Michael O'Leary (24 page)

On 1 May 1997 Ryanair launched into Europe, offering cheap fares to Paris and Brussels from Dublin. Only when passengers landed did they discover they were in fact more than an hour's drive by coach from the city centres, but few grumbled. The price was right, the airports were uncluttered, and the journey time into town was little worse than they had come to expect from the main airports.

The first phase of European expansion was under way.

Weeks after the successful launch of the routes to Paris and Brussels, Eugene O'Neill re-emerged. Ryanair's second managing director, he had been fired by Ryan in 1988, shortly after O'Leary had arrived to sort out the troubled airline's finances. He had launched a number of court actions against Ryanair and the Ryan family, claiming he had been unfairly dismissed and had been conspired against. The last of the cases was settled in 1995, with O'Neill receiving a payment of
£
83,000 from Ryanair, on top of an earlier settlement of
£
735,000 for his shareholding in the company.

Now Ryanair looked set to float, O'Neill was back for more money. In mid-May he claimed that when he accepted the 1995 payment he ‘was not of sound mind and was incapable of understanding the provisions, the nature and effect of the said settlement or of properly giving his assent thereto'. O'Neill also wrote to the Securities and Exchange Commission in New York, repeating
his allegations, which included wrongful termination, breach of contract and the oppression of a minor shareholder. Ryanair responded by issuing a statement claiming that O'Neill had a history of proceedings against the company and other parties ‘and these have been long since resolved and settled'. O'Neill would be seen off, but Ryanair was facing another obstacle, which was not going to be quite so easy to get around.

Every company preparing for stock market flotation or an initial public offering (IPO) must produce a prospectus, outlining its key statistics, past performance, any risks to its business and its future objectives. The problem for Ryanair was that its prospectus painted a picture of a company which was very different from the one the media and its own staff had expected.

Ever since its launch Ryanair had played the underdog, the undernourished upstart sticking it to the giants Aer Lingus and British Airways, but the prospectus told a different tale. Ryanair was in rude financial health, and had been for the previous three years.

Annual passenger numbers were up to three million for the year ended 31 March 1997. The average load factor stood at 72 per cent, well above the industry average, and the yield per average seat mile (ASM) was
£
0. 113, compared with ASM operating costs of
£
0. 110, which meant that Ryanair was making money on every passenger. It also had impressive ancillary revenue –
£
7.3 million from inflight sales of drinks and duty-free for the twelve months to March 1997. That year also saw a significant contribution from a new moneyspinner – the airline's deal with the Europcar rental agency brought in more than
£
2 million. The airline was also dedicated to pursuing other revenue streams. ‘Ryanair offers a variety of ancillary, revenue-generating services in conjunction with its core transportation service,' the prospectus noted, ‘including on-board duty-free and beverage sales, charter flights, cargo services, travel reservation services, advertising, travel insurance and car rentals.'

Ryanair now had thirteen aircraft, all of them Boeing 737–200s with an average age of fifteen years, and was scheduled to acquire
six second-hand aircraft of the same type at the end of 1997. The airline's flight network had grown to more than a hundred scheduled short-haul flights, serving eight airports in England, three in Ireland, one in Scotland and one in Wales. But dry descriptions of revenue streams and routes paled beside two eye-popping figures. The first was Ryanair's profitability before tax, which had reached
£
23.6 million in the fifteen months to March 1996 and
£
26.09 million in 1997. And the prospectus also revealed the bonus payments to O'Leary:
£
8.9 million in 1995/96 and
£
9.75 million in 1996/97.

Ryanair's financial advisers were prepared for a backlash once the information in the IPO prospectus became public knowledge; indeed the document itself admitted, ‘A variety of factors, including but not limited to, the Company's recent profitability and disclosure of the level of executive director bonuses, may make it more difficult to maintain its current base salary levels and current employee compensation arrangements.' But the reaction was much more hostile than expected.

