Michael O'Leary

by Alan Ruddock

  Barbara Cassani, unfortunately for her and her fledgling airline, believed O’Leary’s rhetoric and decided that Go would launch a route from Dublin to Edinburgh. Her decision was announced in July, with the service due to start operating at the end of September.

  O’Leary’s response was immediate and brutal: Ryanair would crush Go, no matter what it cost. In part, his determination to see off Go was simple machismo. Ryanair wanted to retain its dominance of the low-fare market between Ireland and the UK and would brook no competitive threat. His response was as consciously predatory as Aer Lingus’s earlier attempts to knock Ryanair out of the skies, and showed that O’Leary only liked competition when it was on his terms.

  ‘Go foolishly decided to come into Dublin,’ recalls Tim Jeans.

  ‘David Magliano, the Go marketing director at the time, apparently told Barbara Cassani not to worry. Go could do Edinburgh and Glasgow because Ryanair wouldn’t follow. We had often said quite publicly that we would never darken Edinburgh’s doors because [its landing and passenger charges] were far too expensive and it wasn’t our kind of airport.’

  Cassani’s decision to launch a Dublin–Edinburgh service was not illogical. At the time the route was served by Aer Lingus, which operated two Fokker 50s and ran four flights a day. It was an expensive route – a typical return fare was more than £200 – and it seemed ripe for competition. Instead of a battle with Aer Lingus, however, Cassani got a price war with Ryanair, or as Jeans says, ‘a competitive response of biblical proportions’. The number of planes ploughing the route ballooned from two Fokkers to thirteen Boeing 737s daily, with a capacity of 1,500 passengers each way, as Aer Lingus, Go and Ryanair battled for supremacy.

  ‘We certainly weren’t making money,’ says Jeans. ‘But this was very much part of the cost of defending our territory. The costs of the exercise were never calculated and it was only a question of when would Go pull out.’

  Ryanair’s fares undercut Go, tumbling to £5 each way. Eightyfour days after launching the route, Go admitted defeat and withdrew. ‘We got a thrashing,’ Cassani wrote some years later in her book about Go.

  Going head-to-head cost us millions and we withdrew wounded. We learned another crucial lesson about discounting. You can’t take on someone with lower costs because they dig deeper than you to lower their prices and still make money, while you’re bleeding.

  We seriously misjudged how seriously and how angrily they would take the incursion into Dublin. It was just a really tough lesson in business.

  For Ryanair the battle had been a resounding success and had created a firm precedent – mess with us and we will crush you. Prey had turned predator, and would use its power to drive away competition by cutting fares to the bone. O’Leary’s response, though, was only possible because of his obsessive attention to costs. Ryanair had become the lowest-cost operator in Europe, and so could charge less than any competitor on any route without losing money. Even where it dropped its fares to loss-making levels, it could still recoup revenue from its ancillary deals. Critically, its low costs allowed it to sustain a price war longer than any rival could bear.

  ‘It sent a warning shot to everybody,’ says Clifton.

  If you step on our toes we can sustain lower costs and lower fares better than anybody else. It’s particularly true when you’ve got a guy like Michael on top. Airline executives have to decide if they’ll compete with Ryanair or not. They look at the cash balance and they look at the guy running it. And [after Go’s experience] it wasn’t a very good idea to go into your board and say, ‘I’ve decided to take these guys on, because they’d have to fly for free for ten years to beat us off,’ because a number of people sitting around the board table would say, ‘Well, maybe they just will.’

  For O’Leary, route dominance mattered. It gave him extra power with the airports served by his airline, and it gave customers in search of a cheap ticket no option but to choose Ryanair. It was not, however, predation in the old style. Where Aer Lingus wanted to crush Ryanair so that it could restore high-priced travel, O’Leary’s philosophy was fundamentally different. He wanted volume, and the way to drive passenger numbers ever higher was to reduce ticket prices. He wanted dominance on a route not so that he could push up prices, but so he could have far greater control over the airports and their charges. The result would be higher profits, but they would come from squeezing his suppliers for extra savings and from boosting passenger numbers, not from raising ticket prices.

