by Alan Ruddock
They wasted no more time. The weekend after Ryanair shares started to trade, O’Leary was faced with the threat of strike action from a small number of baggage handlers at Dublin airport. They demanded significant pay increases, claiming that they were earning substantially less than other baggage handlers at the airport. A small number of Ryanair’s handlers joined the ATGWU, a transport workers’ union which represented many workers at the airport and at Aer Lingus.
For the first time in Ryanair’s history a strike was on the agenda. The initial ultimatum was averted by O’Leary’s decision to meet his workers – but not the trade union – to discuss their demands. Keen to defuse the discontent as quickly as possible – a strike so soon after the flotation would have been a deep embarrassment, as well as being costly – O’Leary offered the baggage handlers an increase in basic pay and further productivity-linked increases which he argued were worth up to 20 per cent.
Conor McCarthy, head of operations, assured the handlers that their wages would not be allowed to fall behind the rates paid by other companies. ‘You will be earnings competitive,’ he told them. For the moment the increases bought peace and McCarthy could also assure the company’s shareholders that they represented just ‘a tiny percentage’ of Ryanair’s costs. But if the baggage handlers had been mollified for the moment, the union had not. Although excluded from the negotiations – Ryanair maintained that it was happy to recognize unions but preferred dealing directly with its own employees – the union was not about to give up on the bigger battle to gain negotiation rights at the airline. O’Leary had won the first skirmish, but the fight was only beginning.
The decision to float the company in the United States as well as in Dublin imposed tight financial constraints on O’Leary, forcing him to prepare quarterly financial statements for investors as opposed to the six-monthly reports which the Irish authorities required. With any newly floated company, the first results are a significant event and O’Leary had to prepare to meet his shareholders – or at least their representatives in the investment community – on 11 August. His performance would be critical to the continued upward momentum of the share price and would set the tone for his future dealings with the markets. The flotation was not an end but a beginning; O’Leary would need access to more money from the markets to fund his ambitions.
Building up the airline’s fleet was a key priority. Ryanair needed planes to fly the expanded route network promised in the IPO document. The previous month it had purchased an extra Boeing 737–200. The aircraft was fifteen years old, acquired from Portuguese flag carrier TAP for about £S.9 million, and was due to be delivered in November. Four other aircraft were due by the end of the year, which would bring the fleet to twenty, but they were stopgaps – planes to meet the airline’s immediate needs not provide it with the platform for aggressive expansion.
O’Leary’s profits announcement did not disappoint. Profits before tax for the three months to the end of June were £S.7 million, some 30 per cent up from £4.4 million for the same quarter the previous year; turnover was up by 34 per cent (to £41.3 million), and load factors on the new European routes were above 75 per cent. Surprisingly, perhaps, O’Leary chose to be downbeat and cautious in his commentary – a theme that he has followed ever since. The official statement said the company did not expect ‘this level of increase to continue consistently through each quarter’ because of seasonal factors and because five more aircraft were to be added by the end of the year. He said that trading conditions ‘continue to be tough’ and that in coming months Ryanair would ‘shoulder further challenges by increasing the size of our fleet by one third, and opening up new routes, despite facing continued intense price competition throughout our network’.
‘We have a job to do and it is never easy making a living flying people for fifty-nine pounds,’ he told journalists. He insisted that his comments and the official statement that accompanied the results should not be seen as a profits warning, and that the airline was still on course for growth. And at that first results meeting he also laid down the mantra that would be repeated every three months: ‘We want to increase our business by 25 per cent to 30 per cent a year and to keep cutting out costs.’
After studying the results, stock market analysts set their estimates for Ryanair’s full-year pre-tax profit at £35–40 million, a range with which O’Leary said he was ‘comfortable’, but the caution in O’Leary’s words had an effect: Ryanair’s shares fell by 20 pence to £3.70 because of what analysts termed ‘a negative tone’.
