Michael O'Leary (40 page)

The seriousness of the situation was evident from the decision to call off the annual St Patrick's Day festivities in Dublin, while Joe Walsh, the minister for agriculture, banned hunting and fishing and shut down national parks. Dublin Zoo shut on 1 March, and then Walsh called on racing fans not to travel to England for the
Cheltenham racing festival. In Britain measures were less draconian, but the nightly television news carried gruesome images of herds of cattle being destroyed and their carcasses burnt in massive pyres.

Sporting events, too, started to fall victim to the foot and mouth outbreak. Ireland's rugby internationals against Scotland, Wales and England were postponed so that thousands of fans would not travel. The match against Wales, scheduled to take place in Cardiff, was called off just a week before the game was due to take place. In a show of patriotism Aer Lingus immediately offered to refund the tickets of travelling fans or at least to change the dates so that they could make the rescheduled game. Ryanair, however, refused to make any concessions. ‘It may turn out to be something of a PR disaster for us,' said Ryanair spokesman Enda O'Toole. ‘But these are all scheduled services we have to run anyway. We had a flight into Cardiff on Friday morning with 130 booked and only sixteen travelled. We have to protect ourselves against that.'

The stock market feared that Ryanair, which relied on the Ireland–UK routes to generate more than 40 per cent of its revenues, would suffer. O'Leary disagreed. ‘We will continue to deliver shareholder value despite foot and mouth – it isn't impacting Ryanair,' he told an investor conference. He said that 6 per cent of passengers weren't turning up for Ireland to UK flights, but because the airline refused to give refunds, the no-shows had no impact on revenues. O'Leary was more concerned about the effect of foot and mouth on his own herd of Aberdeen Angus cattle. A prize bull he had bought in Canada was stranded on the other side of the Atlantic until travel restrictions were lifted, and an outbreak of the disease in Ireland would have forced him to kill his entire herd.

There was, though, a moment of light relief at the height of the crisis. On 21 March, O'Leary's fortieth birthday, his fellow directors organized a surprise. In the middle of a Ryanair board meeting the door was thrown open and in marched Mary O'Rourke, O'Leary's political nemesis. His shock quickly turned to laughter when he realized it was actually Minister Rourky from RTE's
satirical programme
Bull Island,
who bears more than a passing resemblance to O'Rourke despite being played by a male actor.

O'Leary spends a lot of time talking to the media, but interviews rarely offer a new insight into the man or his company, and he recycles the same stories and the same explanations, often word for word. His objective remains the same: to promote the brand and the mantra of low fares, preferably via free publicity. Occasionally, however, he will float a new idea and see what happens. In May 2001 he decided to use an interview with Fiona McHugh of the
Sunday Times
to test some radical thoughts.

In 2001 Ryanair passengers were choosing to spend an average of £4 each on ancillary services. O'Leary noted that an extra pound per passenger on those services would raise revenues by more than £9 million. ‘If we can increase the average spend per passenger by enough, then we could afford to cut fares to zero,' he said. ‘Ultimately, we are trying to get to a situation where we can give away tickets, not on Monday mornings or peak times, but on midweek seats. All the other airlines are asking how they can get up fares, we are asking how we can get rid of them.'

To get this extra pound per passenger, O'Leary proposed to introduce a host of paid inflight services, ranging from satellite television to Internet services to gambling. ‘I'm working on a [cinema] multiplex model,' said O'Leary. ‘They make most of their money from the sale of popcorn, drinks and sweets, not cinema tickets.'

O'Leary was thinking aloud, floating the concept of free flights and guaranteeing headlines for his airline. It was not wishful thinking. He believed that if the package on offer to each passenger was compelling enough, he could turn a profit simply by having people on his planes, even if they paid nothing to get there. By no means would all seats be free and Ryanair would still squeeze every last cent out of last-minute travellers, but as the airline expanded and opened new routes, the prospect of filling planes on a wet Wednesday afternoon from Stansted to Malmö or Charleroi appeared a daunting task. Free, or virtually free, flights would draw
the numbers; the challenge was to make so much money from passengers while they were a captive market that the giveaway became a profit centre.

