Michael O'Leary

by Alan Ruddock

  Stansted was designed to be London’s third airport. A gleaming modern building of glass and steel, complete with a futuristic monorail that took passengers from the main terminal building to the outlying airline gates, the airport had cost £300 million to build. The problem was that there weren’t many passengers. Despite the hype that had surrounded its opening, Stansted had been shunned by the major airlines and had yet to finish its rail link to London’s Liverpool Street station. Without the train, Stansted was simply too far from the British capital to attract scheduled airlines, and it had been forced to settle for the more sporadic trade of the charter airline market.

  McGoldrick recognized that Stansted had the capacity to handle Ryanair’s growth and saw an opportunity in the fact that it lacked the basic infrastructure to attract major airlines. This weakness provided a perfect platform for McGoldrick to strike an exceptionally good bargain with the British Airports Authority, Stansted’s owners, who were keen to deal with anyone who promised passengers. Ryanair’s finances may have been disastrous, but the airline had demonstrated its ability to sell seats, and anyway not even McGoldrick knew how bad the finances really were.

  BAA and Ryanair negotiated quickly and without rancour. Sir John Egan, the former Jaguar boss who chaired BAA, was intrigued by the brash young Irish airline and was prepared to give it a chance, especially since he had few offers on the table. The deal was straightforward: Ryanair would pay a small fraction of the published landing charges and start its services in the spring of 1989.

  Unfortunately for McGoldrick, Aer Lingus had also spotted the opportunity that Stansted offered. It had moved first, acquiring landing rights and launching services in early 1989 from Dublin. When Ryanair launched services from Knock and then from Dublin, Aer Lingus immediately made plans to increase its once-a-day service to twice daily to heap pressure on its competitor. It was then, at the end of May 1989, a year after O’Leary had arrived, that Ryanair’s fortunes started to change, marginally but very importantly, for the better. Ireland’s department of transport denied Aer Lingus permission to increase its number of flights. For the first time since Ryanair’s launch in 1985 there was official recognition that competition might actually be good for Irish tourism, as well as a willingness to prevent a competing airline from being driven off a route by a bigger rival.

  Seamus Brennan, the new minister for transport, was intuitively more open to the idea of competition than his predecessors, and officials in the department could no longer ignore the fact that Ryanair’s emergence as a force in the market had stimulated traffic between Ireland and England. The number of passengers travelling by air between Ireland and the UK had risen sharply each year since the new airline started operations – doubling from 1.5 million in 1985 to more than 3 million in 1989 – and thereby destroying Aer Lingus’s argument in the early 1980s that a new competitor would simply cannibalize the existing market.

  Brennan and his department officials had no intention of supporting Ryanair directly, but they were prepared to draw Aer Lingus’s predatory teeth. ‘The department was very supportive of Aer Lingus at that time and it dominated the airports and the routes,’ says Brennan.

  Ryanair had just started up, and was losing money and doing badly, servicing regional airports like Knock, Waterford, Galway. It was seen as an outsider, a small player.

  I could see that there was a clear contradiction in my position as the official owner of the national airline and also as the industry regulator. You can’t be a referee and play on one of the teams at the same time. And that was what was going on in Irish aviation – the referee played on one of the teams.

  He recognized that Ryanair under McGoldrick had moved away from confrontation by abandoning the routes to Glasgow and Manchester, and had also observed that Aer Lingus had forced it off the Knock–Dublin route. It was time, Brennan reasoned, for cohabitation. There was room, as McGoldrick had argued, for both airlines in a growing market, and competition had demonstrably increased the size of that market.

  Aer Lingus, however, did not read the signs. Conditioned to believe it had an inalienable right to run air services out of Ireland, it remained committed to killing Ryanair. If it could not add more flights, it would compete on fares and schedules. Since it was state-owned, Aer Lingus had never been subjected to the commercial pressures that dictate the fortunes of private companies. It knew that it would not be allowed to fail, and successive Irish governments had pumped in millions of pounds to keep the airline flying.

  Armed with a conviction of its own invulnerability, Aer Lingus was now prepared to use Irish taxpayers’ money and its own profitability in the late 1980s to defeat government policy, and it was supported in its rebellion by the trade unions which dominated its workforce and intimidated its management. Unions and management were united in their hatred and fear of Ryanair, the unions because a successful, non-unionized private airline could disrupt their own cosy arrangements with the national carrier, and the management because they believed, wrongly, that Ryanair’s success could only come at their expense.

  The pressure reached breaking point in the summer of 1989. Despite the public confidence of the Ryanair management, privately they now knew that the airline was in deep crisis. The rate of its losses had slowed in 1989, thanks to McGoldrick’s route closures and O’Leary’s tightening grip on the airline’s finances, but it was still losing money at an alarming rate. Tony Ryan knew that if the airline were to survive he would have to invest a further £20 million, and he would not do so unless there was a realistic chance that the airline would be given the breathing space to grow profitably. The situation was stark: unless the uneven David and Goliath struggle with Aer Lingus could be halted, Ryanair would have to fold. O’Leary recommended, once again, that Ryan cut his losses, but the GPA chief executive decided on one last roll of the dice. He would try to persuade the government that Ryanair deserved another break.

