Michael O'Leary

by Alan Ruddock

  Our records say she called up on the Friday of a bank holiday weekend insisting on two flights to Prestwick and we had only two seats left, and we said, ‘No, you’re not getting it; you have to call in advance.’ She claimed she had called two weeks earlier and nobody had gotten back to her…We couldn’t prove it, she couldn’t prove it. The difficulty with [the case] was that we inherited it from back in the days when nobody [in Ryanair] had a sheet of paper. The only evidence that she had anything from us was some video clip from the nine o’clock news with P. J. McGoldrick saying she had free flights for life. There was no terms, no conditions, nothing.

  O’Keeffe remembers it differently, ‘I did get a contract originally but then they had to make changes [and] they never issued a new one,’ she says. ‘It worked very well for many years. It was all very easy, very straightforward. I didn’t ask for anything in writing after that because it was all working fine.’

  Her troubles started with that Easter flight to Prestwick.

  I was due to go over to Scotland and they had told me two days or so before that I couldn’t travel. I kept ringing up trying to find out what was going on and one day I was put through to Michael O’Leary. He wasn’t expecting me. I was working in Today FM [Ireland’s independent national radio station] at the time, sitting in an open-plan office. We had such an argy-bargy on the phone; we were shouting, and when I hung up everybody in my office was looking at me, asking what was that all about? When somebody is shouting at you, it’s intimidating and I was trying to make myself heard. The only way I could do that was to raise my voice. Of course I got nowhere. He was saying, ‘Stop ringing me, stop ringing my employees.’

  O’Keeffe travelled twice more with Ryanair after that, but the refusal to accommodate her Easter plans had rankled, and she believed that the airline, and O’Leary in particular, could not be trusted to honour McGoldrick’s 1988 promise. O’Keeffe’s solicitors exchanged letters with Ryanair, seeking a new agreement or compensation. ‘Whatever about the logistics of it, it wasn’t right, it wasn’t fair,’ says O’Keeffe. ‘I wanted to work out something that was workable but we had reached an impasse. There was no real option [but to issue proceedings] because nobody was budging.’ So in September 2000 she instructed lawyers to write to Ryanair, saying that the airline had broken the agreement and seeking compensation of up to £500,000.

  ‘We said fuck off,’ says O’Leary.

  In December 2000 the newspapers were alerted to the story, and the feeding frenzy began. ‘It’s Ryan-unfair: Woman sues airline as free travel is cancelled,’ the Mirror proclaimed on 18 December. ‘Stingy Ryanair bosses have grounded a woman who was given free travel for life by the budget airline,’ the paper said.

  O’Leary was not bothered by the hostile coverage and refused to countenance a settlement with O’Keeffe. He knew the publicity would be bad, but he believed he had to make a stand, if only to show other would-be complainers and litigators that Ryanair never backed down. If you want to take on this company, he was saying, be prepared for a long and expensive fight. It is a strategy that newspapers use against libel claims: they may not fight every claim, but occasionally they pick one to go all the way, just to show that they are prepared to fight and that there is no easy money to be made from suing them. O’Keeffe says she was not after easy money:

  They were trying to shaft me for no reason. Halfway through the case they tried to settle and they said, ‘We’ll give you back the free flights, you can have them back.’ After all I had put up with on the TVand the radio during the last few days [of the court case]…I decided, ‘They don’t like me, I don’t like them. I don’t really want to fly with them any more.’ Whatever trust there had been was gone. I’m not small-minded and petty, but when I walked up those court steps I didn’t feel good about them.

  O’Leary’s belligerence was not shared by his colleagues. ‘It was one of those things where Michael really didn’t carry the rest of the company with him,’ says Tim Jeans. ‘Nobody could see the point of it. Why put us through all this grief and all this bad PR?’ Jeans might have been right, but O’Leary was not for turning.

