Michael O'Leary (39 page)

O'Leary, as his various battles with rivals and the political establishment confirmed, liked to project himself as the underdog scrapping for a fair chance to take on the big guys. That sense of smallness, of being an entrepreneurial company in a world of state-owned or recently privatized behemoths, was critical to the company culture fostered by O'Leary, but as Ryanair grew quarter by quarter, racking up higher profits and passenger numbers, so the challenge to maintain that culture intensified.

In an interview with the
Wall Street Journal,
his second in less than a year, O'Leary explained how he coped with the changing shape of Ryanair.

We try to keep a lot of the bull out of the organization. We keep the management structure extremely flat. As we grow, we're only adding aircraft, pilots, inflight people and engineers. We don't need these layers of bureaucracy or layers of management.

So hopefully we'll avoid the bull – by keeping our feet on the ground and not losing the run of ourselves. The downside of success that we really worry about is the danger that the more successful you are, the more likely you are to lose sight of the things that made you successful…Someone wrote a book in the States twenty years ago and said the three things you can always use to tell the time when a company turns from being a success to a failure are when they build a headquarters – the glass palace headquarters office – helicopter outside of it, and the chief executive writes a book. So I think as long as we stay away from all those things, we're fine.

O'Leary was true to his word. Despite the airline's success, Ryanair inhabited a drab headquarters building at Dublin airport, using the same furniture acquired by Eugene O'Neill back in 1987, with the exception of the grandiose chief executive's desk, which had been ditched. There was no corporate helicopter and no corporate jet, and no prospect of O'Leary penning a guide to
corporate success. ‘Business books,' he says, ‘are bullshit and are usually written by wankers.'

His management structure had helped ensure that the same senior managers who had helped float the airline two years earlier were still on board, while growth came through adding bases and adding routes. Alongside the release of third-quarter results – which revealed a 39 per cent increase in passengers and a 23 per cent increase in pre-tax profits – O'Leary announced yet another share sale, this time to raise £113 million, which he said would be used to part-fund the purchase of thirteen more Boeings and launch six more European routes. He was also able to announce
Ryanair.com
's first full-year figures, and said that the website had sold 3.3 million seats online.

Growth also required a strengthened board of directors. O'Leary was the only executive to sit on the board, not out of hubris but largely because directors were required to reveal their levels of pay to shareholders. O'Leary had a relatively modest pay package, content in the knowledge that adding value to his shareholding was the real route to wealth. His management colleagues, however, required substantial remuneration. By staying off the board, the scale of those packages and the rate of their pay increases were shielded from public scrutiny.

Just before the results Ryanair recruited to its board Kyran McLaughlin, a stockbroker with Davy, Ireland's most successful broking firm; Michael Horgan, a former Aer Lingus executive; and Paolo Pietrogrande, a senior Italian businessman. McLaughlin, hugely respected in the Dublin financial market, was the most controversial appointment. The previous year he had been required to resign as joint managing director of Davy after it emerged he had invested almost €320,000 in a Liechtenstein-based trust which was being investigated by the Irish Revenue Commissioners. Ryanair, though, ‘couldn't care less' about his Davy resignation, according to their then spokeswoman. ‘The issues surrounding his resignation have no bearing whatsoever on the matter,' she added. ‘To secure someone of Kyran McLaughlin's skill and expertise is a tremendous coup for Ryanair.'

The announcement of the sale knocked the Ryanair share price back a few pence to £7.45, a fall blamed on O'Leary's decision to sell another chunk of his shares. O'Leary told the market that his sale should not be seen as an attempt ‘to get the hell out of here quick'.

‘I'm in the tragic position of selling 10 per cent of my holding a year and still having 90 per cent of my wealth tied up in this airline,' he said, referring to the steady rise in the airline's share price each year. ‘I'm selling shares for good, boring portfolio-management reasons.' Later, O'Leary would say that his frequent share sales were in part prompted by the experiences of the dot-com paper millionaires – the entrepreneurs who had been worth millions because investors had chased up the value of their companies, only to wake up penniless one morning because the market had collapsed. ‘I'm not going to be like those dot-com gobshites,' he said.