As soon as details of O'Leary's remuneration package became public, the Irish and UK media whipped itself into a state of frenzy. On 11 May a headline in the
Sunday Tribune
asked, ‘What does this man do? Walk on water?' The trade unions, which had been shunned by O'Leary and were not represented at the company, were equally unimpressed and keen to make a point. ‘If Mr O'Leary's latest annual bonus of
£
10 million was shared between the 700 staff instead, they would have got about
£
14,000 each,' said Paul O'Sullivan, an official with SIPTU, Ireland's largest trade union, which represented workers at Aer Lingus and Aer Rianta, and which wanted to gain access to Ryanair. ‘Ryanair has pleaded the poor mouth, but the fat cats at the top creamed off the money that could have been used to pay the workforce a decent wage. Bad conditions don't apply to pay alone. Regarding staff, Ryanair operates like a revolving door. There is little or no job security and a climate of fear operates,' he maintained.

The union's opportunism was hardly surprising. ‘SIPTU jumped on it straight away,' says one senior manager.

Their typical line at the time was that these poor underpaid guys have been worked to the bone and are badly paid, and this guy gets an absolutely immoral amount of money out of the company at the same time. It almost made out that they were working the salt mines in Silesia. But at the end of the day Michael was essentially the guy who took a company that was bankrupt and turned it into a profitable entity, and he had a share in that, so it wasn't a salary for him really.

Inside Ryanair the news about O'Leary's pay also sparked outrage, but he seemed oblivious to the resentment when he joined some management colleagues for lunch in the staff canteen a week after the information about his bonuses had been published. ‘A group of us were having lunch and just having a chat about different things,' says one former executive, ‘and Michael says, “Hey, did you see the newspapers there, did you see your man Schumacher, he earns ten fucking million a year.” And he was saying, “It's fucking crazy, ten million dollars. For driving a car around a racetrack. Mad.” And all of us looked at each other. Here was a guy who had just earned seventeen million pounds, which was about thirty million dollars at the time, in three years, and he was saying he couldn't believe what Schumacher earned.'

Privately, O'Leary was bothered by the revelations. ‘It was a big concern for Michael. He was very private about his wealth and he never would have come across as a wealthy guy in 1996,' says one former colleague.

O'Leary did not flash his cash. He had plans for Gigginstown and was prepared to dabble in cattle and horses, but ostentatious displays of wealth were not his style. In business he was no different. O'Leary was happy to earn bonuses, but he despised corporate excess. The company was run as leanly as he could manage, and he was not going to allow his standards to slip when he and his executives, accompanied by their Wall Street bankers, went on the road to sell the company. When he set off on the two-and-a-half-week investors' roadshow in early May O'Leary insisted that he and his team stay in modest hotels and travel on commercial flights and not a private jet.

‘Michael did not just suggest that everyone flew on a commercial flight, it was a requirement,' says one of those involved in the flotation. ‘Companies preparing for a flotation would typically use a private jet. So if there is not a flight from Boston to Milwaukee at 8 p.m. on a Monday you don't have to worry about it, because the jet is waiting. It costs an extra $55,000 to $70,000 but it's worth it because you get to see an extra twenty-five investors.'

O'Leary was having none of it. ‘Everyone stayed in dirt-cheap hotels. Michael said, “We're not staying in the fancy Morgan Stanley Four Seasons,” so they stayed in some pretty grim places. It wasn't as bad as sharing rooms, but it was close. And part of Michael's big focus was that when Ryanair pilots travel and when Ryanair people travel they stay in dirt-cheap hotels and they fly economy class. So, he said, we are flying economy and we are not staying in fancy hotels.'

O'Leary was focused on the company's image. He wanted to portray a lean, hungry company that knew how to cut costs and deliver low fares. There was no room for hubris or self-indulgence. ‘There was very little fun on the roadshow. No mad dancing, no strippers, no heavy drinking. Michael's reputation as a workaholic travelled with him. He was working unbelievably hard,' says a colleague. O'Leary had to live that image so that his executives and his bankers understood the message. And he wanted the Ryan-air staff to know that the management lived as frugally as they were forced to.

O'Leary was also determined to ensure that ordinary Ryanair staff would share in the proceeds of the flotation, and in May the company revealed details of the share options scheme for its 1,000 employees. A total of four million shares would be handed out. ‘The staff grant was not atypical, but in Ireland it would be more typical not to have done it than to have done it,' says a source close to the company. ‘O'Leary was pushing for it, and the board was too; they wanted to make sure the employees were happy.'

