Michael O'Leary

by Alan Ruddock

  His timing, though dictated by events outside his control, was impeccable. On 14 February the Irish Times pointed out that ‘Dr Ryan has joined the board at a time of rapidly rising profits at Ryanair’, adding that the airline’s ‘profit is understood to have been substantially higher in 1994’ than it had been in 1993. Conflict between Ryan and O’Leary was becoming inevitable. O’Leary was making more money than he had thought possible from his profit-share agreement – in 1993 and 1994 he had made his first million pounds from Ryanair, and would earn a further £6 million through 1995 and 1996 – but he had no shareholding in the company. A sale would benefit the Ryans but could put an end to O’Leary’s new-found income stream.

  For both men one thing was clear: Ryanair had to maintain its upward momentum. Success was a virtuous circle, creating higher profitability and greater visibility for the airline, which in turn whetted the appetites of potential investors and buyers as the money rolled in. For a time at least Ryan and O’Leary were thus on a parallel mission. The tactics remained simple: hammer down costs, drive up profits and maintain relentless pressure on Aer Lingus. Whenever the state-owned airline tried to break free of the constraints imposed upon it by the European Commission in 1993 Ryanair cried foul.

  In March 1995, a month after Ryan had joined the board, O’Leary lodged a formal complaint with the commission, alleging that Aer Lingus’s plans to buy a new fleet of jet aircraft to operate on some of its Ireland–UK provincial routes breached the capacity restrictions placed on the airline. O’Leary’s complaint was eventually dismissed, but his intervention caused delay and maintained pressure, allowing Ryanair to push ahead while its rival stumbled.

  In April O’Leary announced that he was creating more than a hundred new jobs across the company – hiring pilots, cabin crew, reservations staff and ground crew as Ryanair geared up for expansion on the routes between Ireland and the UK. Passenger numbers continued to climb throughout 1995, with the routes to Prestwick proving remarkably popular while the airline’s share of the Dublin–London market continued to rise.

  O’Leary was also now beginning to get the public recognition he deserved. In an interview with the Irish Times in May Tony Ryan waxed lyrical about his young chief executive’s talents. O’Leary, he said, was ‘probably the best chief executive I’ve ever worked with’, and according to the newspaper report Ryan attributed ‘much of the success of Ryanair’ to O’Leary. The example he gave of what O’Leary had actually done at the airline, however, revealed the shallowness of Ryan’s appreciation of the company’s transformation under O’Leary. Instead of highlighting the cost controls, the deals with airports, the renegotiation of contracts, the fast turnaround times achieved by Ryanair aircraft or the switch to a fleet of Boeings, Ryan credited O’Leary with first proposing that the airline stop serving food on its flights.

  ‘The family were appalled,’ Ryan told the newspaper. ‘We told him the passengers would go spare. He went ahead anyway and nobody complained. The time saved in serving food is now spent selling duty-free. I think Ryanair is now the biggest retailer of Jameson [whiskey] in the world.’

  Shallow, yet also insightful. O’Leary was clearly the airline’s dominant force and Ryan family opposition to his plans wilted when he stood firm. The company was run O’Leary’s way and Ryan’s sons did not stand in his path.

  Tony Ryan, however, was a more robust figure and had plans of his own.

  In 1995 the routes from London to Scotland were dominated by British Airways and British Midland, and fares were as expensive as Dublin–London had been in the late 1980s. The train service between London and the two major Scottish cities of Glasgow and Edinburgh was also slow and expensive, and O’Leary reckoned that there was potential to stir up the market, and do it noisily.

  It was widely known that the EU was planning to bring in new rules that would grant foreign airlines the right – known as cabotage – to operate domestic flights in another country.

  ‘We wanted to get first-mover advantage on it, in case anyone else wanted to have a go,’ recalls Tim Jeans. ‘It was very difficult to determine, when cabotage came along, whether there would be a rush to get onto the best domestic routes that everybody else had. Everybody thought that cabotage was the nirvana, particularly for someone like Ryanair with no domestic market in Ireland and the potential to have such a large one in the UK.’

