Michael O'Leary (20 page)

O'Leary viewed Baldonnel as a Ryan plan rather than a Ryanair plan. ‘O'Leary was against it for business reasons – business reasons underpin all of his decisions,' says Tim Jeans. ‘The airline didn't need the fixed cost of an airport.' In any case, Ryan's dream was to be short-lived. On 25 January 1996, after a brief cabinet discussion, Lowry vetoed Ryan's proposal, which he said would not be in the interests of the aviation sector or the economy. Lowry claimed in a statement that Aer Rianta, the state-owned airports authority, had ‘developed plans for extending the terminal building [at Dublin airport] to enable it to cater for the forecast demand of about 14 million passengers by the year 2005. Dublin Airport has the capacity, therefore, to cater for traffic demand for several decades well beyond 2000.'

Within five years, however, Aer Rianta's projections would look hopelessly conservative. Tony Ryan was incensed by the government's decision and launched an immediate counter-strike. ‘Ryanair,' he said, ‘must now reassess totally its future plans and its Dublin base. In the short term all expansion out of Ireland is being shelved and other fundamental strategies are being reviewed. The company's new service between London and Glasgow is perhaps a template for the airline's future development.'

But whatever his chairman might say, O'Leary was pressing ahead with his own plans. Three months later, in May – still, presumably, the short term Tony Ryan had spoken of–Ryanair announced three new routes out of Dublin, to Cardiff, Bournemouth and Leeds Bradford. Apart from a new Stansted–Knock service, announced in December, they were the only route launches of 1996. The following year O'Leary announced seven new routes; four of these were out of Dublin.

Ryan might bluster, but his chief executive was not taking any notice.

Although Michael Lowry had rejected Ryan's plans for Baldonnel, he was not an instinctive opponent of Ryanair. ‘Within the department you still had a core of the public service who were brought up in the old way, which was the protection of the state monopolies. They worked with them and they worked for them.'

I didn't see Ryanair as somebody to be loathed, I saw them as having a genuine cause, I could see their operation as having enormous benefits. It was clear to me that the only hope we had of increasing the accessibility of air travel to the public and encouraging more people to come into Ireland was through the low-cost model. I was very conscious that there was a need for competitive forces within the airline market, and Ryanair were the only ones that were successfully attempting to bring that competition to the sector. I was unashamedly a fan of Ryanair.

And if he wouldn't deliver a new airport, he could deliver a better deal at the existing Dublin facility. Shortly after rejecting the Baldonnel plan Lowry instructed Aer Rianta to lower its charges at Pier A – used by Ryanair – by more than 25 per cent, and in November he asked the airport authority to look at the possibility of reducing charges even further.

‘I did that because when Ryanair made a submission it was quite evident that, compared with other airports which they were using, Dublin's charges were excessive,' says Lowry. ‘And I also felt that Ryanair had a point, and it was quite clear to me that Ryanair meant what they said when they told the department that they were going to invest and create business in airports that responded to their needs, and that gave them the no-frills service that they required.'

Lowry's plan was met with public criticism by the opposition transport spokesman, Seamus Brennan, but ten years on Brennan admits that his objections were more about politics than policy.

Aer Rianta, meanwhile, was not happy. Its chairman, Noel Hanlon, despised Ryanair and reserved special loathing for O'Leary, who treated Hanlon with naked contempt. ‘I think O'Leary respected him [Hanlon] at the start,' recalls one senior Ryanair manager, ‘but he didn't respect him for long.' The manager recalls one particular meeting he attended with O'Leary and Hanlon. ‘The meeting was just a shout-fest. Hanlon was a rude man. O'Leary is rude in a different way. Hanlon was much ruder but his language was slightly less colourful.'

The two men were natural opposites. Hanlon had been appointed to Aer Rianta because of his political connections and
not his competence. For Irish politicians the boards of state-owned companies were places to deposit friends and supporters who needed reward. It was not about financial gain – remuneration was token – but status, and Hanlon revelled in the role of chairman of one of the state's most successful companies. O'Leary thought little of him and did not bother to hide his feelings.

