Michael O'Leary (47 page)

Ryanair was unconcerned. ‘The poor old staff were working for a basket case company,' says Charlie Clifton, who had by then resigned as director of Ryanair's ground operations.

It's the classic, ‘Ah, how could you?' Well, if we didn't they were all going to be made redundant. So now some of them had an opportunity to work, to sign on the dotted line and say we're going to work the Ryanair way because Ryanair is successful. And a number of people have and will always find that absolutely too awful a medicine to take. Good luck to them. Nobody's putting a gun to their head.

Ryanair's new plan specified the axing of fifteen of Buzz's twenty-four routes and the reduction of Buzz's fleet from twelve to eight aircraft. Fares on the remaining routes were to be cut by 50 per cent and seat capacity doubled. The plan, however, hinged on the 200 staff agreeing to sign up to Ryanair's offer. In early March Ryanair wrote to the chosen few. ‘If we don't get sufficient acceptances, we would go ahead and close it down, and operate it ourselves by hiring in pilots and cabin crew,' O'Leary said.

By mid-March, the verdict was in and O'Leary could boast that 90 per cent of the Buzz pilots offered new contracts had signed on the dotted line, along with 50 per cent of the invited cabin crew. There was, however, another issue: Ryanair's due-diligence trawl of Buzz's accounts had discovered losses far greater than those expected. O'Leary managed to whittle KLM down to €20.1 million from the previously agreed €23.9 million. He then decided to implement his doomsday plan, and shut Buzz down completely for the duration of April, ahead of a planned relaunch in May.

‘The unions would have played ducks and drakes with us if we were trying desperately to keep it going,' says O'Leary. ‘We said, “Fuck that, we're going to shut it for a month.” The unions realized, “Shit, this is serious.” And shutting it down was the master stroke, because then we weren't dealing with any of the bullshit.'

Despite O'Leary's tactics, Kotser said KLM had no regrets about the choice it made. ‘Ryanair was the best option,' says Kotser.

We were aware of redundancy plans. We also were aware that if we had chosen any of the other options the same thing would have happened and even more people would get made redundant. If you decide to withdraw from a market and you cannot make money, then the options are limited of course. In the end, we only would have been happy if Buzz had turned out profitable. Knowing that was not the case we still think it was the best decision from the options we had.

O'Leary, with his new acquisition on board and with new planes arriving by the month for his ever-expanding Ryanair fleet, had taken on a huge challenge. Buzz accelerated Ryanair's expansion
into Europe, increased its dominance at Stansted and made the Irish airline a fixture in the lives of Britain's growing army of French homeowners, but it was also about to give O'Leary a severe bout of indigestion.

On 1 May 2003 Ryanair relaunched Buzz. Or, more accurately, it relaunched a handful of Buzz routes, staffed by a handful of Buzz staff now kitted out in Ryanair uniforms. The relaunch was without fanfare; former Buzz routes restarted alongside a tranche of new Ryanair services. The result was the most intense two days of Ryanair's eighteen-year history. On 30 April and 1 May Ryanair launched twenty-one routes from Stansted and a further two from Pisa and Hahn. The flurry of launches was the culmination of Ryanair's aggressive march through Europe, which had intensified dramatically in previous months.

In February the airline had launched eight new routes; in March, two more and early April had seen a further eight. The frenzy continued throughout the summer, and by the start of June forty-seven new routes had been launched in 2003, almost double the twenty-four inaugurated in the whole of 2002.

‘It was all about the deals on offer from the airports,' says one executive. ‘O'Leary had no time for demographics or detailed market research. He needed routes for his planes, and he needed money from the airports to keep his costs down. So the airports prepared to offer the best deals got the routes.'

As always, though, there was method in O'Leary's apparently chaotic approach. His trump card, he believed, was Ryanair's strength at Stansted. The British capital was a magnet for tourists and businessmen alike, as well as being a vast catchment area for potential airline customers. Routes to and from London, almost no matter where they went to, were certain to attract passengers. Low airfares were still a novelty in continental Europe, and Ryanair was offering people who had never flown before an opportunity to travel and explore at prices too tempting to refuse.