  Jeans says that Ryanair briefly considered reincarnating the airline’s previous UK-based company, Ryanair Europe (formerly LEA), in order to establish itself on internal UK routes before liberalization opened the door to everyone else, ‘but LEA had gone horribly wrong, and in many ways nobody wanted to revisit the failure. We didn’t do failure by then.’ Instead, Ryanair took a 45 per cent stake in Ryanair UK, which had been set up by Cathal Ryan in 1985 and been dormant for several years. The company was registered in the UK and authorized by the UK’s Civil Aviation Authority.

  As the airline’s only British senior manager, Jeans was put in charge of the new company, through which Ryanair planned to launch a service between Stansted and Prestwick on 26 October 1995. More than ten years later he still recalls fondly the route’s unconventional birth. ‘Stansted–Prestwick was a convoluted thing. It was confusing even for us. That was the great thing about Ryanair. It genuinely didn’t care an awful lot for convention. The idea that we could construct this elaborate design to get around the regulations appealed to everybody’s taste.’

  But it didn’t take long for Ryanair’s cheekiness to arouse the anger of its rival carriers. The first skirmish came two weeks before the new service was due to commence when British Midland threatened to bring a case before the UK Office of Fair Trading. BMI objected to what it claimed was Ryanair’s misleading advertising. ‘Whilst your flights are scheduled from Stansted to Prest-wick, your advertising campaign description is “Glasgow to London”. This gives the clear impression that the flight is to be from Glasgow Airport, whilst Prestwick is some 35 miles away,’ it said in a letter to the company, claiming that Ryanair’s advertisement was in breach of the Control of Misleading Advertising Regulations 1988, Article 2 (2).

  Jeans’s response at the time was succinct: ‘I was astonished to read the letter from British Midland as I had always considered them to be the great champions of competition in the airline business. I have made it clear that Prestwick is one of the two designated Glasgow airports under IATA regulations and we have no hesitation in using that designation in our literature, just as our sister company has done for over a year on the Dublin routes.’

  Ryanair cleared that first hurdle, but a more serious one was about to be thrown in its way. If Ryanair UK was to operate the route, it needed to have an airline operator’s certificate from the Civil Aviation Authority, but it could not get one in time for the first flights. Instead, O’Leary had arranged for GB Airways, a UK-registered and -certified company, to operate the flight, using an Irish-registered 737 leased from Ryanair. It was an obvious ruse, a deliberate attempt to drive a coach and four through the regulatory rulebook, and O’Leary’s rivals went on the attack. British Midland was joined by Air UK and British Airways in a joint complaint that GB Airways could not use an Irish-registered plane if there were British-registered planes available.

  Unfortunately for Ryanair, there were – but they were the smaller BAC One-Elevens rather than the 130-seat Boeing. Bookings for the new service were already running at more than 1,000 a day and if Ryanair was forced to use the smaller plane, just under a third of the passengers on every flight would have to be turned away.

  ‘It would have been chaos,’ says O’Leary, and for once he contemplated defeat. The weekend before the first flight was due to take off he engaged in desperate negotiations to salvage it, but as the problems mounted he seriously considered suspending bookings and running up the white flag. Frantic telephone negotiations between O’Leary, Jeans, Prestwick’s managing director Hugh Lang and the UK department of transport came to nothing and the impasse contin
ued through the next three days.

  In the end, after tense negotiations and Ryanair threats to cancel the inaugural flight, the UK department of transport offered the airline a way out. Ryanair was given a ten-day dispensation to run an internal UK service. After ten days Ryanair would be allowed the more usual permission for extended cabotage. This meant that the flights from Prestwick to London, or from London to Prestwick, would have to start in Ryanair’s home country of Ireland. ‘We had to construct this elaborate operating device where the route was loaded as a Cork–Stansted–Prestwick and in theory we were only allowed to load half of the passengers on the Stansted–Prestwick link,’ recalls Jeans. ‘But it was all a load of absolute nonsense, because the plane didn’t operate that way and there was no cap on the passengers carried – and nobody checked either.’