  The late summer months are traditionally a good time to meet members of the government – at least those who have not disappeared on their summer holidays. August is a month when formal politics in Ireland ceases, the Dail is in recess and the country at play. If a minister is in the capital, he has little pressing business to fill his day. Seamus Brennan, the transport minister, had no trouble making time for Tony Ryan.

  Ryan brought McGoldrick and O’Leary with him and outlined a simple case: their airline could survive only if the minister was prepared to build on his decision to block Aer Lingus from increasing its frequency on the Dublin–Stansted route. Ryan needed much more: he wanted Brennan to make a very conscious decision in favour of a two-airline policy by carving up the routes across the Irish Sea between Ryanair and Aer Lingus. This would not be the two-airline policy of the past, when British Airways and Aer Lingus shared the routes across the Irish Sea and divvied up the cash each year. It would be a policy based on competition, not on collusion, which would give both airlines the opportunity to compete for business but which would prevent them from destroying one another by dividing Britain’s airports – and particularly London’s airports – between them.

  Ryan was not asking Brennan to hand over Aer Lingus’s traditional route to London’s Heathrow airport; he just wanted the national carrier to stop using its apparently limitless resources to kill his own company by using predatory tactics on shared routes. He wanted space to survive and space to grow, and that meant getting Aer Lingus out of Stansted. If Brennan was not prepared to stop Aer Lingus’s predation, he warned that Ryanair would close and the tourist industry, which had begun to flourish after twenty years of stagnation, would wither once more. The choice was stark.

  ‘It was made quite clear to me that Ryanair was about to shut,’ says Brennan.

  We were bombarded by Ryanair at that time, being told that it was going to close, that it was losing millions. The figure six million was in my mind – that’s nothing nowadays but it was big money then. I’m not sure how they told me but they got the message across i
n phone call after phone call, letter after letter, meeting after meeting. There were calls from Tony Ryan and from their accountancy people. They were all chasing the department, not just me, and they were backing their claims with financial statements.

  Luckily for Ryan, Brennan was one of the few Irish politicians at the time who was instinctively in favour of competition – an instinct that he would trust again in the future. In the early 1990s state-owned companies were a dominant force in Ireland’s then lacklustre economy. More than 60 per cent of those in work were employed, either directly or indirectly, by the state, while unemployment levels were persistently high.

  Brennan listened to Ryanair’s tale of woe and decided to act. ‘They were in big trouble and they convinced me and my officials that the company was about to close. Could they have been bluffing? They would have had to get past all the top people in the department, most of whom would have loved to have seen them going bust, they would have had to get past me, past the department of finance, even the media.’

  Financial help was not on the table, though Ryan did ask if a handout would be considered. ‘They never got any money from us,’ says Brennan. ‘It was out of the question, because Aer Lingus got our money.’ Instead, Brennan and his officials settled on a radical new policy for the Irish aviation sector, a policy which for the first time recognized that the country’s interests would be better served by having two native airlines carrying passengers into the country rather than just the single state-owned company.

  ‘If you think about that today, imagine having a two-newspaper policy or a two-anything policy. It should have been an any amount of airlines you like policy,’ says Brennan. ‘The climate was such that I couldn’t even say let’s open the market for any airline that wants to fly to Ireland. I couldn’t say that because Aer Lingus was so dominant and powerful.’

  The two-airline proposal then went to the Irish cabinet, where it had to clear another significant political hurdle. Charles Haughey, Ireland’s then taoiseach, represented a north Dublin constituency, as did Bertie Ahern, then minister for labour. Since Dublin airport is situated in north Dublin, the two men’s constituencies were home to thousands of airport and airline employees. The national interest, when it came to aviation policy, often had to take a back seat to the more pressing political realities of winning elections.

  Haughey and Ahern, says Brennan, took a lot of convincing before they would sign up to the new airline policy, but luck was still on Ryanair’s side. Unusually for a major political decision, Brennan was moving at speed, and the August holidays, followed by the slow return to mainstream politics in September, meant that Ryanair’s opponents were asleep. Aer Lingus knew that Ryan-air was in crisis but did not believe that the government would actually lift a finger to help its rival.

  Caught unawares by Brennan’s speed, the state airline failed to lobby aggressively before the cabinet meeting that would decide Ryanair’s future. Then, to its shock and genuine horror, the two-airline policy was announced as a fait accompli and there was nothing that could be done to reverse it.

  ‘There was,’ says Brennan, ‘absolute murder. Aer Lingus employees were picketing my office, calling for my resignation and making all sorts of accusations.’ Some insinuated that Brennan had introduced the new policy because Tony Ryan had made a large donation to Fianna Fail, Brennan’s political party. Others claimed that Brennan had benefited personally – a charge that he rejects angrily.

  ‘There were conspiracy theorists around that decision,’ he says.

  People asked, ‘How much did he get from Tony and the lads?’ And the answer is nothing. Not a red cent, ever. Not a free trip to a football match, not a fucking ha’penny, not even a postcard. I did not make that decision because of them, I didn’t care who they were.