The business model remained as simple as before: Ryanair would fly point to point, offering no complicated connecting flights;
turnaround times on the ground would be kept to a minimum so that the planes spent as much time as possible in the air; bases would be established in European countries so that planes, pilots and cabin crew could be grouped locally and cheaply; small airports would be used because they wanted the business and were prepared to pay handsomely to get it; ticket sales would be handled directly, with
Ryanair.com
growing in importance by the day and simultaneously providing an ever-growing profit centre.

The airline's accelerating expansion made it easier for O'Leary to punish airports who dared challenge his demands for low charges and marketing support. In February Ryanair reduced frequency on the Shannon–Hahn route over a row with the Irish airport about charging levels. O'Leary had originally planned to move the extra capacity to Italy, but the personal intervention of an executive at Kerry airport – only seventy miles from Shannon – swayed his plans in just a matter of hours.

‘I was following the Shannon row and I had heard that the plane was going to Italy,' says Peter Bellew, a former manager at Kerry airport.

The plane was a Hahn-based plane, so rather than flying Hahn–Shannon they were going to fly from Hahn to Bergamo, and I thought, Jesus, that's a bit of a dog. A friend of mine operates walking holidays in Kerry and west Cork. And he said to me, ‘What am I going to do, this flight's gone and that's where I'm getting all of my customers from.' So I said to him, ‘We'll try and see what we can do to get it to Kerry.'

Bellew had dealt with O'Leary before and knew he was not averse to an unconventional approach to business. Bellew recalls:

I started thinking about it on the Monday, and on the Tuesday I knew Michael was speaking at a function in Trinity. So I decided I'd doorstep him. He was walking into the lecture theatre and he saw me outside and he just said, ‘What the eff are you doing here?' I said, ‘We want your Hahn flight.' And he said, ‘You can't have it, the plane is gone to Italy.' I said, ‘I want it.' And I actually grabbed him by both arms and I shook
him and said, ‘We want it,' and he said, ‘Well, you have to give me a deal.' And I said, ‘What deal do you want,' and he mentioned a figure and I said, ‘We'll do it.'

Bellew stayed for the rest of the talk, and the details of the deal were hammered out in a car with O'Leary on the way back to Dublin airport.

For Kerry the deal was a coup as the airport only had three destinations – Dublin, London and Zurich. The deal was also a winner for Ryanair, who could now claim that reducing services at Shannon would have almost no impact on passenger numbers as the Hahn passengers would simply fly to Kerry instead. And the move also served to put manners on Shannon by reminding the airport how easily it could be replaced by its privately owned neighbour and rival.

The deal was typical of the airline's casual attitude to route selection. Ten of the forty-seven routes launched in early 2003 were to last less than a year, but the scale of Ryanair's expansion meant that they were swiftly replaced by other services. Because Ryanair operated point to point, closing one route had minimal knock-on effects on the rest of the network. ‘There was an element of churning, of course, but the pace of expansion was being dictated by the arrival of new aircraft and the determination to fill them,' says one executive. ‘We were going to make mistakes, but so many airports wanted our business that the failures could be replaced quickly.'

Coupled with the acquisition of Buzz, the speed of expansion was putting Ryanair under intense pressure to fill seats. The result was tumbling fares and soaring passenger numbers. Between January and March 2003 average fares fell by 6 per cent, while passenger numbers were up by 50 per cent. The trends were matched between April and June, when fares fell by a further 8 per cent while passenger numbers rose by 60 per cent.

The pressure to sell seats demanded a high-profile publicity campaign to generate free publicity, and O'Leary was willing to act the fool if required. The anonymous accountant of the early
years had been transformed into a showman. O'Leary did not care how ridiculous he appeared as long as seat sales went up. His personality was a tradeable commodity and he was determined to exploit himself to deliver the maximum profile for his company across Europe. One of his more controversial stunts took place on 13 May 2003, when publicity for the new route launches was essential. That morning O'Leary changed his jeans and check shirt for the military fatigues of a tank commander, climbed on board a Second World War tank and set off for Luton airport, the headquarters of easyJet.