O’Leary’s reasoning was sound. Far better to cool expectations and then deliver news that was marginally better than expected than to overexcite the markets and then disappoint them. Aggressive with his competitors and increasingly bullish with the media, O’Leary knew from the start that the markets required more sophisticated handling. The low-cost airline industry, not just Ryanair, remained an unproven phenomenon in Europe and could still only point to the success of Southwest in the United States. The market was in its infancy and the national flag carriers still dominated the skies, the airports and the regulators. For the moment Ryanair was a flea on the elephant’s back, a serious competitor for none but Aer Lingus and not even considered a threat, let alone a rival, by Europe’s major airlines.
Expansion was now the key target. At the end of August O’Leary announced that Ryanair was to abandon cargo services from 14 September. Cargo had tumbled as a percentage of the airline’s turnover in the previous five years and now accounted for less than 1 per cent. Loading cargo on a plane compromised aircraft turnaround time and by the autumn of 1997 there was plenty of competition with easyJet putting up a particularly strong challenge.
The airline had just six aircraft but big plans. In September it announced it had secured a deal that would triple its fleet over the next three years with the acquisition of twelve Boeing 737s; EasyJet also said it was exploring the possibility of establishing hubs in continental Europe. This would make it one of the first airlines to take full advantage of cabotage, which had come in with the final wave of deregulation earlier that year. Originally easyJet said it was considering setting up in Amsterdam and Athens to compete directly with KLM and Olympic Airways, but in the end Geneva was chosen as its first base, and it arrived there in July 1999, with Amsterdam’s Schiphol airport following in 2001.
Ryanair, for the moment, saw its bases at Dublin and Stansted as its engines for European growth. Between May and November 1997 it added seven routes to its network to bring the total number to twenty. Three of the new routes – Dublin–Bristol, Dublin–Paris and Dublin–Brussels – had been launched before the flotation, with the first flights on 1 May, in an effort to prove to the market that Ryanair was serious about rolling out its model in Europe. The next two new routes, Stansted–Kerry and Stansted–Stockholm Skavsta, began flights on 12 June. The Stockholm route was Ryanair’s first foray into Scandinavia, and its first from Stansted to a continental European airport. It was an unusual choice. O’Leary had consciously avoided the summer hot spots of Spain and southern France – markets well served by seasonal charter airlines – opting instead for a route that had less obvious appeal but which had other attractions. Flights to and from Scandinavia were notorious for their high prices predicated on the relative prosperity of the Scandinavians.
Barry Barrable, a former baggage handler who had risen through the ranks to become a sales manager, was given the responsibility of opening the route in Sweden and generating demand. His budget was close to zero. ‘Michael just told me to go there and make a noise and get us noticed,’ he says. So Barrable went on a promotional blitz, using students to hand out flyers and then organizing a demonstration outside the Stockholm offices of SAS, the flag carrier for the Scandinavian nations, against its high prices and praising Ryanair’s low ones. The media bit, and Ryanair got the launch publicity it required.
Within weeks the route was a success. ‘Skavsta might have been in the middle of nowhere,’ says
Barrable, ‘but Stansted wasn’t. And that was the key. London is a huge magnet for foreign tourists, and for the first time people in Sweden had an opportunity to get there without being scalped in the process by SAS.’ Skavsta’s success prompted the announcement of a second Scandinavian route: Stansted to Torp, a small airport that would serve Oslo, which would start flying from 3 November. That day Ryanair also started a new route from Dublin to Teesside, bringing the total to twenty.
In mid–October Ryanair announced that it was in talks with Boeing and Airbus with a view to acquiring between twenty and forty new short-haul aircraft – either Boeing 737–700s and 737– 800s or Airbus A319s and A320s – which would either double or triple the airline’s existing twenty-strong fleet. It was O’Leary’s most audacious move in his four years as chief executive, and it underlined the scale of the company’s vision. Less than six months after floating on the stock market, O’Leary had put in train a series of plans which would at least double the size of the company and change its profile from a cheap and cheerful operator running a fleet of second-hand planes.
