Michael O'Leary

by Alan Ruddock

  On the launch day for the three Italian routes Ryanair arranged a trip for the press, who would be accompanied by O’Leary and Power on a visit to the airports. Power remembers the reception Ryanair received that day in Italy as the best day of her three years at the airline. Coming in to land at Rimini, ‘We saw the runway and we saw a big guard of honour of all the fire engines down along it,’ Power says. ‘And then as we came in close to land we saw thousands and thousands of people on the apron – breaking security really, they shouldn’t be on the apron – waiting for Ryanair to arrive. They were waiting for God; Michael O’Leary was God coming to these places. I still remember the cheers that went up. Seventeen different television stations had come to see who this man was.’

  O’Leary was not overcome by the occasion. The crowds may have wanted to see him, but he had a blunter message that he wanted transmitted on the news programmes. ‘The first thing we did when the door of the plane opened was to carry out a massive sign that said simply, “Londra, 999,000 lira” [about £40]. We held that up before Michael came out of the plane because that’s the shot we wanted on every television camera. We didn’t want pictures of Michael, we wanted pictures of 999,000 lira. That’s what hit them. They were used to paying millions of lira to fly to London,’ Power says.

  On the ground, the Italians had gone out of their way to welcome the new airline. ‘Every single tourism organization had rolled out and they were giving a big party. We do the press conference, then an hour later we’re back on the plane, on to Pisa, touch down, repeat the sign, greet thousands of people, and then on to Treviso.’

  For O’Leary it was another day’s work, but a hard one. He preferred the office to the road, found the meeting, greeting and posing exhausting. He played to the crowds and to the press to get the news coverage and to transmit the message, but it was tough. The Italian job, though, had pleased him. ‘At the end of the day he said, “Well done,”’ Power says. ‘But “Well done” from Michael O’Leary means you did a fantastic, amazing, amazing job.’

  Ryanair’s presence in the Italian market was a clear shot across the bows of Alitalia, which was already teetering on the edge of collapse and insatiable in its demands for capital from the Italian government. Of the major flag carriers, it was one of the most vulnerable to attack from the low-fare airlines, and one of the least capable of making a competitive response. By choosing small regional airports O’Leary avoided direct competition on comparable routes, but the challenge was serious.

  In mid-June, after almost a year of hints and speculation, Ryanair announced plans to list its shares on the London Stock Exchange, to complement the listings in Dublin and New York. About £50 million in new shares was to be offered to the market, and the airline’s main investors were to sell another £50 million worth of their shares, so £100 million in total would be available to London investors. All three major shareholders were sellers – David Bond-erman and the Ryan family were both to sell the equivalent of 2.4 per cent of the company, while O’Leary was to sell 1.2 per cent of the company, about 8 per cent of his £130 million stake.

  There was some confusion about the motivation for the share sale, which came just a year after Ryanair’s original £300 million flotation. In his first interview with the Irish press, Bonderman told Irish Times journalist Cliff Taylor that this was an ‘ideal time’ for Ryanair to issue new stock. ‘This will enable us to expand the shareholder base here in Europe as we expand our route network in Scandinavia, France and Italy,’ he said. Michael Cawley told journalists that the funds from the sale would be used to finance new aircraft purchases. But earlier that month O’Leary had told UK trade magazine Commuter/Regional Airline News that money wasn’t the primary motivation for the London flotation. ‘We want to raise awareness, broaden our shareholder base and give our existing UK shareholders a means of holding shares in the company,’ he said. ‘We are still perceived as Irish, but 75 per cent of our traffic does not originate in Ireland, and 40 per cent does not even touch Ireland.’

  In truth it was a combination of all those factors, and the timing was also advantageous. Rival easyJet was starting its third year, and while the airline had yet to publicly report profits, confidence was high and it had just acquired 40 per cent of Swiss charter airline TEA Basel AG, which went on to be renamed easyJet Switzerland. Several new players were also entering the fray, most notably Go, the much-anticipated low-cost operation of British Airways, which began flying on 22 May 1998. BA’s commitment was a sign that low-cost carriers were here to stay and not some passing craze.

