Michael O'Leary (19 page)

Ryan had bankrolled Ryanair from its launch, had installed his sons as shareholders and directors while his brother Kell ran a division out of Stansted, but he had never been legally allowed to acknowledge the airline as his own. His contractual arrangements with GPA forbade Ryan from owning an airline, a problem surmounted by his decision to place ownership in a trust whose beneficiaries were his sons. When GPA collapsed, he still needed to keep his distance so that Ryanair could be kept out of Merrill Lynch's grasp. Only now could he claim what was his, and he wasted little time. ‘He had fantastic experience and was very amenable to the airline business,' one long-serving director recalls. ‘Not a single person had a problem with it. Michael and Tony were buddies and they are to this day. He was his pa.'

O'Leary would once again be working directly for Ryan, but in his first year as CEO his confidence and stubbornness had grown. O'Leary believed that Ryanair had barely touched its potential. His battles in Europe would, he foresaw, be reruns of Ryanair's successful battles with Aer Lingus. In each market O'Leary would be faced by overstaffed, poorly managed, state-owned airlines lacking the commercial wit or the political ability to compete with a lean, hungry aggressor.

Ryan, meanwhile, could see dollar signs. By 1995 Ryan had invested almost £20 million to keep the airline afloat in its early
years and to fund its expansion once it had stabilized. In return officially he had received not a cent, though the airline had structured the airplane purchase deal in 1994 that had allowed him to pay off his debts to Merrill Lynch. But in his own mind he was still owed, and the time had come to collect. Ryan wanted cash and Ryanair was all he had left to sell. While O'Leary plotted expansion, Ryan plotted a sale that would generate millions for his family and put him back where he belonged – among Ireland's wealthy business elite.

His timing, though dictated by events outside his control, was impeccable. On 14 February the
Irish Times
pointed out that ‘Dr Ryan has joined the board at a time of rapidly rising profits at Ryanair', adding that the airline's ‘profit is understood to have been substantially higher in 1994' than it had been in 1993. Conflict between Ryan and O'Leary was becoming inevitable. O'Leary was making more money than he had thought possible from his profit-share agreement – in 1993 and 1994 he had made his first million pounds from Ryanair, and would earn a further £
6
million through 1995 and 1996 – but he had no shareholding in the company. A sale would benefit the Ryans but could put an end to O'Leary's new-found income stream.

For both men one thing was clear: Ryanair had to maintain its upward momentum. Success was a virtuous circle, creating higher profitability and greater visibility for the airline, which in turn whetted the appetites of potential investors and buyers as the money rolled in. For a time at least Ryan and O'Leary were thus on a parallel mission. The tactics remained simple: hammer down costs, drive up profits and maintain relentless pressure on Aer Lingus. Whenever the state-owned airline tried to break free of the constraints imposed upon it by the European Commission in 1993 Ryanair cried foul.

In March 1995, a month after Ryan had joined the board, O'Leary lodged a formal complaint with the commission, alleging that Aer Lingus's plans to buy a new fleet of jet aircraft to operate on some of its Ireland–UK provincial routes breached the capacity restrictions placed on the airline. O'Leary's complaint was eventually
dismissed, but his intervention caused delay and maintained pressure, allowing Ryanair to push ahead while its rival stumbled.

In April O'Leary announced that he was creating more than a hundred new jobs across the company – hiring pilots, cabin crew, reservations staff and ground crew as Ryanair geared up for expansion on the routes between Ireland and the UK. Passenger numbers continued to climb throughout 1995, with the routes to Prestwick proving remarkably popular while the airline's share of the Dublin–London market continued to rise.

O'Leary was also now beginning to get the public recognition he deserved. In an interview with the
Irish Times
in May Tony Ryan waxed lyrical about his young chief executive's talents. O'Leary, he said, was ‘probably the best chief executive I've ever worked with', and according to the newspaper report Ryan attributed ‘much of the success of Ryanair' to O'Leary. The example he gave of what O'Leary had actually done at the airline, however, revealed the shallowness of Ryan's appreciation of the company's transformation under O'Leary. Instead of highlighting the cost controls, the deals with airports, the renegotiation of contracts, the fast turnaround times achieved by Ryanair aircraft or the switch to a fleet of Boeings, Ryan credited O'Leary with first proposing that the airline stop serving food on its flights.

