by Alan Ruddock
Aer Rianta was publicly unconcerned about O’Leary’s threat – which was made less potent by Richard Branson, head of Virgin Express, who said he would be happy to fill any gap left by Ryanair at Dublin. ‘If Ryanair pulls out over landing charges we’ll take over,’ Branson toldjournalists. ‘I’ve no wish to undermine Ryanair or put them in a negative position, but if they really did pull out we’ll step in. It’s a very competitive market today.’ In the event, Ryanair did not withdraw a single route from the airport, but Dublin did not get a new route from Ryanair for another three years.
O’Leary meanwhile stepped up the pressure on Stansted by announcing a ten-year deal with Prestwick in early October. O’Leary could now argue that he had a second viable base from which to drive growth in flights from the UK to continental Europe. But when Go announced that it was planning a major expansion from Stansted in early September, Ryanair’s attitude towards the airport changed. Go claimed to be hiring up to 200 staffand said it was in talks with several new European destinations. Far from suspending growth from Stansted, all of the seven new routes launched by Ryanair the following year were either to or from the airport, and the dispute about landing charges was fudged.
For O’Leary, part of the beauty of low-cost travel was that it generated huge volumes of travelling passengers. While they were on his planes they represented a captive audience, sitting in their seats for an hour or more with nothing to do and with plenty of money to spend. The psychology of the early travellers – one that has receded as low fares become the norm across Europe – was that the money they had saved by flying Ryanair could be spent on other things: hotels, hired cars, restaurants, gifts. O’Leary wanted to get his hands on as much of that spare cash as he could, maximizing his revenues from every passenger.
In the 1996 fiscal year ancillary revenue had contributed 17.2 per cent of total revenue, but by 1997 it had fallen back to 11.8 per cent, partly as a result of Ryanair’s abandonment of cargo and charter flights. However, in October 1998 Ryanair embarked on a new stream of ancillary revenue – a tie-in with car rental company Hertz.
Hertz approached Ryanair about the possibility of a deal, and Michael Cawley and Tim Jeans were dispatched to see what could be done. ‘Other airlines were already doing it, so our deal was not particularly special, other than the fact that our commission rates were probably higher. And we felt that because we were still the young mavericks, it was nice to have the imprimatur of somebody like Hertz,’ says Jeans.
The initial deal between Ryanair and Hertz involved Hertz offering preferential fly-drive rates to Ryanair passengers and paying the airline a percentage of the sale price. ‘The great thing was that the secondary airports created a vast market for car hire,’ says Jeans. ‘Because how were people going to get from Carcassonne to wherever? It became part of the Ryanair folklore that if you were hiring a car you had to sit at the front of the flight and leave your wife and children struggling with the baggage so you could be first in the queue at the car hire desk, otherwise if you were at the back of the queue you’d be waiting well in excess of an hour.’
Ryanair’s other ancillary ventures – Ryanair Telecom, Ryanair credit cards and even Ryanair mortgages – would come and go, but the deal with Hertz has gone on to become a staple of Ryanair’s revenue. By the 2005 financial year car hire accounted for 15 per cent of all ancillary revenue and 5 per cent of total revenue. At the time the deal was not seen as monumental. ‘There wasn’t any particular bunting put up in the office,’ says Jeans. ‘It was just another deal.’
14. Opening New Fronts
On 6 November 1998 the Irish Times published a letter from Michael O’Leary.
There is something incongruous in the Tourism Minister’s speech of Monday evening last in which he warned the tourist industry here ‘not to get too greedy and price itself out of the market‘. Yet while he is warning the industry, the Government-owned airport monopoly Aer Rianta is planning to significantly increase charges to airlines at Dublin next year by doing away with existing rebates and discounts.
Both Ryanair and Aer Lingus have confirmed that if Aer Rianta’s charges rise, then traffic growth will cease, and new route development plans will have to be reviewed. We need lower charges at Dublin Airport because this will mean lower air fares, more visitors and more jobs. If tourists are not to be fleeced next year, then the Government should start at its own Cabinet table and require Aer Rianta to lower existing charges. Ryanair for its part will respond with lower fares, and new routes from European destinations.
