his face. When Ryanair moved into Cork airport in the spring of 1987, Clifton says, ‘Aer Lingus acted as if it had owned that airport forever and then along came bright-eyed Ryanair. There was all sorts of messing. We’d say, “Can we have those stands there?” and they’d say snootily, “No, those are the Aer Lingus stands.” We didn’t have chocks for putting under the aircraft’s wheels, so we merrily helped ourselves to the Aer Lingus chocks, then they’d come round and steal them back.’

  To settle their differences, Ryanair eventually challenged Aer Lingus to a soccer match. ‘We took them all out, eleven against eleven; we beat them 3–1 and we rang up the Cork Examiner and we got it put into the paper,’ Clifton says, still pleased by the victory almost twenty years later. ‘There were two brothers working for us, and there was something like eleven brothers in the family, and one of them played for Cork City and he came out for us. Of course the Aer Lingus guys didn’t know who was working for Ryanair and who wasn’t.’

  Aer Lingus’s naivety on the playing fields did not diminish its determination to put manners on Ryanair. It matched Ryanair’s low fares with cheap, if difficult to obtain, headline fares of its own; it increased capacity on key routes; and it used aggressive marketing. The depth of Tony Ryan’s pockets had kept Ryanair afloat, but Aer Lingus was determined to increase the pressure to breaking point.

  O’Neill fought Aer Lingus with panache, positioning Ryanair as the cheeky, friendly alternative to the national monopoly and poking fun at it with effective advertising campaigns. Ryanair’s youth and exuberance were in stark contrast to the stodgy, corporate middle-aged world of Aer Lingus; there was a swagger about the company, a confidence that comes naturally to the young and to those who have not had their ideals quashed by the dead hand of bureaucratic
management.

  If carrying passengers was the ultimate measure of success, then O’Neill was doing well. New route launches in 1987 had opened up the Cork–Luton market (although for the first few months the service had to land, taxi and take off again in Dublin en route because the British government still had the power to object to the new service), as well as routes from Dublin to Cardiff and Dublin to Knock, a new airport in the west of Ireland. The Knock service had been won in direct competition with Aer Lingus’s new commuter service – a propeller-plane division which the airline established to compete with Ryanair – and the state airline responded by opening routes to the nearby airports of Sligo and Galway, a move that ratcheted up competition between the two airlines to a new, and more painful, level.

  By the middle of 1987 O’Neill’s Ryanair had carried its 250,000th passenger and with the addition of the new routes managed to carry 318,000 passengers in the whole of 1987. Its fleet of aircraft had been boosted during the year by the addition of three BAC One-Eleven jet aircraft from Tarom, the Romanian carrier, which were delivered in the early summer. That April Cathal Ryan had told newspapers Ryanair was heading for a ‘substantial profit’ and was expecting to have a hundred flights a week between Ireland and the UK by the summer of 1986, a fourfold increase on the summer of 1986. ‘The public response has been incredible in Ireland,’ he said.