Banking his cash was an essential part of the O'Leary approach. He had enough money tied up in Ryanair, and he instinctively made sure that no matter what happened to the company, he would still be a wealthy man. Making more, much more, from his Ryanair holdings remained his first priority, but he would continue to cash in his shares if the stock continued to rise.

Farmers like cash, and O'Leary was no different from his forebears. February's sale meant the chief executive had taken almost €115 million out of the company in the previous three years, and had spent just a fraction of it on the fripperies of life. The rest was his nest egg, his rainy-day money, his marker.

‘Ryanair shareholders can't say they haven't been warned,' the
Irish Independent
said. ‘When a chief executive sells €46m of stock within a fortnight, it's not a vote of confidence. No compelling technical explanation was offered. The sales go beyond all normal requirements of cash need or diversification. Michael O'Leary is not retiring. Even a Dublin house is not that expensive…Believers put their money where their mouth is.' O'Leary was unruffled: he remained a large shareholder, he remained committed to driving the company forward, and he had the unequivocal
support of his board and his shareholders. Newspapers could write what they like, but O'Leary pointed only to results.

With the money for the new planes banked, O'Leary was ready to take his next step forward. On the day of the results he had said that Ryanair was close to finalizing details of its first continental European base. He had narrowed down the search to three airports: Stockholm's Skavsta, Frankfurt's Hahn and Brussels' Charleroi. On 28 February 2001 Charleroi, owned by the regional Walloon government, was unveiled as the victor. For the airport the prize was considerable – Ryanair's first-year target was seven routes, up to thirty flights a day and one million passengers – and the victory was the culmination of months of tough negotiation.

‘At the end of the year 2000 we were put on a short list of several European airports located near big cities,' recalls Pierre Fenemont, Charleroi's PR manager. ‘The negotiations started in November 2000 and ended at the end of January 2001. It was a long and strong and hard negotiation but it was a friendly negotiation.'

The key issues were financial: how much would Charleroi charge, how much would it contribute to Ryanair's marketing costs and what would it pay towards the cost of establishing the base? O'Leary knew that his business had already transformed an airport that had been atrophying. Charleroi was about to become a significant and profitable European airport, and the surrounding area would benefit from Ryanair's decision. Logically, therefore, the owners of the airport should pay Ryanair for the privilege of its business.

The deal, which would soon be referred to the European Commission by jealous rivals, was the template for Ryanair's future European expansion. The Walloon regional government agreed that landing charges at Charleroi would be fixed at €1 per passenger, about half the standard rate. It also agreed to pay €4 per passenger towards Ryanair's marketing and promotional costs for fifteen years for up to twenty-six flights a day; a further €160,000 for up to twelve new routes – a flat fee paid regardless of the cost of establishing the routes; €768,000 towards pilot training; and
€250,000 towards hotel costs for Ryanair staff. On top of that, Charleroi would charge Ryanair just €1 per passenger for its ground handling services, compared to the normal rates of between €8 and €13 per passenger.

It was a remarkably sweet deal for O'Leary, and was concluded as a bilateral private contract between the airline and the airport. The details were not published and the incentives not made available to other airlines. O'Leary has always maintained that any other airline could have negotiated a similar deal with Charleroi, and that the discounts on ground handling and landing charges were a red herring because the published tariffs were strictly notional. Charleroi's published rates applied to an airport that had no business; the rates he negotiated applied to an airport that would handle a million passengers a year, all delivered by Ryanair.

Charleroi and the Walloon government believed the incentives were a worthwhile investment; their money and flexibility on charges would deliver an airline, a base and passengers. The airport's growth would stimulate the local economy, create employment and increase tourism. The airport's business plan, which was used to justify the deal, expected revenues to surge, not from Ryanair but from other carriers drawn to the airport.