O’Leary’s next step was to launch a £200,000 campaign to get the public involved in Ryanair’s quest for lower charges at Dublin airport. In mid-November the airline asked its passengers to fill out a form designed as a ballot paper, where a vote for Ryanair was a vote for more routes, more passengers, more tourists and more jobs and a vote for Aer Rianta was a vote for the opposite. A vote also guaranteed passengers entry to a draw for a weekend for two in New York.
‘I think we have to get the public voice, to bring to the consumer’s attention this campaign, because that is what we need to influence the politicians,’ O’Leary told journalists. ‘When the public makes its views known, the politicians tend to listen.’
Aer Rianta remained unmoved by Ryanair’s latest stunt. ‘Traffic is going to grow by 1.2 million passengers this year – just 0.2 million of that is from Ryanair,’ said the airport authority’s public relations manager, Flan Clune. ‘Ryanair is part of the growth but no longer the total.’
Two days after the votes campaign began Aer Rianta chief executive John Burke sent a letter of his own to the Irish Times in response to O’Leary’s letter of 6 November. ‘Airport charges are one of the smallest elements of all the costs involved, accounting for just 3 to 4 per cent of airline operating costs,’ Burke wrote. ‘It is not credible to suggest that a charge which is lower than the local bus-fare to an airport would influence a decision on whether to take a holiday or not. This debate has much more to do with Ryanair’s profitability than it has to do with tourism.’
Burke argued that Aer Rianta would not be retaining its discount scheme at Dublin airport ‘simply because, with double digit growth, there is no need…Ryanair, on the back of a spurious tourism argument, is lobbying for its current average payment of £1.93 per passenger to Aer Rianta to be reduced to aflat 50p. A 50p airport charge would do little more than cover the electricity and gas bills at Dublin Airport. No other airline is looking for nor would expect such a deal. I am sure Mr McDaid [the tourism minister] was not referring to Aer Rianta when he mentioned greed.’
Two weeks later Ryanair took another swipe at Aer Rianta, this time claiming that the airline had cancelled plans to operate five new routes from Dublin to mainland European cities because Dublin airport was ‘too expensive‘. Ryanair claimed the new destinations would have been in Germany, Italy, Sweden, Norway and the south of France, with fares starting at around £70 return. The Irish Times reported that Ryanair had confessed that there was no way to independently verify that it had ever planned the routes, because the routes had only been discussed internally at Ryanair.
‘Those routes weren’t planned to the extent that we had them all scheduled and the aircraft allocated,’ admits Tim Jeans. ‘It was reasonably clear that it was going to be some time before Aer Rianta would be brought to heel. But it would be fair to say that had there been a breakthrough we would have done the routes. Airports all over Europe would have bitten our hands off to fly to Dublin.’
Ryanair gained some ground in mid-December when the EU heads of government acceded to a request from the Council of Europe and postponed the abolition of duty-free sales, which had been scheduled to happen on 30 June 1998. With the immediate threat of abolition removed, Aer Rianta’s plans to do away with discounts were harder to defend, and opposition politicians began to pressure Transport Minister Mary O’Rourke into urging the airport authority to reconsider.
Its chief executive John Burke went on
a PR offensive, giving an interview of his own to the Irish Times. The reporter noted that Burke’s style ‘differs radically from his high-profile opponent on airport charges, Michael O’Leary‘, and referred to Burke’s ‘soft voice’ and ‘the initial impression of shyness’. Burke was keen to set the record straight on Ryanair.
Firstly, it is too simple to say that Ryanair was the sole driver of growth at Dublin Airport over the past decade. They have brought a very welcome increase in passenger numbers and we have always acknowledged that. But they were helped to a large degree by a more favourable economic climate, by a drop in fuel prices equivalent to £20 per passenger and by government protection on some key routes to the UK. We in Aer Rianta were also as supportive as we could be, as we had been looking to introduce competition to Aer Lingus for some time ourselves.
