Michael O'Leary (60 page)

The success of the Ryanair revolution has been among the factors that have pushed the aviation industry to the forefront of the debate about climate change. In January 2007 Ian Pearson, a junior minister in the British government, denounced O'Leary as the ‘unacceptable face of capitalism' because of his attitude to rising carbon emissions from aircraft. O'Leary struck back, calling Pearson ‘foolish and ill-informed' and claiming that Ryanair was Europe's ‘greenest airline', noting that its new fleet of aircraft is more fuel-efficient than older fleets.

O'Leary dismisses the pressure as misplaced. ‘It's just politicians pandering to the latest fashion. Gordon Brown wants us all to believe that he spends his days mulching his compost with his children, David Cameron's gone Dutch with his windmills and clogs. Neither of them really means it. They know that changing a light bulb isn't going to make any difference but a picture of them changing a light bulb will be a nice, cosy image,' he said in an interview with the
Daily Telegraph
. ‘But the point is you can't change the world by putting on a pair of dungarees or sandals. You need to look at the real culprits and begin negotiations with them,' he said, arguing that the real battles against carbon emissions had to be fought with the Chinese, Russians and Indians, not with airlines.

Whatever happens, O'Leary believes Ryanair will be able to maintain a price advantage over its rivals because it has a lower cost base. ‘We will go from 40 to 80 million passengers in the next few years. We will take them off British Airways and the other old carriers who are flying gas-guzzling, ancient aircraft and pack them into fuel-efficient planes. So Ryanair will be saving the environment
– not that we care much,' O'Leary said to the
Daily Telegraph
.

Despite O'Leary's colourful protestations, however, the environmental debate will undoubtedly affect the industry in the years ahead. The Stern Review, a study commissioned by the UK government on the economic impact of climate change and required responses to it, noted in its report published at the end of 2006 that aviation's contribution to greenhouse gas emissions will rise from 1.6 per cent to 5 per cent by 2050. Environmentalists have also argued that the industry's impact on climate change could be more pronounced than the bare statistics suggest, because aircraft make their emissions directly into the upper atmosphere.

The industry is committed to using more fuel-efficient planes – its vulnerability to oil price hikes makes that a commercial as well as a politically correct imperative – but environmental taxes on flying remain a future threat to growth. There are measures that governments can take to ease the pollution – a more efficient air traffic management system in Europe would reduce emissions by as much as 12 per cent a year, according to IATA, while better management at airports, with reduced taxiing times for aircraft, would also have a significant impact – but taxes are simpler to implement than structural reform.

Environmental taxes and rationing may still be a distant threat, but the cost of air travel is more likely to increase than decrease in the years ahead. Will that kill the low-cost revolution? O'Leary believes not, claiming that the differential between Ryanair and other, more expensive, carriers will ensure that it can continue to grow at their expense, even if overall growth in the market slows.

Apart from the blip at the start of 2004, when O'Leary warned of a ‘bloodbath' and cautioned that the airline's profits could fall, Ryanair's progression has been steadily upward over the past ten years. By the end of O'Leary's first year at the helm Ryanair flew 700,000 passengers on nine routes, operating as a marginally successful but relatively unknown carrier between Ireland and the United Kingdom. In 2006 he carried more than 40 million passengers, and aims to carry more than 80 million by 2012. Ryanair
can claim with justification to be the most outstanding business success story that Ireland has ever produced. It is the only Irish company to be a world leader in its industry sector and has played a leading role in the transformation of the European aviation market.

Competitors have continued to join the fray, but there are just two major players in Europe's low-cost market, Ryanair and easyJet, with Air Berlin leading the next division of wannabes. The impact of the O'Leary revolution on European aviation has been felt by every traditional airline, and Europe's low-cost carriers have grown their share of the market from 7 to 20 per cent in just four years. The expansion shows no sign of abating. Ryanair and easyJet plan to double their fleet sizes over the next five years, and both have ambitions to double their passenger numbers as well. O'Leary is determined to make Ryanair Europe's largest airline, and to do that he needs to carry at least 75 million passengers a year.