Lowry's instructions to Aer Rianta outraged Hanlon, who did not understand why a state-owned company should favour a private company that was stealing market share from another state-owned company. ‘Hanlon has since called me the worst minister for transport he ever had, but as far as I was concerned Aer Rianta had a golden nugget, a monopoly, and had become too comfortable. Initially Aer Rianta had been a company of great vision but it gradually lost its way. The management became aloof, and grew old with the system,' Lowry says.

Five years later, in May 2001, a Dublin newspaper, the
Sunday Business Post,
claimed that the lower airport charges had been worth €40 million to Ryanair. The story, which bore the fingerprints of Aer Rianta's public relations department, played on the fact that Lowry had subsequently been forced to resign his ministerial post after revelations that he had avoided paying tax. Discredited and under investigation by a tribunal of inquiry, it was not difficult to impugn his damaged reputation further by suggesting he had been overly generous to Ryanair.

Like all good smears, it had a grain of truth. Had Ryanair managed to grow passenger numbers for five years and continued to launch new routes at the previous higher charges, then it would have had to pay that €40 million. But the lower charges were available to any airline that wanted them and there was no way Ryanair would have continued its expansion from Dublin if the charges had remained high.

‘There was no ulterior motive,' says Lowry. ‘It was, as I saw it, in the interests of Aer Rianta. I was for creating greater activity. I was for creating volume and quantity. Aer Rianta had become something like Aer Lingus in the sense that they could effectively decide and govern what prices they wanted for everything. My
only consideration in making those decisions was to get a better deal for the consumer.'

O'Leary, however, was already thinking of different consumers, and in particular those prepared to travel from the UK to Europe.

Since 1993 Ryanair had been raking in money. The profit figure for 1992 was closer to £4 million than the reported £850,000, while in 1993 the profits had been substantially higher than the reported £2.03 million and the upward momentum had continued throughout 1994 and 1995. O'Leary's basic strategy – a strategy started by Conor Hayes – was piling up the cash, but O'Leary knew that he could not rest. He and the company had survived a bruising war with Aer Lingus; Ryanair was an established player in the Dublin to UK market, a new player on the Scotland to London market and also had a toehold in Europe.

The real competition, however, was only just beginning. Europe's economies were recovering from the deep recession of the early 1990s and entrepreneurs were beginning to realize the potential of the market. EasyJet was already up and flying in the UK and in January 1996 Debonair, the brainchild of Franco Mancassola, announced that it would be flying from Luton to five European destinations from 1 May. But Mancassola, like many of those who would follow, was about to make a critical error. He believed there was a middle ground, a place between the expensive national flag carriers and the rock-bottom, no-frills service operated by Ryanair.

Debonair, he said, would not be a ‘no-frills' airline, though it would be cheap.

We want to be an innovator, not an imitator. We are not targeting any specific sector, but our airline will appeal to cost-conscious, discerning business travellers who value punctuality and reliability and want no compromise on comfort. Debonair will equally appeal to people who have time on their hands to explore Europe – to students, retired people who want to explore the beauty of Europe's cities and holidaying families who want a change from the traditional hot summer resorts.

It was a mission statement that sounded good but delivered little. In the emerging battle for Europe's newly liberated consumers, free at last to choose between competing airlines, and free to fly rather than travel overland or by boat, the battleground was price not service. Millions of Europeans who had never flown before and never expected or wanted airline meals or ‘free' drinks on forty-five-minute flights, were prepared to fly if it were cheap. Traditional airlines, and those who had worked in them, never quite understood that price mattered so much; they thought that flying was an experience rather than a travel choice. Sure enough, Debonair went out of business in October 1999. Mancassola blamed its demise on Go, BA's low-cost airline, saying it was not a genuine low-cost operator as it was backed by BA's resources. As the
International Herald Tribune
commented at the time, ‘The consensus is that Debonair was doomed…by a defective strategy. By raising fares and adding frills to attract business travelers – separate check-in, free drinks and snacks in the front of the cabin – Debonair may have fatally compromised the promise of no-frills: Keep it cheap, keep it simple.'