Encouraged by the deal with Charleroi, by May 2001 O'Leary was talking to thirty airports that wanted a Ryanair service, fourteen of them in Italy. He was happy to let them compete for his attention and was candid about his intentions. ‘We don't view any airport as a long-term arrangement per se; the biggest incentive for us to use an airport is a package of low charges. All of our existing arrangements are interchangeable so if, for example, Belfast was to come up with a better package [than Derry] then we would certainly consider it.'

Ryanair wanted low charges, quick turnaround times and money for its promotions and new routes, and it was also saying it would turn its back on any airport that tried to ratchet up charges once it had got their business. To make sure his new suitors were aware of his single-mindedness, O'Leary was able to provide an example. In mid-June he announced that he was terminating the service between Rimini and Stansted, a route launched in 1998. Ryanair claimed that Rimini's new management and board had tried to break the terms of its deal with Ryanair. It was commercial director Michael Cawley, and not O'Leary, who presented Ryanair's case to the public.

Here we have the spectre of a misguided airport management and board seeking to break its contract with Ryanair. Ryanair has built up Rimini airport from the provincial backwater that it was prior to 1998 and has transformed tourism in Emilia-Romagna with tens of thousands of new visitors to the region from the UK, not just during the peak summer periods but throughout the whole year.

The airport management and board now feel that they can renege on the terms of the agreement which Ryanair signed originally in 1998 with the airport and expect Ryanair to continue to fly there under some new financial arrangements. What they do not understand is that with ten existing airports and in excess of ten further airports seeking our
business Ryanair has more demands for its flights than it can supply for the foreseeable future.

The Rimini flights were immediately moved to Ancona airport, an hour's drive away.

Rimini was not the first Italian airport to feel the ire of Ryanair. In November 2000 Ryanair had terminated its flights between Stansted and the southern Italian airport of Lamezia, just four months after the airline had begun flying there. Ryanair claimed it was ‘impossible to maintain a satisfactory arrangement with the board of Lamezia', complaining that the airport had sought to renege on the terms of Ryanair's deal just months after it was signed.

The disagreements with Rimini and Lamezia were no worse than the problems Ryanair had had over the years with Stansted and Manchester, and they were certainly no worse than the various wranglings with Dublin airport. But while Stansted, Manchester and Dublin were vital parts of the Ryanair network, Rimini and Lamezia were expendable. The number of people living within an airport's catchment area mattered but not hugely. London was the draw, and London was the market, not Ancona, Rimini or Lamezia. And the message to hopeful airports was emphatically clear: stay cheap, stay amenable or Ryanair will leave.

On 25 June 2001 Ryanair delivered yet another set of solid full-year results: pre-tax profits rose by more than 37 per cent, to €123.4 million, and turnover was up by 32 per cent to almost €487 million. It had been an eventful year for Ryanair, O'Leary said when announcing the figures. Ten new aircraft were purchased; ten new European routes were launched; and a five-year agreement was signed with pilots, cabin crew and ground operations staff. O'Leary said there was ‘no cap on us growing at 25 per cent a year for the foreseeable future'. He stressed, though, that the airline's growth was being judiciously managed.

Trading conditions over the past twelve months have been difficult, characterized by significantly higher oil prices, fears of an economic
downturn, significant retrenchment in the technology sector and the outbreak of foot and mouth disease in the UK in the last quarter. Most of our European competitors have issued profit warnings or reported losses. Despite these negative market conditions, Ryanair has continued to deliver disciplined growth in fleet, new routes, traffic, revenues and profitability. During the last six winter months of the year, when all of the other low-fare airlines in Europe have been recording losses, Ryanair's traffic increased by 35 per cent and profitability by 37 per cent. What makes Ryanair different from other low-fare airlines is that although our average air fares are some 30 per cent lower, our profits rise as our traffic grows, and we continue to be profitable in all four quarters.

As usual, O'Leary was not content with just talking up his airline's performance.