Staff recruitment was also a priority, and the company managed to use its selection process as a means of generating publicity. The Irish Times reported that applicants for cabin crew positions, who were interviewed at Jury’s Hotel in Dublin, were urged to sing their CVs. The paper quoted the airline as saying, ‘The interview technique is designed to weed out any “wilting flowers”…singing is a fairer procedure than relying on good looks and examination results and prepares them for their high-pressure job.’ Applicants could also be asked to do role plays, mime or speak on a given topic, but the quality of the singers’ voices, ‘some of which would defy music criticism’, was not a criterion for selection.
Publicity stunt or not, Ryanair’s recruitment carried a serious message. Expansion was a reality not a management pipe dream. In November O’Leary faced the stock market analysts for the second time as a public company CEO and was able to reveal steady progress. The figures showed that pre-tax profits (for the half-year) had risen to £18.6 million, up from £12.4 million for the same period in 1996. Turnover for the half year came in at £96.9 million, up 36 per cent on the first half of the 1996 financial year.
Ryanair’s results were far ahead of the rest of the low-cost contingent. Debonair reported a half-year loss of GB£5.5 million on sales of just under GB£18 million in November, while Virgin Express reported profits of GB£6 million for its first nine months. Michael Cawley, O’Leary’s chief financial officer, told analysts and journalists that while the results were good, they could be, and would be, much much better. He pointed out that the airline was continuing talks with Boeing and Airbus on the purchase of new aircraft, which would be delivered in 1999. Cawley also said at least four new routes would be launched the following year, one out of Dublin and the remainder out of London. In fact, five new routes were launched in 1998, four from Stansted and one from Prestwick.
Ryanair’s profits and the growing realization that low-cost airlines had a future in Europe had increased speculation that competition was about to reach new levels of intensity. In October British Airways had confirmed that it was studying the possibility of setting up its own low-cost operator and by the end of the year it was clear BA was intent on launching the new airline, originally dubbed Blue Skies. O’Leary, though, professed to be unfazed. When asked about BA’s plans, his response was brief: ‘They must be smoking too much dope.’
O’Leary was pleasing the markets, but there was no pleasing the trade unions at Dublin airport. The temporary ceasefire negotiated during the summer broke down acrimoniously at the end of the year with the baggage handlers claiming that O’Leary had reneged on his promises. Paul O’Sullivan, a union organizer, says their main grievance was pay. ‘Initially the basic issue was that they had been made a promise by Ryanair that they’d get at least the same money as the baggage handlers at Servisair.’ But there were other concerns too. ‘The company refused to use equipment for the safe handling of bags,’ he says. ‘They wouldn’t use conveyor belts to lift the bags from the trucks to the hold on the plane. Ryanair refused. This was a company that paid Michael O’Leary millions of pounds but they refused to buy what every other company saw as essential for health and safety.’
It was a clash of culture rather than safety, however. To achieve fast turnaround times Ryanair had dispensed with the traditional method of loading and unloading bags. Conveyor belts slowed the operation, and so its handlers used their hands, and their muscles, to transfer the bags at speed. As a result of their working conditions baggage handlers suffered frequent back injuries, for which there was no sick pay. O’Sullivan says, ‘We talked to them [the handlers] and explained that unless we had a situation where we would have basically 100 per cent support there was little point in doing anything, given Ryanair’s track record with unions.’
O’Sullivan claims that between September and December fifty-nine of the sixty Ryanair baggage handlers at Dublin airport became SIPTU members. ‘The only one who didn’t was a relation of Tony Ryan’s,’ he says. ‘During that time Ryanair didn’t contact SIPTU to tell us to stop recruiting but they tried to pull people aside and put them off joining.’ SIPTU’s efforts to meet Ryanair were dismissed by the company. ‘We wrote to them before Christmas and asked to meet O’Leary,’ says O’Sullivan. ‘They wrote back and said the company would only deal with their own staff.’
By the beginning of 1998 both sides were squaring up for a confrontation. The trade union was incensed at being treated with conscious disdain, and the baggage handlers were frustrated that nothing was happening about their pay. O’Leary was determined that a trade union would not dictate to his company, and he was prepared to face it down.