  For O’Leary it had been an irritating and only partly successful fight: Ryanair had made the headlines and copper-fastened its reputation as an aggressive young airline which championed lower fares, but the partial victory was unsatisfactory. He had not won the right to run internal UK services, but had instead won a messy compromise that allowed him to schedule flights within the UK but only if they originated and terminated in Ireland. No one might have been checking, but this was not a firm basis for expansion.

  A more significant fight was shaping up at Luton airport. In March 1995 a new low-cost airline was registered by Stelios Haji Ioannou. Other low-cost airlines would come and go, but easyJet was the one which would prove the biggest thorn in O’Leary’s side.

  It started as a small affair, flying from Luton to Edinburgh and Glasgow with two leased Boeing 737–200 aircraft, and it contracted in everything from pilots to check-in staff–hardly a threat to Ryanair’s growing might. But Stelios, as easyJet’s owner and founder came to be known, was the son of a billionaire Cypriot shipping magnate, and his fortune gave the airline a level of financial backing that few airlines, or companies for that matter, could match. The easyJet challenge was to prove a slow burner – the first routes were not launched until November 1995, and the airline did not mount a serious effort until it ordered twelve new Boeing 737s in September of 1997.

  While O’Leary tried to channel his energies into his expansion plans for the UK and European markets, he was being distracted on the home front by Tony Ryan’s obsession with building a new commercial airport at Baldonnel, the military airbase on the south-west fringes of Dublin.

  Ryan claimed the new airport would be a ‘low cost’ alternative to the proposed second terminal at Dublin airport, which was expected to cost £200 million. It was not a new idea – Gay Mitchell, a senior politician within the Fine Gael party, had published a development plan for Baldonnel almost a decade earlier – but Ryan backed his idea with the promise of hard cash. Ryanair, he said, would invest £50 million in the new airport – an enormous amount for a company that had only just started to make profits and which still carried accumulated losses of more than £10 million from its earlier troubles. ‘We would design the Dublin City South terminal to facilitate the flow of passengers at a rate four times as great as most other airports can manage,’ Ryan said in May 1995. ‘This would be achieved by doing away with complex ticketing and other clumsy, time-consuming, unnecessary and costly processes.’

  Armed with plans drawn up by two firms of architects, Ryan began to bombard Transport Minister Michael Lowry with details of how cheap and effective Dublin City South airport would be. And, seeking to neutralize any local opposition to the project, Ryan organized public presentations in Newcastle, Rathcoole, Blessington and Naas. He projected that the airport would generate 10,000 jobs, handle 6.5 million passengers a year within a decade and would be a ‘low-cost gateway to Europe’.

  O’Leary viewed Baldonnel as a Ryan plan rather than a Ryanair plan. ‘O’Leary was against it for business reasons – business reasons underpin all of his decisions,’ says Tim Jeans. ‘The airline didn’t need the fixed cost of an airport.’ In any case, Ryan’s dream was to be short-lived. On 25 January 1996, after a brief cabinet discussion, Lowry vetoed Ryan’s proposal, which he said would not be in the interests of the aviation sector or the economy. Lowry claimed in a statement that Aer Rianta, the state-owned airports authority, had ‘developed plans for extending the terminal building [at Dublin airport] to enable it to cater for the forecast demand of about 14 million passengers by the year 2005. Dublin Airport has the capacity, therefore, to cater for traffic demand for several decades well beyond 2000.’

  Within five years, however, Aer Rianta’s projections would look hopelessly conservative. Tony Ryan was incensed by the government’s decision and launched an immediate counter-strike. ‘Ryanair,’ he said, ‘must now reassess totally its future plans and its Dublin base. In the short term all expansion out of Ireland is being shelved and other fundamental strategies are being reviewed. The company’s new service between London and Glasgow is perhaps a template for the airline’s future development.’