British Airways, the first of Europe's flag carriers to be privatized, had kept a wary eye on deregulation and the emergence of the low-cost operators. By 1996 it had taken on Cityflyer Express, Loganair, Manx Airlines and Brymon as franchise partners – small airlines that operated in BA colours, wore BA uniforms and operated routes that the main airline did not service. For the Ryan family, still desperate to recover its fortune following the crash of GPA four years earlier, BA offered an obvious route to extracting some cash from its airline.

On 22 April 1996 the Dow Jones news service reported that the Ryan Family Trust had confirmed it was in talks with a ‘major international company' to sell 25 per cent of Ryanair. A company statement said the investment would ‘enable Ryanair to continue its expansion of low-fare air services in Europe'. Contracts were to be finalized by May, a press release said, and industry sources said the stake would cost £10 million, valuing the airline at £40 million.

‘A price was agreed with BA,' says a senior Ryanair figure, ‘but the deal fell down on technical issues.'

The price was significantly higher than the newspapers believed – BA was prepared to pay £25 million for a 25 per cent stake, which would have valued Ryanair at £100 million – but even that would have seriously undervalued the company. The true level of its profitability justified a price tag of closer to £300 million and if BA had struck the deal it would have been a bargain. It could also have sounded the death knell for Ryanair's growth.

‘I was a staff member at the time, and the news kind of trickled out that this might have happened but it didn't happen. It had fallen apart by the time the staff heard of it,' recalls Charlie Clifton.

It would have been a huge change for all the people who'd been there: you'd have been marching in an entirely different direction, you'd have become ‘BA-ified', uniform and corporate. In simple terms it would have squashed any of the competition, which was I presume part of the purpose. It would have been bad for morale and a number of people would have left. But equally I'd say quite a number of people would have been delighted. BA would have brought security – that's brilliant, we're working for ‘the world's favourite airline'. At the time [we thought] the company had only just got into profitability, and people would have been happy to run for safety.

But it was not to be, and BA abandoned the negotiations, turning its attentions to its own internal problems. Tony Ryan's dream of at last seeing a return on his investment would have to wait for another day.

British Airways' interest in buying Ryanair had whetted Tony Ryan's appetite for a sale. He knew that the airline he had founded was now a remarkably valuable property, and he also knew that if it were to expand even further it would have to broaden its shareholder base. Ryanair would need more planes and more people if it were to take its successful business model out of Ireland's skies and into Europe, and that would require deep pockets. The search for a partner or, failing that, the pursuit of a stock market flotation that could release cash for the family, was on in earnest.

In April 1996, shortly after the talks with BA had broken down, Ryan received a call from Paddy Blaney, a former vice president at GPA. Blaney had met David Bonderman, an American corporate lawyer and investor with a track record of successful investments in the US airline industry. Ryan had met Bonderman years earlier during the negotiations to salvage the US airline America West, which had leased planes from GPA. He knew Bonderman was a serious player.

Bonderman was not a typical American businessman. A former civil rights lawyer, lover of rock music, eclectic dresser and canny investor, he was far more suited to O'Leary's informal but obsessive style than to the grey corporate world. Bonderman's personal interests were as varied as those of Texas Pacific Group, his investment vehicle, which looked for value investments in companies as diverse as Del Monte foods, Beringer wine estates, Ducati the Italian motorcycle manufacturer, America West and Continental Airlines, and retailer J. Crew.

Blaney told Ryan that Bonderman was in Europe looking for investment opportunities, and that he was toying with the idea of investing in Virgin Express, Richard Branson's new European low-cost carrier. Blaney had mentioned Ryanair to Bonderman,
and he had shown interest. Perhaps, he suggested, Ryan could do worse than set up a meeting.