But the share allocations did not win favour with all of Ryanair's employees. ‘The senior management, the guys just behind the executive team, were very unhappy,' says one management source.
They had seen what O'Leary had earned from the company in the previous three years, and they wanted a larger slice of the business for themselves.

While the Irish obsessed over O'Leary's money, American investors were unconcerned. ‘It wasn't hard to defend in the US at all,' says one source close to the float. ‘It's like the anecdote where an Irish guy and an American guy walk down the street and they see this guy's huge house up on the hill. The American guy goes, “Some day I'm going to get that house,” and the Irish guy goes, “Some day I'm going to get that fucker.”'

The Americans were also more receptive to O'Leary's disregard for business norms, and did not seem to mind that he did not wear a suit and peppered his conversation with swear words, though it did give Morgan Stanley some cause for concern. Senior executives discussed at length whether it was acceptable for the Ryanair CEO to use the F–word so frequently, but in the end the bankers decided not to coach O'Leary on his language. ‘The decision in the end was that O'Leary runs a very successful business, so we're going to coach him in terms of what works and what doesn't work on the selling of a business,' said a Morgan Stanley executive. ‘But he is very charismatic and extremely dedicated to driving the growth. So we didn't really try to convince him not to be Michael O'Leary.'

‘O'Leary's behaviour was very full on,' remarked one source in the US.

O'Leary didn't wear a suit, which was very unusual at the time. He met with over a hundred institutions and several hundred people. I'm sure there were a couple of people who were put off by it, who were certainly surprised, including investment bankers, salespeople, investors. But people didn't really complain about him. If he had only done five-minute presentations maybe. But after thirty, forty-five minutes, you realized that he was extremely focused, extremely bright, and that the business was very fast-growing. And he happens to swear a lot, but it's part of the culture.

Investors try to focus on business results, not table manners.

They had a lot to focus on. Ryanair's prospectus was crammed with detail, yet for the American investors who were critical to the success or failure of the flotation there was a simple message.

‘In the early 1990s the new management team, including the current Chief Executive and the then executive directors, commenced the restructuring of Ryanair's operations to become a low-fares no-frills airline based on the operating model pioneered by Southwest Airlines in the US.' Ryanair, Morgan Stanley and O'Leary were saying, is the European Southwest: a low-cost airline which will deliver unrivalled and unbroken profit growth for many years to come.

Southwest had developed a strong following in the US investment community. ‘Southwest was doing well as a company, so it was very good as a comparable stock,' said one of Ryanair's financial advisers. ‘A big part of the pitch was what Southwest has done in the US we are going to do in Europe.'

For a company which had barely dipped its toes in the European market and had faced collapse five years earlier, this was, to say the least, an ambitious claim. For some, the Southwest analogy was nothing more than a stunt; cynics said it was a wild claim which sounded good – was easy to justify on the surface but of little substance because Ryanair was such an unproven carrier.

O'Leary disagrees strongly. ‘Ah shit no,' he says, offended at the suggestion. ‘Southwest was a big guiding thing for me. Before I heard about Southwest I had seen two airlines in Ireland, Ryanair and Aer Lingus, both of which were blindingly incompetent. They had complicated check-in, business class this, travel agent that, all the rest of that crap, and were turning planes round in an hour. Then you went to Southwest, banging aircraft out after fifteen minutes. They were phenomenal, passengers loved it.'

The prospectus did not hold back on the risks facing the business. ‘Ryanair is very vulnerable to a change in demand in the Ireland to UK market,' it noted, ‘39.9 per cent of passengers carried in 1997 were Dublin–London (46.2 per cent in 1996).' The size of the airline, which had ‘smaller/fewer aircraft than some potential or actual competitors', was a risk, as was the fact that future
growth depended on the ability to acquire additional aircraft. The prospectus also said that Ryanair's ageing fleet (average age fifteen years) could leave the airline vulnerable if new regulations or standards on aircraft maintenance were introduced. Investors were advised to be cautious about Ryanair's ability to expand – ‘there is no assurance that Ryanair's low-fares, no-frills service will be accepted on new routes' – and even if the model worked, then Ryanair's ability to manage growth became a risk, as did airport access and charges, and competition.