  The O’Keeffe case would fester in the background for many months as it wound its way to the courts, but it would not be the only generator of bad publicity for O’Leary. His hostility to O’Keeffe was mild compared to the contempt he reserved for Mary O’Rourke, Ireland’s minister for transport. She was his bê te noire – a woman for whom he had no respect yet who had power over key decisions that could make a real impact on his company’s growth and its earnings. The loathing was mutual.

  Originally a primary schoolteacher, O’Rourke’s family connections – recently her brother had been a senior cabinet minister – ensured her a power base within the governing Fianna Fáil party. As transport minister O’Rourke was the majority shareholder in Aer Lingus and the sole shareholder in Aer Rianta. If O’Leary were to get a second terminal at Dublin airport he would either need O’Rourke’s support or he would have to undermine her to such a degree that she lost her job or simply buckled under the pressure.

  At the start of the year she had again rejected O’Leary’s proposals for a new terminal, claiming that the European Union would not allow the government to give Ryanair special treatment. ‘I will be writing back asking her whether or not she wants to support our proposal to open ten new routes from Ireland to Europe and the UK, creating 500 new jobs and carrying two million passengers a year,’ he replied.

  At the end of January 2001 O’Rourke was at her most vulnerable. Enda, her husband of forty years, died suddenly after suffering a brain haemorrhage. His funeral drew crowds of mourners, including Mary McAleese, the Irish president, Bertie Ahern, the taoiseach, and senior politicians from all the major political parties. O’Leary, to O’Rourke’s surprise, joined the mourners. It was a momentary ceasefire.

  A few days later he launched a series of personal attacks on O’Rourke through full-page newspaper advertisements depicting her in a bathtub, with the headline, ‘Mary, Mary, quite contrary, how does your monopoly grow? It doesn’t’. O’Rourke was appalled. ‘He did it four days after Enda died, and he saw me; he was at the funeral and I was roaring crying,’ she says. ‘If you wrote a novel about a man who four days after this woman’s husband had died, that he set out to torture her, you’d think it was unbelievable, because you would say nobody could be that cold or that horrid, but he was. He didn’t care.’

  O’Leary, as his various battles with rivals and the political establishment confirmed, liked to project himself as the underdog scrapping for a fair chance to take on the big guys. That sense of smallness, of being an entrepreneurial company in a world of state-owned or recently privatized behemoths, was critical to the company culture fostered by O’Leary, but as Ryanair grew quarter by quarter, racking up higher profits and passenger numbers, so the challenge to maintain that culture intensified.

  In an interview with the Wall Street Journal, his second in less than a year, O’Leary explained how he coped with the changing shape of Ryanair.

  We try to keep a lot of the bull out of the organization. We keep the management structure extremely flat. As we grow, we’re only adding aircraft, pilots, inflight people and engineers. We don’t need these layers of bureaucracy or layers of management.

  So hopefully we’ll avoid the bull – by keeping our feet on the ground and not losing the run of ourselves. The downside of success that we really worry about is the danger that the more successful you are, the more likely you are to lose sight of the things that made you successful…Someone wrote a book in the States twenty years ago and said the three things you can always use to tell the time when a company turns from being a success to a failure are when they build a headquarters – the glass palace headquarters office – helicopter outside of it, and the chief executive writes a book. So I think as long as we stay away from all those things, we’re fine.

  O’Leary was true to his word. Despite the airline’s success, Ryanair inhabited
a drab headquarters building at Dublin airport, using the same furniture acquired by Eugene O’Neill back in 1987, with the exception of the grandiose chief executive’s desk, which had been ditched. There was no corporate helicopter and no corporate jet, and no prospect of O’Leary penning a guide to corporate success. ‘Business books,’ he says, ‘are bullshit and are usually written by wankers.’

  His management structure had helped ensure that the same senior managers who had helped float the airline two years earlier were still on board, while growth came through adding bases and adding routes. Alongside the release of third-quarter results – which revealed a 39 per cent increase in passengers and a 23 per cent increase in pre-tax profits – O’Leary announced yet another share sale, this time to raise £113 million, which he said would be used to part-fund the purchase of thirteen more Boeings and launch six more European routes. He was also able to announce Ryanair.com’s first full-year figures, and said that the website had sold 3.3 million seats online.