  Go’s initial three routes – Stansted to Rome, Milan and Copenhagen – were picked because they were not served by either easyJet or Ryanair. Go’s chief executive, Barbara Cassani, was keen to position her airline away from low-cost carriers such as Ryanair. ‘Low price will not mean low service,’ she told journalists in April. ‘We have excellent staff and we are hoping to encourage people who have not previously travelled far in Europe to fly with us.’

  Ryanair professed to be unconcerned by Go’s appearance. ‘Go was never going to be a threat to Ryanair,’ says Power. ‘At that point in time BA was the biggest fat cat around – BA were never going to show Ryanair how to run a low-cost airline. Did we have sleepless nights about Go? No.’

  Ryanair’s London offering came to market on 10 July, when twenty-one million ordinary shares were placed at £5 per share. The placement was a resounding success, with demand for the shares more than five times oversubscribed. The Ryan family grossed GB£34 million, as did Bonderman, after each decided to offer an additional 1.15 million shares to the market to satisfy the heightened investor demand. O’Leary stuck with his 1.8 million share sale, and grossed GB£10 million, which he claims he duly deposited in his local post office.

  He had plans for the money. Between 1995 and 1998 O’Leary had carefully restored his home. Now he wanted luxury. He asked Westmeath County Council for permission to renovate the existing courtyard buildings and to add a swimming pool, terrace and leisure centre. The development would more than double the size of the house, turning what had been a comfortable family home into a luxurious retreat. He also sought permission to build a dressing room and bathroom adjoining the master bedroom – an expensive storage solution for his undemanding collection of jeans and check shirts.

  Controversy was never far away, no matter how successful the international expansion. The baggage handlers’ dispute, which had been on ceasefire since the end of February, had not been resolved. In July the Labour Court findings on the dispute that had shut Dublin airport loomed over Ryanair, and O’Leary knew that he would come in for heavy criticism. He decided on a pre-emptive strike against the bad publicity by issuing share options to all 1,000 employees to a total value of £20 million. It was the first time that an Irish public company had granted shares to all its employees directly, rather than through an ESOP scheme, in which the shares are held in trust.

  The details of the share grant were to be finalized on 12 June, when Ryanair was to publish its full-year results. Michael Cawley said the scheme would be salary-related, with employees on higher salaries gaining more shares. O’Leary was keen to add that the share option scheme was in addition to basic pay increases of between 3.25 per cent and 5 per cent, which were significantly ahead of the increases agreed in Partnership 2000, the national wage agreement struck between the government, employers’ representatives and trade unions. ‘We are determined to continue to try to create substantial wealth for our outstanding people, by encouraging them to become long-term shareholders in Ryanair,’ O’Leary said.

  It was a smart tactic. O’Leary wanted to demonstrate that his people could do better without a trade union, and he wanted to show that everyone in the company could benefit from its success. It also fitted neatly with Tony Ryan’s early philosophy that every employee should be a stakeholder in the business. Events, though, conspired to dilute its impact. While O’Leary sought positive coverage ahead of the Labour Court report,
news that Ryanair had received £23 million in rebates from Aer Rianta since 1994 delivered the opposite.

  The scale of the rebates was revealed in an answer to a parliamentary question from Tony Killeen, a Fianna Fáil representative from County Clare. Ryanair’s rebate was not too far ahead of the £21 million received by Aer Lingus, but given Ryanair’s persistent complaints about Aer Rianta’s charges the revelation was damaging for the airline’s credibility.

  Aer Rianta, which was now on a war footing with Ryanair because of its proposals for a competing terminal at Dublin airport and its incessant criticism of the organization’s charges and management competence, was willing to stoke the controversy. A spokesman said Aer Rianta had originally been reluctant to disclose details of the scheme for commercial reasons, but that it ‘suits us in some ways to have the figures out in the open…It annoyed the hell out of us to have Michael O’Leary going on about our high charges when Ryanair was getting rebates on that scale.’