  While O’Leary and his colleagues basked in their swift victory over the pretender, Aer Rianta complained to Ireland’s Competition Authority that Ryanair had ‘launched services on the same routes with the sole purpose of putting its competitor off the routes’.

  Aer Rianta chairman Noel Hanlon had already written to the government to complain. ‘Ryanair publicly stated that they would not allow another low-cost airline to operate on these routes, and proceeded to offer fares at £5 return with the sole purpose of putting its competitor off the route. To do so, Ryanair pulled capacity from three other routes which had an overall effect, from Ryanair’s point of view, of not increasing capacity but of undermining its competitor.’

  O’Leary was unfazed. ‘The thought of our airport monopoly making a complaint to the Competition Authority fills me with joy and wonder,’ he said.

  For Cassani, the battle with Ryanair was a defining defeat. The barbarians had trampled all over the nice people and Go’s credibility had taken a battering from which the company would struggle to recover. O’Leary just banked the victory and moved on. It had been important to win, but he had had no doubts that he would. Securing a deal for new aircraft was far more important, and demanded his full attention. By the end of the year Airbus had won, or at least it thought it had. It had offered to sell Ryanair its planes for just under $30 million each – effectively half price – and Boeing had come up short.

  Chris Buckley suggested O’Leary and his team come out to Toulouse to finalize the deal. ‘And that is exactly what we accomplished. That day in Toulouse, Michael and our president at the time, Noel Forgeard, shook hands on a deal for a hundred A321s.’

  As far as Airbus was concerned the deal was done, but O’Leary had other ideas. Airbus’s offer was attractive, but it gave him the ammunition for one last shot at Boeing. ‘As far as I know, Michael called Boeing on the day, and said he had been in Toulouse, had a deal with Airbus,’ says Buckley. ‘Boeing came back on the following day, knocked some more money off, and Ryanair called us up, and said they were going to stick with Boeing after all.’

  Boeing, like Airbus, was up against the wall. Production at the 737 plant in Renton, Washington had been cut in half, morale was at rock bottom and tens of thousands of employees had already lost their jobs. It was not a situation Boeing was used to. It was the dominant player in world aviation, having snapped up old rival McDonnell Douglas – maker of the infamous DC10 – in the 1980s. Airbus, a European consortium driven together by political desire rather than economic compulsion, was the new kid on the block, and its aggressive sales techniques made Boeing look patrician, old-fashioned and complacent.

  But this time, Boeing knew it could not afford to lose. Alan Mulally, Boeing’s chief executive, decided to do the deal with Ryanair whatever the price. Boeing had one extra shot in its locker that Airbus could not match.

  The 737–800 series, with its slightly elongated body, could carry 189 seats in Ryanair’s tight configuration – sixty more than the older 737s and thirty more than the Airbus A320. This would put enormous pressure on O’Leary to fill the new capacity, but his calculation was that those extra places reduced the average cost of each seat on the plane. They also gave added firepower against his competitors, allowing him to ramp up seat availability and flood the market on chosen routes with low fares and the capacity to match. It was a risk, but a calculated one. ‘We were getting the extra seats almost for nothing,’ he says. ‘The challenge was to fill them.’

  For Airbus, th
e memories of the deal that never was are still painful.

  ‘This was an unprecedented event for Airbus, because after having two chief executives shake hands, it’s normally left for everybody else to quickly do the paperwork and make sure everything else happens,’ says Buckley. ‘When the Ryanair delegation left Toulouse we were elated, we actually thought we had a deal. But then our reaction was one of massive disappointment that we had not won as we thought we had. And [there was] massive disappointment that the handshake we had thought we had was not even a handshake at all.’

  Unusually for O’Leary, he showed Airbus some compassion in their loss. ‘We had a letter from Michael a few days later,’ says Buckley. ‘It was thanking us for all our efforts, apologizing but business is business, and the Boeing offer was much better. At least[we had] something in writing from Ryanair, but that only goes 5 per cent of the way to mitigating our disappointment about not winning.’

