Michael O'Leary (37 page)

Ryanair pledged to give GB£1,000 to a children's charity for every week Dowling stayed in the house, and painted a
Big Brother
logo and a good luck message on one of its aircraft. ‘Everyone here is delighted that Brian made it into the house,' said O'Leary. ‘He's been two years in the Ryanair madhouse, which is perfect training. We will be holding his job for him and hope that he will be returning to us – unless, of course, he becomes an international superstar through this.'

Dowling, an early favourite and the only gay contestant, duly won. ‘I don't imagine he will want to come back if he is making a fortune,' said O'Leary. ‘If he does, then we would be glad to have him, and perhaps we would use him in promotion. But if he is looking for appearance money he can feck off.'

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The promise of the third-quarter results for 1999, released in February, was confirmed by the full-year results O'Leary announced in June. Pre-tax profits had grown by 19 per cent to €90.09 million. Passenger numbers were up by 13 per cent to 5.6 million for the year, turnover was up 25 per cent to €370.1 million and Ryanair now had forty-five routes serving eleven countries. Investors, who had driven the shares from €3.85 the previous November to €8.22 by the close of business on the day of the results, had been rewarded for their faith.
Ryanair.com
was a success, generating 50,000 seat bookings a week and rising.

‘We intend to make
Ryanair.com
the largest air travel website in Europe,' O'Leary said. He was also able to put flesh on his earlier promises that the website could become a profit centre in its own right by formally announcing that a deal had been done with Hotel Systems International on the first website tie-in. The deal would allow Ryanair's customers access to 13,500 hotels worldwide from 28 June, and Ryanair would earn money on every booking made.

Media commentators and stock market analysts were impressed. ‘The Ryanair formula of low fares and no frills continues to carry all before it, and there are few clouds on the immediate horizon,' said the
Financial Times.
‘The oil price risk is fully hedged, airport charges are under control, the cost of aircraft acquisition is locked in and the older parts of the fleet are almost fully depreciated.'

At the airline's AGM later that year O'Leary announced that Ryanair was exercising options to buy three more Boeing 737–800s at a cost of €136 million. The airline had already taken delivery of eight 737–800s in 2000. Profits, too, continued to rise and analysts were forecasting that the result for 2000 would exceed €120 million on a turnover of more than €480 million.

In O'Leary's seven years as chief executive the company had been transformed beyond recognition. The chaotic losses of the early years had been turned into modest profits by the time O'Leary stepped into the main job, but progress since 1994 had been exponential and the effect on European air travel had been revolutionary. As the
Wall Street Journal
wrote that summer, ‘Ryanair's
rise from Irish puddle-jumper to Continental contender is more than one airline's growth story. The Gaelic upstart and its followers, such as London-based easyJet, are fundamentally shifting the economics of flying around Europe.'

The shifting structure of the European aviation industry, prompted by the emergence of the low-cost carriers and intensifying competition on the lucrative intercontinental routes, was forcing the flag carriers to think the previously unthinkable. Mergers were now on the agenda and in the summer of 2000 the possibility of British Airways joining forces with KLM, the Dutch carrier, was floated.

O'Leary professed to be unconcerned about the creation of a European aviation giant. ‘I can't for the life of me think why they [BA] would take it over,' O'Leary said in mid-June. ‘KLM is a basket case. BA is a basket case too. You put the two together and you get an even bigger basket case.' He was, however, conscious that a low-fare airline backed by the two giants could pose a commercial threat. Each of the two potential partners already had its own low-cost airline, BA's Go and KLM's Buzz. ‘With BA and KLM's deep pockets to tap, these low-fares units could sell tickets at a loss in order to drive carriers like us, with no rich parent to call on, from certain air routes,' he said. ‘While we are keen to take on Goliath, we want a fair fight.'

