Michael O'Leary (11 page)

The effect of the new policy was seismic. ‘I went to the cabinet, I simply said “Aer Lingus have three London airports and Ryanair have one, well let's give them two each.” The nub was to take Aer Lingus out of Stansted. I think history has shown that that was the right decision,' Brennan says.

It was, on balance, an equitable carve-up: the national carrier was
guaranteed no competition on its traditional and highly profitable routes to Heathrow and Gatwick, London's largest airports, while Ryanair was protected from predation on its routes to the new Stansted airport. Irish tourism, so Brennan believed, would be the winner.

But for Aer Lingus it was a dramatic setback. It had lost its status as the only airline that mattered in government policy-making, and its competitor had been thrown a lifeline by Aer Lingus's owner. It was, the senior management and unions believed, a betrayal. Cathal Mullan, Aer Lingus's chief executive, said the change of policy was ‘very serious. Without a Dublin–Stansted operation, our capacity to generate increased tourist numbers from the south-east of England will be totally inhibited.'

If that had been the airline's sole intention, then it is possible that Brennan would not have acted. But it was evident that Aer Lingus had become dangerously obsessed by Ryanair's success in building a market that it had always argued did not exist. Simply put, Aer Lingus had been wrong, and its errors had deprived the state, its owner, of a booming tourism industry. Aer Lingus had to be saved from itself, and the safest way of ensuring that it focused on its real business rather than on killing a competitor was to separate the two airlines and cushion them from each other for a period of time.

Aer Lingus's attempts to drive Ryanair out of business were by then proving ruinously expensive. Aer Lingus's profits had peaked at £52 million in 1988/89, but the battle with Ryanair cut those profits almost in half in 1989/90 and by 1990/91 they had tumbled to just £8.3 million. The airline's dwindling profits (and eventual fall into substantial losses) were not caused by Ryanair's existence, but by Aer Lingus's chosen response.

As Des O'Malley, then leader of Ireland's Progressive Democrats, said,

Aer Lingus's management failed to recognize the changing environment in European air travel that deregulation had brought about and had failed to change its corporate culture. While paying lip service to the new
competitive era, Aer Lingus still hankered after what they consider the good old days of collusion between state-owned airlines to maintain high prices, to keep out competitors, and to discourage increased business. They have compounded the original strategic error of trying to block competition by an obsessive follow-on policy of trying to kill off their new domestic competitor, Ryanair. So obsessive did this policy become in recent times that it has virtually bankrupted their core aviation business. There was an irrational targeting of the new Irish airline, which they sought to put out of business at all costs. They pursued Ryanair everywhere, even to the small provincial airports, which they would not touch until the new airline went into them. Instead of going out to develop their own business, Aer Lingus chose the soft option of matching fares with all competitors and trying to prevent other airlines from developing business for the benefit of the country.

If Brennan saved Aer Lingus from destructive competition, he also gave Ryanair a real opportunity to emerge from years of loss-making. McGoldrick said the change in government policy represented ‘a coming of age for Ryanair, a recognition that we have a role to play'.

Fifteen years later O'Leary takes a more conservative view of the impact of the deal. ‘The concession itself didn't actually amount to a lot,' he says. ‘Aer Lingus owned Heathrow and Gatwick, we were in Luton and Stansted. The deal was Aer Lingus got Heathrow and Gatwick and we got Luton and Stansted. We got Liverpool and they got Manchester. And that was it…The deal was only crucial in persuading Tony [Ryan] to put in more money. He said he was not putting in another ten or twenty million if the government was going to keep on dumping on him.'

The exclusive right to fly to Stansted was not a guarantee of success. While Stansted had clear potential, it was an airport entirely without a track record, had no experience of low-fares airlines and, even more worryingly, was unknown to the vast majority of British travellers.