  Growth also required a strengthened board of directors. O’Leary was the only executive to sit on the board, not out of hubris but largely because directors were required to reveal their levels of pay to shareholders. O’Leary had a relatively modest pay package, content in the knowledge that adding value to his shareholding was the real route to wealth. His management colleagues, however, required substantial remuneration. By staying off the board, the scale of those packages and the rate of their pay increases were shielded from public scrutiny.

  Just before the results Ryanair recruited to its board Kyran McLaughlin, a stockbroker with Davy, Ireland’s most successful broking firm; Michael Horgan, a former Aer Lingus executive; and Paolo Pietrogrande, a senior Italian businessman. McLaughlin, hugely respected in the Dublin financial market, was the most controversial appointment. The previous year he had been required to resign as joint managing director of Davy after it emerged he had invested almost €320,000 in a Liechtenstein-based trust which was being investigated by the Irish Revenue Commissioners. Ryanair, though, ‘couldn’t care less’ about his Davy resignation, according to their then spokeswoman. ‘The issues surrounding his resignation have no bearing whatsoever on the matter,’ she added. ‘To secure someone of Kyran McLaughlin’s skill and expertise is a tremendous coup for Ryanair.’

  The announcement of the sale knocked the Ryanair share price back a few pence to £7.45, a fall blamed on O’Leary’s decision to sell another chunk of his shares. O’Leary told the market that his sale should not be seen as an attempt ‘to get the hell out of here quick’.

  ‘I’m in the tragic position of selling 10 per cent of my holding a year and still having 90 per cent of my wealth tied up in this airline,’ he said, referring to the steady rise in the airline’s share price each year. ‘I’m selling shares for good, boring portfolio-management reasons.’ Later, O’Leary would say that his frequent share sales were in part prompted by the experiences of the dot-com paper millionaires – the entrepreneurs who had been worth millions because investors had chased up the value of their companies, only to wake up penniless one morning because the market had collapsed. ‘I’m not going to be like those dot-com gobshites,’ he said.

  Banking his cash was an essential part of the O’Leary approach. He had enough money tied up in Ryanair, and he instinctively made sure that no matter what happened to the company, he would still be a wealthy man. Making more, much more, from his Ryanair holdings remained his first priority, but he would continue to cash in his shares if the stock continued to rise.

  Farmers like cash, and O’Leary was no different from his forebears. February’s sale meant the chief executive had taken almost €115 million out of the company in the previous three years, and had spent just a fraction of it on the fripperies of life. The rest was his nest egg, his rainy-day money, his marker.

  ‘Ryanair shareholders can’t say they haven’t been warned,’ the Irish Independent said. ‘When a chief executive sells €46m of stock within a fortnight, it’s not a vote of confidence. No compelling technical explanation was offered. The sales go beyond all normal requirements of cash need or diversification. Michael O’Leary is not retiring. Even a Dublin house is not that expensive…Believers put their money where their mouth is.’ O’Leary was unruffled: he remained a large shareholder, he remained committed to driving the company forward, and he had the unequivocal support of his board and his shareholders. Newspapers could write what they like, but O’Leary pointed only to results.

  With the money for the new planes banked, O’Leary was ready to take his next step forward. On the day of the results he had said that Ryanair was close to finalizing details of its first continental European base. He had narrowed down the search to three airports: Stockholm’s Skavsta, Frankfurt’s Hahn and Brussels’ Charleroi. On 28 February 2001 Charleroi, owned by the regional Walloon government, was unveiled as the victor. For the airport the prize was considerable – Ryanair’s first-year target was seven routes, up to thirty flights a day and one million passengers – and the victory was the culmination of months of tough negotiation.

  ‘At the end of the year 2000 we were put on a short list of several European airports located near big cities,’ recalls Pierre Fenemont, Charleroi’s PR manager. ‘The negotiations started in November 2000 and ended at the end of January 2001. It was a long and strong and hard negotiation but it was a friendly negotiation.’