With or without a BA–KLM merger, competition was already intensifying in the low-cost market. EasyJet had grown impressively from its humble beginnings in March 1995 when it had started operations with two leased Boeing 737s. Two years later the airline had ordered twelve new 737s, followed by an order for fifteen more in July 1998 and a further seventeen in March 2000. EasyJet had also expanded through acquisition, buying 40 per cent of Swiss airline TEA Basel AG in 1998 and rebranding it easyJet Switzerland. In June 1999 easyJet strengthened its Swiss position by increasing its stake to 49 per cent, and acquiring an option to buy out the remaining 51 per cent. Under the deal, easyJet Switzerland also moved its operations to Geneva, which became easyJet's first continental European base.

The airline's success meant that it too could plan for a stock market flotation. Stelios announced his flotation plans that summer, telling the market that the carrier was on course to make profits before tax of GB£20 million that year. It was an impressive number for a five-year-old airline, but still way behind the GB£ioo million Ryanair would make in the same year. Yet easyJet's success was not a hindrance to Ryanair because it demonstrated that low-cost aviation was not a one-company phenomenon. Meanwhile, the well-funded loss makers, like BA's Go, helped highlight Ryanair's key differences. It was, in stark contrast to most of its rivals, a low-cost airline which delivered profits for its shareholders.

Go, launched in 1998, had been a marketing and promotional triumph, but it lacked the rigour and ruthlessness that marked out Ryanair. By the autumn of 2000 Go was flying to twenty-one European destinations, employed 650 staff, had a turnover of GB£150 million, and was speculatively valued at about GB£200 million, a sizeable return on the £25 million BA had invested just two years previously. But the airline had yet to turn a profit.

The BA group, under chief executive Rod Eddington, was in cost-cutting mode by the summer of 2000, with BA chairman Bob Ayling signalling compulsory redundancies across the group. Barbara Cassani, Go's chief executive, was not impressed and began to speculate publicly about the benefits of BA selling off its low-cost wing. Throughout the summer speculation about a sale continued to mount, with Cassani expressing interest in a management buyout and easyJet reportedly considering a takeover bid.

While Go's future was in the balance, Richard Branson's Virgin Express was haemorrhaging cash. In the first quarter of 2000 Virgin Express racked up losses of GB£8 million – more money than the airline had lost in the whole of 1999 – and was now culling routes in a desperate attempt to stem its losses.

Ryanair's profits demonstrated that the airline could thrive in a competitive market place. Mergers, however, could change the dynamics and O'Leary was not prepared to be rolled over by the giants. Ryanair, he said, would go to the European Commission
and ask that ‘any merging airline' surrender slots at London's Stansted and any other airports where both of the merging carriers were present. ‘If the European Commission does not act, we may be pushed out of Stansted and other airports,' he said. O'Leary also asked the EU to insist that Buzz and Go be sold if the BA–KLM merger went ahead. Before long, however, the merger talks collapsed.

In the autumn of 2000 O'Leary chose to reignite the Dublin airport row with his usual flair for controversy. In an interview with the
Wall Street Journal
O'Leary said that the best way to settle his differences with Aer Rianta was ‘with Semtex' – ‘preferably during a board meeting'.

Aer Rianta spokesman Flan Clune said he ‘wouldn't stoop so low as to respond to that remark'. Clune's colleagues, however, were happy to stoop. O'Leary's comments were ‘malevolent and shocking', said Rita Bergin, an Aer Rianta director. ‘[O'Leary proposes] to resolve business differences in a manner which is far too fresh in the minds of people on the island of Ireland,' she admonished, referring to the terrorist campaigns that had blighted the country for the previous thirty years. ‘Here we have an individual worth well in excess of £100 million behaving in a shockingly irresponsible manner.'

O'Leary was unmoved and refused to apologize. A week later at Ryanair's AGM he renewed his attacks on Aer Rianta and Dublin airport. Conditions at the airport were ‘shambolic', he said. ‘They've spent £50 million on a five-storey extension which nobody wants to use,' he said, adding that the new baggage hall was ‘something designed by Russian architects', while ‘Pier C was designed by Aer Rianta to win an architectural competition rather than serve the needs of airlines.'

Could Ryanair accomplish more with a bit of diplomacy, wondered the
Wall Street Journal.
‘Nahhh,' said O'Leary. ‘You want to take on monopolies, you've got to be ready to fight.' The fights, he told the paper with a laugh, ‘are good for the soul'.