‘Ryanair was in a very difficult position,' recalls Peter Bellew, who ran a tour-operation company in the UK. ‘When they opened
up in Stansted, it too was literally just opening. I put a proposition to Ryanair that we'd do inclusive packages, your flight, your accommodation, your car hire, whatever, based around the concept of low, fixed airfares.' Ryanair jumped at the idea, and soon Ryanair Holidays was born. The tour operator, which had previously offered ferry holidays, brought out a brochure featuring all the destinations Ryanair flew to in Ireland. In 1989/90 Ryanair Holidays carried 10,000 people – a small but profitable slice of Ryanair's total traffic for that year.

‘It was a great success,' says Bellew.

They were really good holidays, because it was the first time there had been low-cost, high-volume holidays by air, from England to Ireland, because Aer Lingus was very expensive. For the Punchestown races in 1991 we brought about 700 people – which at the time was a lot.

It was good cash flow for the airline. This was great because they were getting paid for these seats about eight weeks before they got paid for normal seats.

By the end of 1989 McGoldrick was confident that the airline had turned a corner. In November, in an interview with trade magazines, McGoldrick said that the two-airports deal had been a resounding success for both airlines and predicted that Ryanair was ‘on course to do better than break even this year. We are determined not to lose money.'

We have almost all been winners as a result of liberalization and the relaxed bilateral [that] was signed between the governments in Dublin and London. Aer Lingus is making more money and so is the Irish Airports Authority. It just goes to prove that competition does work…This year, the airlines will carry a total of 750,000 passengers, with present load factors running at around 78 per cent. We have our heads down and are working our way out of our troubles.

But his confident assertions would prove a nonsense: Ryanair eventually reported losses for 1989 of just under £5 million, despite
McGoldrick's corrective actions and the late benefit of the two-airline policy. His confidence was not based on simple bravado; the harsh reality was that just two months before the end of Ryanair's financial year, and eighteen months after O'Leary had been sent in to find out what was happening to Tony Ryan's money, the airline's senior management had no idea about the company's underlying financial performance.

McGoldrick's confidence in the future was to prove more valid than his belief in the present. With the two-airline policy secured and with wider deregulation of European aviation on the way, he was entitled to dream of expansion, growth and profits.

We see an expanding regional operation to more European points from the existing airports in Ireland, a build-up of our charter operations based on the BAC One-Eleven and the A320, and a possible move into long-haul charters with the Airbus A3 40. And we would like to get into scheduled services from Britain into Europe at some stage in the future.

Provided we keep ourselves slim and the utilization of our aircraft up, we will be capable of taking on anybody when the European Economic Community frontiers go down at the end of 1992.

Winning a respite from the struggle with Aer Lingus was only part of the battle. If Ryanair was to survive and Tony Ryan's latest £20 million investment was not to be wasted, the company simply had to get to grips with its elusive finances.

O'Leary was trying to learn about the business, to get a feel for where money was being spent and how it could be saved, but instead of studying the industry by reading books and poring over financial statements, he started to work on the ground. ‘Michael had the beginnings of an enthusiasm which went on and on,' says Clifton. ‘You'd see him in on Saturdays and Sundays and he'd be helping board flights and stuff like that. But Michael was pretty poor in those days at being one of the boys, something he's tried to become later. He would appear on the ramp, and he'd be something of a stranger. He wasn't well known at that stage. And
he'd appear on the ramp and people would be doing their job and saying who the fuck is this guy.'

Scrabbling through the undergrowth of the company, O'Leary started to work out where the money was flowing to, and how it could be saved. He had yet to formulate the rigorous business model that would transform Ryanair into the leanest and most profitable airline in the world, but he could identify waste and he could identify ways of doing business more cheaply.

It was not, he says, about saving paper clips but about instilling discipline. ‘It's the decision that one guy down in operations can make on one Friday evening on leasing in an aircraft that can cost you £10,000 or £20,000 at a stroke,' he says. ‘It's those decisions that we had to clarify and clear up in people's minds.'

O'Leary replaced the marketing department with an outside public relations agency and renegotiated contracts which had never been questioned; insurance costs and fuel costs were hammered lower as the airline grew and started to exploit its new market power. ‘It was all about getting rid of the lunatics who were running the asylum and putting some order on it,' he recalls. ‘I was doing a lot of the ripping and burning and slashing at the lower end, which you couldn't have done if you were the CEO.'