‘The family were appalled,' Ryan told the newspaper. ‘We told him the passengers would go spare. He went ahead anyway and nobody complained. The time saved in serving food is now spent selling duty-free. I think Ryanair is now the biggest retailer of Jameson [whiskey] in the world.'

Shallow, yet also insightful. O'Leary was clearly the airline's dominant force and Ryan family opposition to his plans wilted when he stood firm. The company was run O'Leary's way and Ryan's sons did not stand in his path.

Tony Ryan, however, was a more robust figure and had plans of his own.

In 1995 the routes from London to Scotland were dominated by British Airways and British Midland, and fares were as expensive
as Dublin–London had been in the late 1980s. The train service between London and the two major Scottish cities of Glasgow and Edinburgh was also slow and expensive, and O'Leary reckoned that there was potential to stir up the market, and do it noisily.

It was widely known that the EU was planning to bring in new rules that would grant foreign airlines the right – known as cabotage – to operate domestic flights in another country.

‘We wanted to get first-mover advantage on it, in case anyone else wanted to have a go,' recalls Tim Jeans. ‘It was very difficult to determine, when cabotage came along, whether there would be a rush to get onto the best domestic routes that everybody else had. Everybody thought that cabotage was the nirvana, particularly for someone like Ryanair with no domestic market in Ireland and the potential to have such a large one in the UK.'

Jeans says that Ryanair briefly considered reincarnating the airline's previous UK-based company, Ryanair Europe (formerly LEA), in order to establish itself on internal UK routes before liberalization opened the door to everyone else, ‘but LEA had gone horribly wrong, and in many ways nobody wanted to revisit the failure. We didn't do failure by then.' Instead, Ryanair took a 45 per cent stake in Ryanair UK, which had been set up by Cathal Ryan in 1985 and been dormant for several years. The company was registered in the UK and authorized by the UK's Civil Aviation Authority.

As the airline's only British senior manager, Jeans was put in charge of the new company, through which Ryanair planned to launch a service between Stansted and Prestwick on 26 October 1995. More than ten years later he still recalls fondly the route's unconventional birth. ‘Stansted–Prestwick was a convoluted thing. It was confusing even for us. That was the great thing about Ryanair. It genuinely didn't care an awful lot for convention. The idea that we could construct this elaborate design to get around the regulations appealed to everybody's taste.'

But it didn't take long for Ryanair's cheekiness to arouse the anger of its rival carriers. The first skirmish came two weeks before the new service was due to commence when British Midland
threatened to bring a case before the UK Office of Fair Trading. BMI objected to what it claimed was Ryanair's misleading advertising. ‘Whilst your flights are scheduled from Stansted to Prest-wick, your advertising campaign description is “Glasgow to London”. This gives the clear impression that the flight is to be from Glasgow Airport, whilst Prestwick is some 35 miles away,' it said in a letter to the company, claiming that Ryanair's advertisement was in breach of the Control of Misleading Advertising Regulations 1988, Article 2 (2).

Jeans's response at the time was succinct: ‘I was astonished to read the letter from British Midland as I had always considered them to be the great champions of competition in the airline business. I have made it clear that Prestwick is one of the two designated Glasgow airports under IATA regulations and we have no hesitation in using that designation in our literature, just as our sister company has done for over a year on the Dublin routes.'

Ryanair cleared that first hurdle, but a more serious one was about to be thrown in its way. If Ryanair UK was to operate the route, it needed to have an airline operator's certificate from the Civil Aviation Authority, but it could not get one in time for the first flights. Instead, O'Leary had arranged for GB Airways, a UK-registered and -certified company, to operate the flight, using an Irish-registered 737 leased from Ryanair. It was an obvious ruse, a deliberate attempt to drive a coach and four through the regulatory rulebook, and O'Leary's rivals went on the attack. British Midland was joined by Air UK and British Airways in a joint complaint that GB Airways could not use an Irish-registered plane if there were British-registered planes available.