  The result was a spectacular coup for Boeing, but it was even more spectacular for O’Leary. ‘We raped the fuckers,’ he crowed shortly after securing a deal that delivered him a hundred brand new Boeing 737–800 jets, and an option for fifty more, for less than half price – just over $28 million a plane. Boeing, however, did not care. Asked how he felt about the ‘rape’, Toby Bright, then Boeing’s vice president in charge of sales, replied with a straight face, ‘We enjoyed the experience.’

  The deal had stabilized Boeing’s Renton plant and, just as importantly, had given the company a solid platform in Europe. For Boeing’s employees, oblivious to the high-wire negotiations that had delivered the deal, news of the Ryanair order caused jubilation when it was announced at the end of January 2002. ‘It was a fantastic feeling,’ says one Renton veteran.

  For months there had been a sense of unimaginable doom. It’s difficult for people outside Boeing to understand, perhaps, but when we watched those planes hit the towers on September 11 we were watching planes that we had built being turned into weapons. It was a sense of violation. And then came the cancelled orders and the trauma of the layoffs.

  The spirit here in Renton is great, but nothing could withstand those sort of setbacks. We badly needed a lift, and Michael O’Leary gave us that lift. He came to us when we were at our lowest, and he said, I believe in you and I believe in your product and I want to do business with you. More than that, though, he promised us he would take our fight with Airbus to his heart. It was like something out of Braveheart rather than something you’d expect from an airline boss.

  When O’Leary arrived in Renton to address the Boeing staff in February 2002 he was given a rousing ovation by a crowd of almost 2,000 employees, who cheered as he regaled them with tales of lazy state-owned airlines and hammed up Boeing’s victory over Airbus. ‘We love Boeing,’ he told the crowd. ‘Fuck the French.’

  On 25 January 2002 Ryanair went public with its new Boeing deal. Ten days later, after announcing yet another set of recordbreaking quarterly results which showed that profits had risen by 35 per cent to just under €30 million for the third quarter, the company seized the opportunity to place another thirty million shares on the market to raise €162 million, with a secondary offer raising an additional €25 million when demand for the new shares once again exceeded supply. For a change, O’Leary did not participate by selling any of his own stake in the company.

  Ryanair had another cause for celebration in February – a partial victory in its long-running battle with Aer Rianta, when the airport operator agreed to provide a designated area in Dublin for low-cost carriers.

  The agreement came on the back of a report by international aviation expert Professor Rigas Doganis which had recommended the initiative. The new facility would be operational for the 2003 season, Aer Rianta promised, and would give low-cost carriers a quicker, no-frills service. The key to the proposal was speed and convenience; lower charges were not on the agenda. Doganis’s report ruled out Ryanair’s plans for an independent low-cost terminal, but a partial victory was better than no victory at all.

  ‘This will be a physical area which low-cost flights on any airline, including Aer Lingus, will be able to access and exit quicker than in other parts of the airport,’ Mary O’Rourke explained.

  O’Leary had no time for the normal business of Irish politics. Instead of courting political leaders, he lambasted them publicly and loudly. Mary O’Rourke had felt the full force of O’Leary’s contempt, and Bertie Ahern, Ireland’s popular taoiseach, was regularly lampooned by O’Leary as a dithering idiot in hock to the trade union barons. O’Leary, however, did have some political friends. His most important ally was P. J. Mara, a former government press secretary who had branched out into the world of public relations and political lobbying. Mara had retained powerful links with Ahern’s Fianna Fáil party, acting as its director of elections, and he was also a close confidant of Ahern. His relationship with O’Leary – both friend and paid adviser – put him in a peculiarly awkward position with Ahern, but Mara is a man who can serve two masters with poise and charm.

  O’Leary was also on friendly terms with Mary Harney, leader of the Progressive Democrats, a right of centre party which had been instrumental in delivering the country’s low-tax regime, and Charlie McCreevy, the finance minister who had implemented the low-tax policy and was an avowed supporter of entrepreneurs and the free market. O’Leary’s friendships, therefore, were with like-minded politicians; he did not go out of his way to seek access or favours from those he disdained.