  But whatever his chairman might say, O’Leary was pressing ahead with his own plans. Three months later, in May – still, presumably, the short term Tony Ryan had spoken of–Ryanair announced three new routes out of Dublin, to Cardiff, Bournemouth and Leeds Bradford. Apart from a new Stansted–Knock service, announced in December, they were the only route launches of 1996. The following year O’Leary announced seven new routes; four of these were out of Dublin.

  Ryan might bluster, but his chief executive was not taking any notice.

  Although Michael Lowry had rejected Ryan’s plans for Baldonnel, he was not an instinctive opponent of Ryanair. ‘Within the department you still had a core of the public service who were brought up in the old way, which was the protection of the state monopolies. They worked with them and they worked for them.’

  I didn’t see Ryanair as somebody to be loathed, I saw them as having a genuine cause, I could see their operation as having enormous benefits. It was clear to me that the only hope we had of increasing the accessibility of air travel to the public and encouraging more people to come into Ireland was through the low-cost model. I was very conscious that there was a need for competitive forces within the airline market, and Ryanair were the only ones that were successfully attempting to bring that competition to the sector. I was unashamedly a fan of Ryanair.

  And if he wouldn’t deliver a new airport, he could deliver a better deal at the existing Dublin facility. Shortly after rejecting the Baldonnel plan Lowry instructed Aer Rianta to lower its charges at Pier A – used by Ryanair – by more than 25 per cent, and in November he asked the airport authority to look at the possibility of reducing charges even further.

  ‘I did that because when Ryanair made a submission it was quite evident that, compared with other airports which they were using, Dublin’s charges were excessive,’ says Lowry. ‘And I also felt that Ryanair had a point, and it was quite clear to me that Ryanair meant what they said when they told the department that they were going to invest and create business in airports that responded to their needs, and that gave them the no-frills service that they required.’

  Lowry’s plan was met with public criticism by the opposition transport spokesman, Seamus Brennan, but ten years on Brennan admits that his objections were more about politics than policy.

  Aer Rianta, meanwhile, was not happy. Its chairman, Noel Hanlon, despised Ryanair and reserved special loathing for O’Leary, who treated Hanlon with naked contempt. ‘I think O’Leary respected him [Hanlon] at the start,’ recalls one senior Ryanair manager, ‘but he didn’t respect him for long.’ The manager recalls one particular meeting he attended with O’Leary and Hanlon. ‘The meeting was just a shout-fest. Hanlon was a rude man. O’Leary is rude in a different way. Hanlon was much ruder but his language was slightly less colourful.’

  The two men were natural opposites. Hanlon had been appointed to Aer Rianta because of his political connections and not his competence. For Irish politicians the boards of state-owned companies were places to d
eposit friends and supporters who needed reward. It was not about financial gain – remuneration was token – but status, and Hanlon revelled in the role of chairman of one of the state’s most successful companies. O’Leary thought little of him and did not bother to hide his feelings.

  Lowry’s instructions to Aer Rianta outraged Hanlon, who did not understand why a state-owned company should favour a private company that was stealing market share from another state-owned company. ‘Hanlon has since called me the worst minister for transport he ever had, but as far as I was concerned Aer Rianta had a golden nugget, a monopoly, and had become too comfortable. Initially Aer Rianta had been a company of great vision but it gradually lost its way. The management became aloof, and grew old with the system,’ Lowry says.

  Five years later, in May 2001, a Dublin newspaper, the Sunday Business Post, claimed that the lower airport charges had been worth €40 million to Ryanair. The story, which bore the fingerprints of Aer Rianta’s public relations department, played on the fact that Lowry had subsequently been forced to resign his ministerial post after revelations that he had avoided paying tax. Discredited and under investigation by a tribunal of inquiry, it was not difficult to impugn his damaged reputation further by suggesting he had been overly generous to Ryanair.

  Like all good smears, it had a grain of truth. Had Ryanair managed to grow passenger numbers for five years and continued to launch new routes at the previous higher charges, then it would have had to pay that €40 million. But the lower charges were available to any airline that wanted them and there was no way Ryanair would have continued its expansion from Dublin if the charges had remained high.