  They could have been Mexicans as far as I was concerned. Or Chinese. I just saw a small company who wanted to fly people to London at a cheaper price. It was £208 to fly to London in 1989. Here was an airline that came along and said we’ll do it for half that. And I was supposed to shut them down? I said why the blazes should we have one airline, I don’t understand it, I don’t care if we have forty airlines.

  Prompted by Brennan, the Irish government decided that Ryan-air should be the sole Irish carrier licensed to operate from Ireland to Stansted and Luton airports and that Ryanair would also be the sole carrier on the Dublin–Liverpool and Dublin–Munich routes. Aer Lingus, meanwhile, was awarded exclusive rights to service Heathrow and Gatwick, London’s two major airports, as well as Paris and Manchester.

  The effect of the new policy was seismic. ‘I went to the cabinet, I simply said “Aer Lingus have three London airports and Ryanair have one, well let’s give them two each.” The nub was to take Aer Lingus out of Stansted. I think history has shown that that was the right decision,’ Brennan says.

  It was, on balance, an equitable carve-up: the national carrier was guaranteed no competition on its traditional and highly profitable routes to Heathrow and Gatwick, London’s largest airports, while Ryanair was protected from predation on its routes to the new Stansted airport. Irish tourism, so Brennan believed, would be the winner.

  But for Aer Lingus it was a dramatic setback. It had lost its status as the only airline that mattered in government policy-making, and its competitor had been thrown a lifeline by Aer Lingus’s owner. It was, the senior management and unions believed, a betrayal. Cathal Mullan, Aer Lingus’s chief executive, said the change of policy was ‘very serious. Without a Dublin–Stansted operation, our capacity to generate increased tourist numbers from the south-east of England will be totally inhibited.’

  If that had been the airline’s sole intention, then it is possible that Brennan would not have acted. But it was evident that Aer Lingus had become dangerously obsessed by Ryanair’s success in building a market that it had always argued did not exist. Simply put, Aer Lingus had been wrong, and its errors had deprived the state, its owner, of a booming tourism industry. Aer Lingus had to be saved from itself, and the safest way of ensuring that it focused on its real business rather than on killing a competitor was to separate the two airlines and cushion them from each other for a period of time.

  Aer Lingus’s attempts to drive Ryanair out of business were by then proving ruinously expensive. Aer Lingus’s profits had peaked at £52 million in 1988/89, but the battle with Ryanair cut those profits almost in half in 1989/90 and by 1990/91 they had tumbled to just £8.3 million. The airline’s dwindling profits (and eventual fall into substantial losses) were not caused by Ryanair’s existence, but by Aer Lingus’s chosen response.

  As Des O’Malley, then leader of Ireland’s Progressive Democrats, said,

  Aer Lingus’s management failed to recognize the changing environment in European air travel that deregulation had brought about and had failed to change its corporate culture. While paying lip service to the new competitive era, Aer Lingus still hankered after what they consider the good old days of collusion between state-owned airlines to maintain high prices, to keep out competitors, and to discourage increased business. They have compounded the original strategic error of trying to block competition by an obsessive follow-on policy of trying to kill off their new domestic competitor, Ryanair. So obsessive did this policy become in recent times that it has virtually bankrupted their core aviation business. There was an irrational targeting of the new Irish airline, which they sought to put out of business at all costs. They pursued Ryanair everywhere, even to the small provincial airports, which they would not touch until the new airline went into them. Instead of going out to develop their own business, Aer Lingus chose the soft option of matching fares with all competitors and trying to prevent other airlines from developing business for the benefit of the country.

  If Brennan saved Aer Lingus from destructive competition, he also gave Ryanair a real opportunity to emerge from years of loss-making. McGoldrick said the change in government policy represented ‘a coming of age for Ryanair, a recogni
tion that we have a role to play’.

  Fifteen years later O’Leary takes a more conservative view of the impact of the deal. ‘The concession itself didn’t actually amount to a lot,’ he says. ‘Aer Lingus owned Heathrow and Gatwick, we were in Luton and Stansted. The deal was Aer Lingus got Heathrow and Gatwick and we got Luton and Stansted. We got Liverpool and they got Manchester. And that was it…The deal was only crucial in persuading Tony [Ryan] to put in more money. He said he was not putting in another ten or twenty million if the government was going to keep on dumping on him.’

  The exclusive right to fly to Stansted was not a guarantee of success. While Stansted had clear potential, it was an airport entirely without a track record, had no experience of low-fares airlines and, even more worryingly, was unknown to the vast majority of British travellers.

  ‘Ryanair was in a very difficult position,’ recalls Peter Bellew, who ran a tour-operation company in the UK. ‘When they opened up in Stansted, it too was literally just opening. I put a proposition to Ryanair that we’d do inclusive packages, your flight, your accommodation, your car hire, whatever, based around the concept of low, fixed airfares.’ Ryanair jumped at the idea, and soon Ryanair Holidays was born. The tour operator, which had previously offered ferry holidays, brought out a brochure featuring all the destinations Ryanair flew to in Ireland. In 1989/90 Ryanair Holidays carried 10,000 people – a small but profitable slice of Ryanair’s total traffic for that year.