On 9 January the baggage handlers staged a three-hour strike, and O’Leary and his managers stepped into the breach to load the planes. A series of three-hour work stoppages continued throughout January. The Irish media came out in force behind the baggage handlers, with one columnist accusing O’Leary of ‘hypocrisy of the highest level’ for the way he was treating his staff. But the impact of the strike remained largely confined to newsprint. Ryan-air insisted it had not been forced to make any schedule changes, denied charges that it had imported workers from the UK to cover for the strikers, and remained implacably opposed to negotiations with the trade union.
Ethel Power, then head of communications for Ryanair, says the baggage handlers had not succeeded in influencing the opinions of Ryanair’s other 950 staff. ‘Was there this feeling of support for the baggage handlers?’ she says. ‘No. They were basically on their own in that people didn’t consider that their so-called issue was of great relevance to anybody else. Everybody in Ryanair felt the same: you worked hard, you were well paid for it.’
Getting nowhere with O’Leary and making little impact on Ryanair’s operations, the union went for escalation. Three-hour work stoppages became six-hour stoppages by the end of January and the union also announced that it was preparing a detailed submission for the Labour Court on its claim for recognition and higher pay. What had started as a fight on behalf of Ryanair’s lowest-paid workers for better pay was becoming a political battle for the right of the trade union movement to be represented and recognized in any company they chose. Ryanair was the battleground, but it was a much broader fight for the union movement.
Ireland’s economy was booming and thousands of new jobs were being created each month. Giant American corporations, particularly high-tech companies like Dell, Intel and Microsoft, were choosing Ireland as the centre for their European operations, but there was a catch. Not many of the new jobs were unionized because few of the new investors in the Irish economy wanted unions on their factory floors. Since the jobs were both welcome and high paid, few workers objected and the trade union movement was on the slide. Still dominant in Ireland’s public sector and in the media, the unions were becoming less and less relevant to the booming private sector.
The Ry
anair dispute was fast becoming a cause célèbre. The unions called on political support from Ireland’s left and then tried to promote a boycott of Ryanair by the travelling public. The National Union of Journalists, whose members were expected to be reporting dispassionately on the dispute, was among the first of the trade unions to weigh in behind the baggage handlers, passing a motion calling on the government to introduce legislation to ‘ensure the right of each worker to trade union representation’ and for ‘punitive sanctions against employers who refuse to recognize this fundamental human right’. The journalists’ union also called on its members not to use the airline ‘as long as it refuses to recognize the right of workers to be represented by a trade union’ – a call that remains in place to this day.
Despite their waning power on the shop floor, Ireland’s unions exerted extensive political power through their control of the public sector, and had participated in a series of national wage agreements that had become known as social partnerships – deals between government, unions and employers to moderate wage demands in return for reductions in personal and corporate taxes.
Social partnerships, which had come into being a decade earlier when Ireland had been mired in recession and high unemployment, had assumed cult status by the late 1990s and were seen as key contributors to Ireland’s changing economic fortunes. They had, according to the wisdom of the time, delivered industrial peace and moderate wage inflation and as a result had encouraged foreign firms to invest with confidence.
Subsequent studies by academics would show that the impact of social partnerships on industrial peace had been overstated, and that trends in Ireland were no different to those in other European countries which had not engaged in similar deals. Wage moderation, too, was a figment: in the booming private sector the national wage deals simply provided a floor for pay negotiations, and actual salaries reflected market demands not centrally agreed deals. In reality, social partnerships were elaborate structures for the government of the day to negotiate with its own employees. But because they had such elevated stature, the price of every agreement was the appointment of trade union officials to every government committee. Social partnerships had played a role in selling Ireland as a stable economy and a member of the European Union to American firms that wanted to take advantage of the growing European market. Ireland’s attractiveness went far beyond deals with unions, however. It had a young workforce – almost half the population was under thirty – which was well educated and English speaking. Economically, it had benefited from a devaluation of its currency in 1993 and from low interest rates as it headed for membership of the euro. Money was cheap, and exports competitive because the exchange rate was artificially low.