Unfortunately for Ryanair, there were – but they were the smaller BAC One-Elevens rather than the 130-seat Boeing. Bookings for the new service were already running at more than 1,000 a day and if Ryanair was forced to use the smaller plane, just under a third of the passengers on every flight would have to be turned away.

‘It would have been chaos,' says O'Leary, and for once he contemplated defeat. The weekend before the first flight was due
to take off he engaged in desperate negotiations to salvage it, but as the problems mounted he seriously considered suspending bookings and running up the white flag. Frantic telephone negotiations between O'Leary, Jeans, Prestwick's managing director Hugh Lang and the UK department of transport came to nothing and the impasse continued through the next three days.

In the end, after tense negotiations and Ryanair threats to cancel the inaugural flight, the UK department of transport offered the airline a way out. Ryanair was given a ten-day dispensation to run an internal UK service. After ten days Ryanair would be allowed the more usual permission for extended cabotage. This meant that the flights from Prestwick to London, or from London to Prestwick, would have to start in Ryanair's home country of Ireland. ‘We had to construct this elaborate operating device where the route was loaded as a Cork–Stansted–Prestwick and in theory we were only allowed to load half of the passengers on the Stansted–Prestwick link,' recalls Jeans. ‘But it was all a load of absolute nonsense, because the plane didn't operate that way and there was no cap on the passengers carried – and nobody checked either.'

For O'Leary it had been an irritating and only partly successful fight: Ryanair had made the headlines and copper-fastened its reputation as an aggressive young airline which championed lower fares, but the partial victory was unsatisfactory. He had not won the right to run internal UK services, but had instead won a messy compromise that allowed him to schedule flights within the UK but only if they originated and terminated in Ireland. No one might have been checking, but this was not a firm basis for expansion.

A more significant fight was shaping up at Luton airport. In March 1995 a new low-cost airline was registered by Stelios Haji Ioannou. Other low-cost airlines would come and go, but easyJet was the one which would prove the biggest thorn in O'Leary's side.

It started as a small affair, flying from Luton to Edinburgh and Glasgow with two leased Boeing 737–200 aircraft, and it contracted in everything from pilots to check-in staff–hardly a threat to Ryanair's growing might. But Stelios, as easyJet's owner and
founder came to be known, was the son of a billionaire Cypriot shipping magnate, and his fortune gave the airline a level of financial backing that few airlines, or companies for that matter, could match. The easyJet challenge was to prove a slow burner – the first routes were not launched until November 1995, and the airline did not mount a serious effort until it ordered twelve new Boeing 737s in September of 1997.

While O'Leary tried to channel his energies into his expansion plans for the UK and European markets, he was being distracted on the home front by Tony Ryan's obsession with building a new commercial airport at Baldonnel, the military airbase on the south-west fringes of Dublin.

Ryan claimed the new airport would be a ‘low cost' alternative to the proposed second terminal at Dublin airport, which was expected to cost £200 million. It was not a new idea – Gay Mitchell, a senior politician within the Fine Gael party, had published a development plan for Baldonnel almost a decade earlier – but Ryan backed his idea with the promise of hard cash. Ryanair, he said, would invest £50 million in the new airport – an enormous amount for a company that had only just started to make profits and which still carried accumulated losses of more than £10 million from its earlier troubles. ‘We would design the Dublin City South terminal to facilitate the flow of passengers at a rate four times as great as most other airports can manage,' Ryan said in May 1995. ‘This would be achieved by doing away with complex ticketing and other clumsy, time-consuming, unnecessary and costly processes.'

Armed with plans drawn up by two firms of architects, Ryan began to bombard Transport Minister Michael Lowry with details of how cheap and effective Dublin City South airport would be. And, seeking to neutralize any local opposition to the project, Ryan organized public presentations in Newcastle, Rathcoole, Blessington and Naas. He projected that the airport would generate 10,000 jobs, handle 6.5 million passengers a year within a decade and would be a ‘low-cost gateway to Europe'.