And he was unwavering on the issue of charges. ‘I would say we are reaching a point where our charges for a broad range of services are too low,’ he said. ‘As for airport landing charges, they only represent about 16 per cent of our total revenues. We are not aware of any commercial airport anywhere in the world where that proportion is as low.’ Burke was also dismissive of Ryanair’s complaint that Dublin airport was the most expensive of the twenty-six airports the airline dealt with.
Most of the airports they talk about are on the European continent and have a throughput of fewer than one million passengers per year, so they are not comparable. Why wouldn’t a small secondary airport offer discounts to attract greater custom? But in our case where we are a mature commercial airport that is investing over £200m to expand facilities and cope with passenger numbers, it doesn’t make sense to offer discounts any more.
Aer Rianta commissioned a report by accountants Price Water-house Coopers which found that higher charges were necessary to secure the airport’s long-term future. O’Leary promptly dismissed the report as ‘irrelevant’ because it referred only to published airport charges, ‘which none of the airlines actually pay, as Aer Rianta is well aware’.
O’Leary stewed, knowing the battle over Aer Rianta’s charges would take months if not years to resolve. Withdrawing from the airport was not a viable option – despite its allegedly high charges, Dublin airport was one of Ryanair’s biggest profit centres. But O’Leary wrote off Dublin for route launches. For the moment Stansted was where the future would lie, with Jeans expected to deliver sustained growth. The dynamics at Dublin also counted against O’Leary. In the UK and Europe Ryanair was used to being the dominant player in its negotiations with airports. Its growth had been hugely important to Stansted’s emerging reputation as a viable London airport, while at smaller European airports like Charleroi and Beauvais Ryanair was the only reason the airports had prospered. In Dublin, however, Ryanair was still just a small player. It was important to Aer Rianta as a customer but not as valuable as Aer Lingus. The balance of power lay with the airport operator, not with O’Leary, and this was not a situation he was used to or comfortable with. So he railed and he blustered, but without leverage there was little he could do other than chase expansion away from Dublin.
In February 1999 O’Leary announced phase two of Ryanair’s European expansion. Six new routes were announced from Stansted to destinations in Germany, France and Italy. Dublin was sidelined, and O’Leary goaded Aer Rianta, saying he would happily introduce ten new routes to the Irish capital over the next two years if only landing charges were reduced. ‘The 1999 Stansted launches were the most significant of all the launches,’ says Tim Jeans. ‘Unless Ryanair could crack the UK to Europe market we were never going to grow beyond being a niche carrier to and from Ireland.’
The launches were to be staggered between April and July as Ryanair’s new Boeing 737–800s came into service. The destinations – Genoa, Turin and Ancona in Italy; Hahn, which was to be Ryanair’s Frankfurt; and Biarritz and Dinard in France – were chosen through a methodical selection procedure. ‘They did very extensive research,’ says Andreas Helfer, manager of the airport at Hahn. ‘They employed a UK specialist company to cover all the potential airports in Europe, and they made a short list and then very comprehensively went through all of those airports.’
Flughafen Hahn had begun life as a military airbase. When Ryanair first began talking to the airport authorities, in late 1998, Hahn had just been designated a civilian airport but had no commercial traffic. The possibility of attracting airlines seemed remote; Hahn is seventy miles from Frankfurt, so when Ryanair appeared the airport management welcomed them disbelievingly. But doing business with Ryanair was to prove a challenge for the airport’s new owners, Fraport AG. Fraport also owns Frankfurt’s main airport, and the managers were used to dealing with full-service carriers. ‘We had to learn the business concept behind Ryanair,’ Helfer says. ‘It was completely new in Germany at the time.’
Helfer says Ryanair were ‘very very tough’ negotiators. ‘They were always very straightforward. They tell you what they want and ask whether you are prepared to give it to them or not. And if it’s not okay then they leave you and you are not partners any more.’ To the delight of Helfer and his Fraport colleagues Hahn eventually struck a ten-year deal with Ryanair. A near-dormant regional airport would, at a stroke, become a destination for hundreds of thousands of passengers.