Nothing was too small to escape O'Leary's attention, whether it was the cost of aviation charts (he discovered that Ryanair was paying for maps of the world rather than for the small number of charts it needed for its routes) or the cost of its planes. O'Leary had the nerve to question Ryanair's arrangements with GPA, and discovered that instead of getting favourable terms from its owner's company, it was being screwed.

‘The guys down in GPA couldn't be seen to do a soft deal for Ryanair so they raped Ryanair. And the muppets in Ryanair thought, ah well, it's GPA and they'll look after us because of Tony Ryan. And so Ryanair spent its entire life being ridden by everybody when everybody assumed it was getting looked after because of the connection with Tony Ryan.'

Caution and cost-cutting were the watchwords through 1990. Route launches were kept to a minimum as McGoldrick and
O'Leary concentrated on developing their existing routes and maximizing passenger numbers and aircraft efficiency while assiduously cutting waste.

Towards the end of 1990 Declan Ryan, Tony Ryan's eldest son and Ryanair's then managing director, decided it was time for O'Leary to immerse himself in the operations of the airline. He asked Hamish McKean, the operations manager, to ‘take O'Leary under his wing' and teach him how the airline worked. O'Leary was not amused. He had already spent much of the year finding out for himself what worked and what did not, and he ‘absolutely didn't want to be taken under anyone's wing', says McKean, who suggested that O'Leary be sent away for training. ‘Michael responded with several expletives in a very short sentence,' McKean recalls. ‘He took that as a very huge insult. Michael would rarely take advice from anybody.'

Tensions had been building between O'Leary and Declan Ryan, and the company rumour mill rumbled with speculation that Tony Ryan would sideline his own son and wanted O'Leary to take over from him as managing director. For the moment, though, Declan was still in the post and in a position to assign an unwilling O'Leary to McKean for a couple of days a week for four or five weeks.

With McKean O'Leary learned about how ‘ops' worked – rostering, dealing with pilots and crew, making the best use of planes and controlling fuel. ‘On the logistics side he was an eager pupil,' says McKean. ‘On the technical side, he couldn't be bothered with it. He just regarded aircraft as a vehicle for generating revenue, carrying passengers – didn't care how it was done. He did not take well to being told anything.'

During this time Ryanair was renegotiating its fuel contracts, and O'Leary sat in on the meetings. ‘He was very confrontational in fuel meetings, effing and cursing and swearing, quite bizarre behaviour,' recalls McKean.

Aviation is a very conservative business, a bit like banking or accounting. You would expect people to be in black or navy suits, polished shoes,
all of that. So him turning up to these meetings in jeans and open-neck shirts was unusual…People didn't take him seriously at all. They just questioned his sincerity. The feedback was, ‘Who the hell is this guy? Who does he think he is telling us that we can't charge this?' He was demanding parity of price with BA and larger carriers who had huge quantity. But it worked, we got almost parity with B A. He was effective in shocking people into realizing that we were a small carrier but an emerging force in aviation.

Soon O'Leary's influence would be felt on a wider scale. In early 1991 he moved from Ryanair's administrative headquarters in College Green to the airline's offices at the airport. He quickly turned his attention to catering, a key cost for the airline. Charlie Clifton was installed as catering manager, and O'Leary spared few words when giving him his brief: ‘Cut the fuck out of it.'

There was certainly a lot to be cut out of it. ‘When I arrived into the catering department there would be meal presentations, there would be a meeting about the tray, the quality of the tray…Then there'd be, would you get cloth, would you get plastic, would you have rotatable or disposable equipment, knives and forks, stainless steel, would you have them branded, would the glasses be branded?' Clifton recalls.

Within months Clifton and O'Leary had made sweeping changes: the catering department was reduced to a fraction of its former size with most of its functions outsourced to Gate Gourmet to save money. ‘It was pretty obvious what had to be done at that stage,' Clifton says. ‘Which was even if you're serving smoked salmon and it's ridiculous, you might as well get the smoked salmon at the best possible cost. At this stage there was no talk about just not serving smoked salmon.'