I could not let these results pass without highlighting the lost opportunities to the Irish economy and tourism due to the disastrous effects of the present Irish government's policy of increasing costs at Dublin airport, and protecting this high-cost airport monopoly which has resulted in higher fares and the ending of Dublin airport's fifteen-year record of annual double-digit traffic growth. This policy is catastrophic for a small island nation like Ireland, whose tourism industry is central to the growth of our economy…It is time for the Irish government to change this disastrous policy before any further damage is inflicted upon Irish tourism.

It was a predictable rant, and it fell on deaf ears. The
Irish Times
and
Irish Independent
failed to mention O'Leary's tirade against government policy in their coverage of the results the next morning. O'Leary's passion was becoming a private one.

In November 1999 the appointment of Bill Prasifka to the new position of independent aviation regulator for Ireland had promised to change the dynamics of Ryanair's tumultuous relationship with Aer Rianta. Ryanair had supported the concept of an independent
regulator and Prasifka seemed like a natural ally for the company. A newcomer to aviation – something O'Leary always valued – Prasifka had served as director of Ireland's Competition Authority, and his appointment indicated that competition issues would now become central to Irish aviation policy. Prasifka's brief would include the thorny matter of airport charges. From now on if Dublin airport or Shannon or Cork wanted to raise their charges they had to get approval from the regulator, and he would lay down maximum charges.

Prasifka's first year and a half was spent fact-gathering and familiarizing himself with the industry, and his office was only formally established in February 2001.

Despite the regulator's power over Aer Rianta, the airport authority did little to endear itself to Prasifka, who was forced to seek a court order in March 2001 to force the company to release information to him. Aer Rianta caved in and gave the files to the regulator just before the case reached court, and at the end of June Prasifka gave his much-awaited draft determination on airport charges for 2000–05. He gave all three airports the right to increase their charges, but what he allowed for did not come close to the doubling Aer Rianta had wanted. Under the draft Cork was allowed to raise prices by a maximum of 94 per cent, to €9.08 per passenger, Shannon by 37 per cent, to €7.68 per passenger, and Dublin by just 9 per cent, to €6.30.

The rates were maximums only, and Prasifka said the airports were free to negotiate lower rates with individual airlines if they wanted to. He also set Dublin airport a target of efficiency gains of 15 per cent over the five years after finding that the airport was 30 per cent less efficient than peer airports of a similar size, and chopped €21 million from its proposed capital expenditure budget.

On that point, O'Leary applauded Prasifka's efforts but his pleasure did not extend to the new charges. ‘The regulator's draft report fails miserably to facilitate the development and operation of cost-effective airports which meet the requirements of users, and unless his final report meets this statutory obligation, then we will be calling on him to resign his position and allow someone
who is willing to challenge the Aer Rianta monopoly – and promote the needs of airport users – to take over.'

At a meeting called to discuss the report, O'Leary went even further with his criticisms of Dublin airport. ‘Dublin is ridiculously expensive,' he ranted. ‘Dissatisfaction with Aer Rianta by the users is widespread.' O'Leary was particularly outraged by Aer Rianta's proposed extension at Dublin airport, which involved spending more than €200 million on a new pier to accommodate flights to Heathrow and some continental European airports. ‘What you want is low-cost facilities, not gold-plated mausoleums. Where in the legislation does it say Aer Rianta can subsidize the fat cats waddling down to Pier C to board their British Midland morning business flight to Heathrow?' he asked. O'Leary wanted cheap facilities that could handle the needs of a low-cost airline. He did not want elaborate piers for aircraft; passengers could walk to their plane and board by the stairs. He wanted what his critics described as a ‘shed' – a building where passengers could assemble for check-in and boarding, but nothing more.

Much to O'Leary's disappointment, the arrival of a regulator had failed to resolve his increasingly bitter dispute with Aer Rianta and its chairman Noel Hanlon. With Mary O'Rourke also a confirmed enemy, O'Leary's ambitions for Dublin were stymied. He was stuck with an airport management and a transport minister with whom he could not do business, and now he had a regulator who thought it was acceptable for airports to increase charges rather than reduce costs. Prasifka may have trimmed Aer Rianta's spending but he had not changed the airport's direction: instead of low-cost facilities, it would press ahead with elaborate and expensive expansion that delivered only marginal increases in capacity.