But the plan was optimistic and economical with the truth. It ignored the potential risks attached to the deal, understated the scale of its incentives for new routes and was overly bullish about the earnings that might accrue from other, hypothetical, airlines. In short, the Charleroi business plan was a political document. It was designed to put flesh on a political decision to back Ryanair and its development of the airport – a decision that would require millions in taxpayers' money but which the Walloon government decided was money well spent if it delivered a bustling airport to a region that had been depressed ever since the demise of its coal mines.

Three years later the European Commission would have to decide how much of the incentives would have been paid if Charleroi had been thinking like a private company rather than an instrument of government. For the moment Ryanair had a deal
that boosted its profits and reduced its costs, a deal not made available to any other airline.

‘A lot of work and energy went into the Charleroi base,' says Tim Jeans.

The great thing was that Ryanair would parachute people in from various departments – they would take a pilot and someone who works in the accounts department and say, ‘Right, you're going out to Charleroi.' I effectively moved my sales team out of Stansted and across to Brussels and we lodged in hotels in Brussels for several weeks and prepared the ground in terms of PR, holding press conferences, alerting the media, launching competitions and just getting the name out there.

O'Leary's tactics for promoting the Ryanair brand were tried and tested. Sabena, Belgium's struggling flag carrier, would be his whipping boy; as long as it rose to his bait, he would be able to promote Ryanair cheaply and dramatically. Christophe Mueller, Sabena's president and chief executive officer, should have been prepared for the onslaught, but he proved easy prey for O'Leary.

Ryanair's opening campaign was low key by its standards: newspaper advertisements carried the relatively uncontroversial message, ‘Welcome Ryanair and its really low prices. Good-bye Sabena and its really expensive flights.' The second round of advertisements was more typically confrontational. They featured a picture of the famous Brussels statue of a small boy urinating and said, ‘Pissed off with Sabena's high fares? Low fares have arrived in Belgium.'

Mueller was furious and sent a fax to O'Leary claiming that the advertisements were defamatory. The game had begun, even if Mueller was not yet aware what he had started. O'Leary faxed back his rebuttal. The advertisements, he said, were ‘valid criticisms of Sabena's outrageously high airfares'. If Mueller had expected the faxes to remain a private matter between two chief executives, he had failed to do his homework on O'Leary. With his fish hooked, O'Leary could start to play. The faxes were speedily translated and sent out to the Belgian press.

Sabena would not let up, however, and Mueller eventually took his complaint to court, where he won a truly Pyrrhic victory. In October, eight months after the Charleroi base had been announced and eight months after the advertisements had first run, Ryanair was ordered to discontinue the campaign or face a fine, and was also instructed to apologize to Sabena. O'Leary complied with the court order, but gave it his own twist. ‘We're sooooo sorry Sabena!' his advertisement said, and listed seven one-way fare comparisons with Sabena. ‘Ryanair is really, really sorry and promises to include this information in our future advertising.'

Once again the easily pricked vanity of a national airline had guaranteed Ryanair months of controversial coverage. By the end of the court case Ryanair had become a well-known brand in a country where it now had a base, and its message of low fares was clearly understood.

The airline industry is used to endemic crises: war, terrorism and the vagaries of the oil market all create painful losses from time to time. In February 2001 a different crisis took hold, with the confirmation that in Britain there had been an outbreak of foot and mouth disease.

Highly contagious, foot and mouth afflicts cattle, sheep, pigs, goats, deer and prompts a panic reaction from governments. Once confirmed in Britain, Ireland went on red alert to prevent the spread of the disease across the Irish Sea. The Irish government banned the importation of live animals and animal products. Disinfectant mats were placed at all points of entry and across farm gates, schools, offices and shops, and the movement of animals was restricted. People were asked to cut down on unnecessary travel and public events cancelled.