If Hahn was delighted, Lufthansa, Germany’s dominant airline, was unamused. ‘We were ambushed by Lufthansa,’ recalls Tim Jeans. The German airline decided to take Ryanair through the German courts, arguing that Ryanair should not be allowed to refer to Hahn as Frankfurt and seeking injunctions to prevent it from advertising the service. ‘We had no German lawyers. We employed Caroline Baldwin, who was made the German sales manager, and Caroline was a fluent German speaker and gave us invaluable advice into the way Germans did business. But clearly what she didn’t have, because she wasn’t a lawyer, was an insight into the German legal system.’
So ‘We winged it,’ he says. Winging it, O’Leary style, meant fighting outside court. Ahead of a court case in Cologne O’Leary ran a free-ticket promotion on the Ryanair website, but with a twist. As Jeans recalls, O’Leary’s message was, ‘If you come to the courthouse in Cologne with a banner insulting Lufthansa we’ll give you a free ticket on one of our flights from Hahn. A motley crew of a dozen Germans turned up – it was hardly the world’s biggest demonstration – but by the time a dozen or so Ryanair staff turned up, armed with helpful placards disparaging Lufthansa, the riot police were called out because they thought that there was going to be a massive demonstration.’
The tactic worked. As word spread of the peculiar scenes outside the court, the media got interested. ‘By the time the case was finished we were pursued out of the courtroom by six television cameras,’ says Jeans. ‘And by the time Ryanair took its first flight from Hahn, there wasn’t a German with a pulse that didn’t know that there was a low-cost airline flying from this place that purported to be Frankfurt but manifestly was not.’
Ryanair got an easier ride in France and Italy. ‘Alitalia wouldn’t know how to be predatory,’ says Jeans. ‘They were always in trouble and they were always in retreat. We didn’t challenge Alitalia on any routes. Initially we flew to places like Pisa where they didn’t fly. Before we came, if you wanted to go London–Pisa you went on a charter flight and people were being ripped off royally.’
In the early days France was a similarly soft market for Ryanair.
‘Air France were in denial; they thought that if they woke up it would all have been a bad dream,’ says Jeans. ‘They had ceased serving the French market from London. By the time we came in they only served Lyon, Nice and Bordeaux and Paris. They were feeding their Paris hub from provincial UK airports. French airports were neglected.’
But in Scandinavia, where Ryanair had launched flights a year earlier, Ryanair had a hostile reception. SAS, indignant at having to share a market it had monopolized for decades, threatened to sue Ryanair over what it termed ‘misleading advertisements‘. The Ryanair ads, which a
ppeared in Scandinavian newspapers, compared SAS and Ryanair’s prices on the Oslo–London (or Torp–Stansted in Ryanair’s case) route.
Encouraged by the hostile fire he was drawing from incumbent carriers and by third-quarter results, announced in early February, which once again showed record profits, O’Leary plotted more route launches. The more the flag carriers complained and took him to court, the more publicity O’Leary generated for Ryanair and the more passengers he attracted to his low fares.
He needed them; the new planes from Boeing were about to arrive. On 20 March, O’Leary’s thirty-eighth birthday, Boeing delivered Ryanair’s first new 737–800, with four more due later that year. It was a momentous occasion for the airline. For the previous fourteen years they had survived on a range of second-hand aircraft, from the first propeller craft, through the BAC One-Elevens, to the ageing Boeing 737–200s. Now the airline would have the latest planes to mount its assault on Europe.
O’Leary tried to put the delivery to good PR use, promptly announcing the new plane would fly neither to nor from Dublin, because of the ongoing Aer Rianta stand-off. It was a gambit to garner a few column inches, but it was an empty threat. Within a month the Irish Times had spotted the shiny new plane on the Stansted-Dublin route.
For several weeks now skywatchers have been reporting that Ryanair’s new plane is indeed flying in and out of Dublin. This week, Ryanair confirmed this was the case, but described the journeys as ‘proving flights’ – the test-runs used by new pilots. The flights are, however, carrying fare-paying passengers on board. Ryanair now says this plane will not be used in Dublin for long, and that when the summer schedule starts, it will be moved to Stansted for routes to the Continent only.