O'Leary's message was as crude as his tactics and was certain to provoke a hostile response. Terrorist attacks remained the authorities' greatest fear and the sight of a tank trundling towards an airport was hardly going to meet with widespread approval. Unsurprisingly, police refused to allow O'Leary to enter the airport and for a moment he weakened. Turning to Paul Fitzsimmons, O'Leary suggested pulling out of the stunt. ‘He said, “We can't do this, it's gone wrong.” I said, “No, we have to fucking do it,”' says Fitzsimmons. And so O'Leary, megaphone in hand, berated easyJet from the turret of his tank outside the airport's perimeter as the theme tune from
The A-Team,
an old American TVseries, blared from speakers. It worked. O'Leary was rewarded for his poor taste with the newspaper and television exposure he craved and his business needed.

However, O'Leary recognized that it was going to take more than stunts to fill Ryanair's ever-expanding fleet. In early June, announcing the full-year results for 2002/03, O'Leary spelled out the evolving picture to investors. The airline would go through a period of ‘abnormal' traffic growth in the 2003/04 financial year, he said, with passenger numbers growing by 50 per cent to twenty-four million, and fares would be between 10 to 15 per cent lower in 2003/04 than in the previous year.

Investors were spooked, prompting an 8 per cent fall in the share price on 3 June. But later that day the share price rallied and closed just 2.2 per cent below its opening price. The damage, however, had been done. The pace of Ryanair's expansion was
unsettling investors. Their mood was not improved when a few days later O'Leary announced that the cost of acquiring Buzz was actually €46.7 million, and not the €20.1 million he had previously claimed. The extra was for ‘excess lease and acquisition costs', O'Leary told an investor roadshow on 7 June. ‘I think it is cheeky,' one analyst told the
Irish Times.

Investor unease had also been stoked by a critical report on Ryanair by Andrew Lobbenberg, an airline analyst with ABN-Amro, who published his views on the company under the provocative title ‘The Emperor Has No Clothes'. He advised his clients to sell Ryanair shares because he believed the company would not be able to sustain the levels of profit growth its share price implied. Lobbenberg was not arguing that Ryanair was a busted flush – he admired its business model and management – but he believed that the share price had been overinflated by expectations which the company would be unable to meet. O'Leary responded furiously to Lobbenberg's assessment, demanding and receiving an opportunity to address ABN-Amro's stockbrokers directly so that he could rebut his analysis, but O'Leary's irritation did not sway the analyst's views. The market, for once, had to balance contrasting views of Ryanair's future, and the new air of uncertainty ensured that any difficulties would be amplified.

O'Leary, however, was not going to change course. He wanted to stamp his mark on the major European markets, establish the Ryanair brand and use his low cost base to frighten competitors away from his routes. Relentless expansion had its risks, but he saw no alternative. The planes arriving from Boeing had to be put to use, and changing perceptions of the low-cost airline market meant that a host of potential competitors were lining up to get their slice of the new market. Ryanair's expansion was an aggressive land grab before competitors could establish their own presence. Expansion would, in the short term at least, damage yields and profits, but he had no time for a more measured approach. He told investors that rapid expansion was indeed choking yields, but then said that Ryanair was negotiating with forty new airports and nine
potential new bases, and aiming to carry 30 million passengers within three years.

While championing competition in the market as a whole, O'Leary had no desire to engage in direct competition on specific routes. He wanted dominance of individual routes and airports so that he could maximize his bargaining and pricing power. But, unlike traditional capitalists, his objective was not to achieve dominance so that he could later increase his prices. He remained fervently committed to lowering prices as the only sure stimulant of new demand, and his objective was to increase the scale of his operation and the size of his passenger pool.

The new challenge was to exploit the opportunities that his expanding passenger base gave the company. Getting more money from every passenger was critical to future profit growth, but he was not going to go down the traditional path of simply raising prices. He sought painless extraction, not straightforward extortion, and his tool of choice was the
Ryanair.com
website.