  Traditionally businessmen sought political favours by lavishing cash on political parties and on individual politicians. Ireland’s planning system was systemically corrupt, with zoning decisions bought by land developers who bribed both local and national politicians. O’Leary’s attitude to politics stemmed from a perhaps idiosyncratic view of what motivated politicians. In a radio interview in 1999 he said, ‘I have never yet come across a politician who will make a political decision in your favour or against your favour unless it was in their interest, or in what they consider to be the national interest. They just don’t make decisions based on the fact that you sponsored something, or that they stayed in some holiday home of yours.’

  It came as a surprise then when it was revealed in early February that, through Ryanair, O’Leary had made a substantial donation to Harney’s Progressive Democrats. Details first emerged in a parliamentary debate, and within a matter of days the scale of the contribution became public knowledge.

  Ryanair had donated £50,000, the maximum allowable under Irish law. O’Leary refused to comment at the time, but he now says Ryanair has made donations to Ireland’s two largest political parties – Fianna Fáil and Fine Gael – as well as to the Progressive Democrats. ‘If the party is going down the right road we should try and support it,’ he says. ‘The only two I wouldn’t give a contribution to would be Sinn Féin and Labour. Sinn Féin are a bunch of mindless morons and they have the economic policies of a two-year-old. Labour have my sympathies, but that’d be about the height of it.’

  If O’Leary appeared to be softening in Ireland, he showed no sign of changing his tactics in Ryanair’s new markets. The airline planned to launch fourteen new routes from Hahn on 14 February – a move that prompted Lufthansa to mount a new legal challenge against Ryanair’s decision to refer to Hahn airport as Frankfurt Hahn.

  Since Ryanair had announced the new routes in November 2001 tensions had been steadily building between the two airlines. Ryanair opened hostilities in early December by slashing fares on existing routes from Hahn to Stansted, Glasgow and Shannon. Lufthansa responded by lodging complaint after complaint about Ryanair’s advertisements, which resulted in Ryanair lodging three complaints with European regulators about the sheer volume of Lufthansa’s complaints.

  ‘This is basically chapters one and two of the big airlines’ book on how to stamp out competition,’ O’Leary said.

  All they’re trying to do is keep us tied up in the courts for a couple of months because they
know that if they can head us off for the first few months we’ll never get these new routes off the ground. Lufthansa went to a court in Cologne [where it is headquartered] where it can get these things done at nine o’clock on a Friday night by convincing some dotty old judge that Lufthansa will face irreparable damage because Ryanair is slagging it off.

  Unnerved by the emergence of low-cost rivals in its home market, Lufthansa had responded aggressively on a number of routes, slashing its prices by up to 60 per cent. This was too predatory for the German Cartel office, which ruled in February that Lufthansa would have to raise fares on the Frankfurt–Berlin route because its new fares did not cover its costs. Its strategy, the Cartel office said, was to force its rival off the route and then recoup its losses by raising fares once it had succeeded. Lufthansa had cut its one-way fares from €254 to €100 in response to the €99 fare offered by newcomer Germania. The Cartel office decided that Lufthansa would have to charge at least €35 more than Germania.

  For O’Leary the skirmishes with Lufthansa were all part of the game. Each time Ryanair was hauled into a German courtroom and served with an injunction against producing advertisements which compared Ryanair’s fares to Hahn with Lufthansa’s fares to Frankfurt, it would drop them and then produce yet more comparative advertisements and find itself back in court yet again. But the fighting escalated in mid-January when a German court banned Ryanair from advertising Hahn airport as Frankfurt–Hahn. O’Leary’s initial reaction was to downplay the ruling – ‘As is the case with all of these ludicrous injunctions, Ryanair will appeal,’ he said – but this case had the potential to be far more damaging than arguments about comparative advertising. Ryanair’s expansion strategy had been based around flying to small, low-cost, airports and marketing them as their nearest local cities. Flights from London to Stockholm or Brussels to Glasgow were easy to sell, but flights from Stansted to Skavsta or Charleroi to Prestwick were an entirely different proposition.