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In November 2000 Ryanair's staffpolicies came in for sharp media coverage when it emerged that Ryanair's pilots were considering going on strike. Until then, Ryanair's pilots had negotiated directly with O'Leary, and with reasonable success. ‘We used to have what were called “town hall meetings”,' recalls one pilot.

O'Leary would come and he would negotiate with pilots, and there was an ERC [employee relations committee] who sat down with him. The ERC wasn't elected as such by the pilots, but they were pilots and they used to talk with O'Leary. They never did a very good job, and we got these pay agreements, two-page things, but we had a bit of power. If O'Leary turned around and said, ‘No we don't want to do this any more,' then we turned around and said, ‘Screw you.' In the early years, because Dublin was the main hub, we could do that.

In 2000 the Ryanair pilots were due to negotiate another wage agreement and O'Leary was not in a generous mood. ‘He did one of these sweeps of the pen, changing the amount of hours we could work in a week,' recalls the pilot. The pilots were not impressed, and in mid-September it was reported they were considering a go-slow. The pilots had also beefed up their negotiating power by bringing in the pilots' union IALPA and its larger affiliate IMPACT, the largest public-sector union in Ireland, to help defeat the changes.

They had hoped that with the experience and organization of IALPA they would be better equipped to fight their corner. But they were quickly disappointed. ‘IALPA just didn't deal with it very well,' recalls another pilot. ‘There was a few meetings and then, “Right, we'll go out on strike.”' A strike was first mooted in late September, but IMPACT then announced that it was being deferred because Ryanair had reached an agreement with its pilots on working hours.

For Ryanair, the simple fact that IMPACT, with SIPTU the dominant union at Aer Lingus, was saying anything at all about the airline's internal industrial relations was an unwelcome development. ‘As always these matters were discussed and clarified
directly between Ryanair and our pilots and this will continue to be the case. Rumours of disruption within Ryanair which emanate from an Aer Lingus trade union should be seen for what they are,' Ryanair said in a statement. But despite the airline's denials pilot unrest continued, and in early November the pilots voted by 77 to 1 to reject the company's pay deal and take industrial action.

O'Leary professed bafflement at the development. It was, he said, ‘quite extraordinary that Ryanair's pilots would fail to accept a five-year pay package which included all captains rising to £100,000 per annum'. But reject it they did, and strike action was set for 23 November. Faced with an imminent and potentially ruinous dispute O'Leary switched to diplomatic mode and successfully convinced the pilots to call off their strike on the promise of fresh negotiation.

As a gesture of goodwill, the pilots pledged to donate their flight allowances from 23 November to the North Dublin Hospice. O'Leary had taken a public relations hammering during the baggage handlers' dispute two years previously, and was forced to admit to RTE radio in 1999 that ‘if you look back you'd have to accept that it was a PR disaster'. Keen to avoid a repeat of that error and ever keen for a publicity coup, O'Leary said that Ryanair would match the amount donated. He then went on a promotional offensive, determined to make what use he could of the press coverage of the dispute, and offered free flights on all available seats between Ireland and the UK on 24 November, with passengers paying only taxes and charges.

His tactics worked. Direct negotiations with the pilots produced marginal improvements in their pay and conditions and the dispute was settled. The deal included a €100,000 share option package for all pilots and a 15 per cent increase in basic pay over its five-year term, which would see pilots' annual pay increase to more than €127,000 per year. The pilots signed up, and the unions were eased back out of the company. IMPACT's Michael Landers said pilots would be ‘reasonably happy', and conceded there were ‘significant improvements on roster patterns and working hours'.

For the pilots it had been a bruising battle, and not all of them were satisfied. ‘A really bad pay agreement and a really bad working agreement was signed,' recalls one pilot. For Ryanair, however, the battle had proved something of a coup. The airline had attracted some decent publicity from its charitable donation, the original terms of its pilots' package had been altered only minimally and, most importantly, Ryanair had once again managed to steer its way out of industrial strife without having to sit down with the trade unions.