  The key issues were financial: how much would Charleroi charge, how much would it contribute to Ryanair’s marketing costs and what would it pay towards the cost of establishing the base? O’Leary knew that his business had already transformed an airport that had been atrophying. Charleroi was about to become a significant and profitable European airport, and the surrounding area would benefit from Ryanair’s decision. Logically, therefore, the owners of the airport should pay Ryanair for the privilege of its business.

  The deal, which would soon be referred to the European Commission by jealous rivals, was the template for Ryanair’s future European expansion. The Walloon regional government agreed that landing charges at Charleroi would be fixed at €1 per passenger, about half the standard rate. It also agreed to pay €4 per passenger towards Ryanair’s marketing and promotional costs for fifteen years for up to twenty-six flights a day; a further €160,000 for up to twelve new routes – a flat fee paid regardless of the cost of establishing the routes; €768,000 towards pilot training; and €250,000 towards hotel costs for Ryanair staff. On top of that, Charleroi would charge Ryanair just €1 per passenger for its ground handling services, compared to the normal rates of between €8 and €13 per passenger.

  It was a remarkably sweet deal for O’Leary, and was concluded as a bilateral private contract between the airline and the airport. The details were not published and the incentives not made available to other airlines. O’Leary has always maintained that any other airline could have negotiated a similar deal with Charleroi, and that the discounts on ground handling and landing charges were a red herring because the published tariffs were strictly notional. Charleroi’s published rates applied to an airport that had no business; the rates he negotiated applied to an airport that would handle a million passengers a year, all delivered by Ryanair.

  Charleroi and the Walloon government believed the incentives were a worthwhile investment; their money and flexibility on charges would deliver an airline, a base and passengers. The airport’s growth would stimulate the local economy, create employment and increase tourism. The airport’s business plan, which was used to justify the deal, expected revenues to surge, not from Ryanair but from other carriers drawn to the airport.

  But the plan was optimistic and economical with the truth. It ignored the potential risks attached to the deal, understated the scale of its incentives for new routes and was overly bullish about the earnings that might accrue from other, hypothetical, airlines. In short, the Charleroi business plan was a political document. It was designed to put flesh on a political decision to back Ryana
ir and its development of the airport – a decision that would require millions in taxpayers’ money but which the Walloon government decided was money well spent if it delivered a bustling airport to a region that had been depressed ever since the demise of its coal mines.

  Three years later the European Commission would have to decide how much of the incentives would have been paid if Charleroi had been thinking like a private company rather than an instrument of government. For the moment Ryanair had a deal that boosted its profits and reduced its costs, a deal not made available to any other airline.

  ‘A lot of work and energy went into the Charleroi base,’ says Tim Jeans.

  The great thing was that Ryanair would parachute people in from various departments – they would take a pilot and someone who works in the accounts department and say, ‘Right, you’re going out to Charleroi.’ I effectively moved my sales team out of Stansted and across to Brussels and we lodged in hotels in Brussels for several weeks and prepared the ground in terms of PR, holding press conferences, alerting the media, launching competitions and just getting the name out there.

  O’Leary’s tactics for promoting the Ryanair brand were tried and tested. Sabena, Belgium’s struggling flag carrier, would be his whipping boy; as long as it rose to his bait, he would be able to promote Ryanair cheaply and dramatically. Christophe Mueller, Sabena’s president and chief executive officer, should have been prepared for the onslaught, but he proved easy prey for O’Leary.

  Ryanair’s opening campaign was low key by its standards: newspaper advertisements carried the relatively uncontroversial message, ‘Welcome Ryanair and its really low prices. Good-bye Sabena and its really expensive flights.’ The second round of advertisements was more typically confrontational. They featured a picture of the famous Brussels statue of a small boy urinating and said, ‘Pissed off with Sabena’s high fares? Low fares have arrived in Belgium.’