  A week after the revelation about the rebate, the Labour Court report was released. It showered criticism on both Ryanair and SIPTU, saying both parties must bear responsibility for the ‘chaos and eventual closure of Dublin Airport‘. It said their ‘intransigence’ led to a situation which had brought hardship and inconvenience to 20,000 passengers. Ryanair was criticized for its failure to make a meaningful effort to resolve the dispute, and the report cited the company’s refusal to participate in a Labour Court inquiry and its rejection of government invitations to cooperate with an independent inquiry into the dispute before the airport’s closure. Ryanair had gambled that the protest would be short-lived and would collapse if there was no outside intervention, the report concluded. It also urged Ryanair to review its personnel policy to allow at least limited union recognition, and said the company should ‘re-examine and clarify its policy and attitudes’ towards the Labour Court and Labour Relations Commission.

  The unions, though, came in for even harsher criticism, with the report noting that SIPTU, the main union at the airport, had ‘inexplicably’ failed to use its vast knowledge and experience of industrial relations and collective bargaining in the crisis. It said the union had allowed a major disruption to occur over an industrial dispute that involved a relatively small number of Ryanair workers and it criticized the union for ‘creating confusion and uncertainty, deliberately or otherwise, among its members on the reasons and purpose of the strike‘. It had also failed ‘to consult or communicate effectively with its members in Ryanair‘. Damningly, the report found that ‘by its statements, [SIPTU] left itself open to allegations that it had a wider agenda’ and that far from being spontaneous, the walk-out at the airport had been ‘instigated and encouraged by SIPTU activists in airport-based companies. Such action cannot be condoned.’

  Aer Rianta also felt the lash. The report found a ‘negative attitude’ to Aer Rianta’s performance on the part of other airport users. ‘In the opinion of airport users Aer Rianta did not have effective arrangements in place to maintain a safe and secure environment for passengers, airport operators and their staff during the weekend of the dispute,’ the report noted. ‘Most airport-based companies were especially critical of airport police, who are employees of Aer Rianta and members of SIPTU’, for joining the strikers.

  O’Leary was uncharacteristically quiet the week the report came out and delegated responsibility for public relations to Cawley. He chose Dublin newspaper the Sunday Business Post for his one interview and stuck rigidly to the company’s mantra. Ryanair, he said, had no problem with recognizing a union if the majority of staff wanted it, which they did not – a stance that sat uneasily with the fact that the majority of Ryanair’s baggage handlers had, indeed, wanted union representation. O’Leary, however, did not see his workforce as autonomous units; union recognition would require majority approval from all the staff, not majorities from separate groups of workers. He also defended Ryanair’s decision not to engage with the Labour Court earlier on in the dispute. Cawley, meanwhile, admitted that the airline had failed to manage the media as effectively as it could have. ‘The biggest flaw in our campaign was on the PR side,’ he said. ‘We didn’t manage it well – in fact we made a complete mess of it. We never anticipated thirty-nine people could get so much exposure and oxygen.’

  In September 1998 Ryanair suffered a setback in another of its long-running battles. This one dated back to December 1994, when the airline had taken a case to the European Court of First Instance, challenging parts of the Irish state’s £175 million aid package for Aer Lingus, which had been sanctioned by the European Commission the previous year.

  Under the terms of the agreement, payments of £50 million in both 1994 and 1995 were contingent on Aer Lingus achieving cost reductions of £50 million. Aer Lingus fell short of this target by £7.6 million, but the commission accepted that Aer Lingus could have the £100 million because ‘substantial progress’ had been made. Ryanair disagreed, claiming that since the conditions had not been met the aid should not have been paid. Ryanair also argued that the commission’s decision to overlook the fact that Aer Lingus flights from Dublin to UK provincial cities were run at a loss meant that the aid was in breach of EEC rules.

  For O’Leary it was just another front in his battle with Aer Lingus. In 1993 he and Conor Hayes, then Ryanair’s chief executive, had opposed Aer Lingus’s plans to set up their own low-cost airline, Aer Lingus Express, claiming that the proposed carrier would represent illegally subsidized competition and could ‘ultimately lead to the demise of Ryanair, albeit at enormous cost to Aer Lingus‘. The plan was eventually shelved by Aer Lingus. In 1995 Ryanair complained about Aer Lingus’s plan to introduce new planes on their Dublin–London routes, asserting that the number of seats on the planes would break the terms of the 1993 state aid agreement. His legal challenges were guerrilla tactics, designed to distract Aer Lingus from the serious business of competition, and launched because he knew that the bureaucratic mindset at the state-owned airline would devote money and management time to refuting the allegations – far more time than he would spend on making them. His actions were not frivolous – he always had a point to make, however narrow – but they were vexatious.

  In September 1998 the European Court of Justice eventually ruled that while Aer Lingus had been in breach of the conditions set out, the commission was entitled to exercise a degree of ‘discretion’ on the matter. Regarding the loss-making routes to the UK, the court said that while the government was obliged to ensure that such routes were not subsidized, that did not mean that a group like Aer Lingus could never operate a route at a loss. Aer Lingus could keep its money and its routes, but O’Leary still claimed vindication because the commission had upheld his argument that taxpayers’ money should not be used to subsidize loss-making routes. The court, though, ruled that Ryanair should pay all the costs of the action.

  For Ryanair the setback was minimal. It had made record profits of £39.8 million for the year ending 31 March 1998, on a turnover of £182.6 million. The airline had also just announced pre-tax profits of £9.2 million for March–June 1998, up almost 20 per cent on pre-tax profits for the same quarter of 1997. Aer Lingus, in contrast, was still struggling, with its operating profits wiped out by the losses it had incurred selling a subsidiary and its heavily unionized workforce denying it the flexibility to adapt to the escalating challenges posed by Ryanair and other low-fare operators. Once again the state airline was lurching towards crisis, while O’Leary drove Ryanair to a new level.

  Yet another series of battles arose from the EU’s plan to end the sale of duty-free goods between member states, which was set to come into force in 1998. Stansted airport feared an immediate fall in its retail revenues and decided to repair its finances by hiking landing charges by 15 per cent. O’Leary was having none of it. On 23 September he announced that Ryanair would halt its expansion from Stansted if BAA, Stansted’s owner, forged ahead with the proposed increase in charges. ‘If BAA goes ahead with this, w
e will not start any more new services through Stansted,’ he said. ‘We will go to an airport that is more growth orientated.’

  At the time eleven of Ryanair’s twenty-four routes were from Stansted, and the airport had been the focus of much of its European growth, with recent route launches to new Italian and French destinations. But O’Leary said future growth could easily be from another British airport such as Luton or Birmingham, or from an airport on the continent. The threat to Stansted was deadly serious, says Tim Jeans. ‘At the time, and to this day, there was capacity at Luton,’ he says. ‘We wouldn’t have pulled out of Stansted but we could certainly have driven future expansion from Luton.’

  A week later O’Leary showed no such restraint when he threatened a total withdrawal from Dublin airport – Ryanair’s biggest base, with five planes and fourteen routes – if charges there were not reduced. He made the threat after Ryanair’s AGM, describing Dublin as the most expensive of the twenty-five airports used by the airline. As with Stansted, the row was created by Dublin’s reaction to the impending cessation of duty-free sales. Where the UK airport wanted to raise landing charges, Dublin wanted to end its rebate scheme, which rewarded airlines for reaching pre-agreed growth targets by reducing landing charges.

  ‘Our total payments [to Dublin airport] amounted to about £8 million this year,’ O’Leary said. ‘If those rebates go, those will rise to about £15 million every year.’ He said that Ryanair was looking at a number of solutions to the problem at Dublin airport, including building its own terminal, and that the airline was ‘indifferent’ to whether a deal was done at Dublin or not, pointing out that the future was in European growth, which could just as easily be managed from the UK.

  ‘If it [a deal at Dublin airport] is not done by Christmas, we will be gone,’ O’Leary said. ‘The government has to make up its mind what it wants to do.’ It was a wild threat – Ryanair would expand elsewhere, but it would not pull out of a large and profitable market because its growth potential was being curtailed.