His hunt for growth has taken the airline into new and more far-flung markets. He has opened new routes to eastern Europe, Morocco and even Malta, a four-and-a-half-hour journey from London. That represented a volte-face; at the 2005 Ryanair AGM O'Leary had told one shareholder that routes to distant locations were a no-go because ‘people won't pay four times more for flights that are four times longer, so fuck that'. One year later, however, all had changed. ‘Would we have a base in Athens? It's too far away from everywhere else, so no. Would we have a base in Malta? No. But would we do a route down to Athens if we could get a low-cost base at an Athenian airport? Yes, we probably would,' he says. O'Leary admits revenues from longer flights will be lower than from shorter routes, but ‘that won't stop us going into those markets. We're not going to leave the markets out there.'

O'Leary has thought aloud about flights into former Soviet republics from continental Europe and there have even been suggestions that he would use bases there to extend Ryanair's reach into Asian markets. Far-fetched perhaps, but there is no sign yet that he has lost his thirst for new ideas. Open Skies, the long-awaited agreement between Europe and the United States to
deregulate the transatlantic market, creates other possibilities, with O'Leary considering a low-fare, long-haul model that would fly from smaller US airports, like Colombus in Ohio or Baltimore in Maryland, to Ryanair's existing low-cost airports in the UK and Europe. He says that any transatlantic venture would be set up and run as a totally separate company to Ryanair, but he boasts that he could make money selling seats for as little as $15 each way. His apparent embrace of this market, however, still hovers somewhere between publicity stunt and firm plan.

The logistics of the transatlantic market are very different to those of the short-haul routes that have allowed Ryanair to grow so quickly and so profitably under O'Leary's stewardship. There would be ample opportunities to sell to a captive audience for the duration of a six- or ten-hour flight – O'Leary's vision of planes becoming flying casinos might be a possibility on Europe–America flights, and there are also savings to be had from operating a simple point-to-point service from cheap airports. Analysts may be sceptical, but in the past his public ruminations have often turned into solid earners. Free flights may have sounded mad three years ago, but now tickets for just 0.1 of a cent are a regular feature of Ryanair marketing drives. Charging for baggage in the hold, although ultimately self-defeating if it encourages most passengers to take hand luggage only, will generate millions, while reducing the amount of luggage in the hold gives Ryanair scope to reduce costs at airports. Charging for priority boarding is another new idea to gouge a few more euros from Ryanair customers, while the company website is constantly tweaked to drag in extra revenue, whether through increased charges for using credit cards, or by making travel insurance an opt-out function rather than an opt-in. Forget to uncheck the box, and you will be charged. O'Leary's search for new ideas will not stop, driven by the knowledge that Ryanair, once the leader in ancillary sales, is actually slipping behind some newer airlines in the amount of profit that it generates.

In large part this is because many of the modern low-fare airlines depend heavily on former Ryanair managers, and they have all developed and expanded on the original model. Conor McCarthy,
who O'Leary poached from Aer Lingus, helped create AirAsia in Malaysia, Thailand and Indonesia; Charlie Clifton, a Ryanair veteran, helped set up Tiger Airways in Singapore and is now involved in Skybus in the US. In 2006 McCarthy was involved with Mexican start-up VivaAerobus, while Warwick Brady, a former Ryanair manager, is head of operations at Air Deccan, India's first low-cost carrier. Funding many of these new airlines has been the Ryan family, using the wealth generated by Ryanair. And while the Ryans use their name and expertise to develop the low-cost model across the world, David Bonderman, Ryanair's chairman, is expected to play a significant role in any restructuring of Europe's airlines that Open Skies might prompt.

O'Leary and Ryanair have been part of deeper economic and cultural changes that transcend the airline industry. Labour-market mobility – one key to a functioning, integrated and expanding European Union – has been facilitated by the low-cost revolution, with Ryanair, easyJet and local rivals providing cheap travel for hundreds of thousands of eastern Europeans who want to earn a decent living. And ‘short break' air tourism, a phenomenon that barely existed before Ryanair, is now an enormous phenomenon.

The maturing of Ryanair from irritating upstart to major European carrier causes O'Leary to muse aloud about his own future at the airline. He says he will leave Ryanair in ‘two or three years' time' – though he has been saying that for a number of years. He argues that there will come a point when Ryanair requires a more conventional management style. ‘When we're the biggest airline in Europe it will be inappropriate to have somebody here shouting, swearing, abusing the competition. You need more professional management than me. And that time is coming,' he says. His successor may come from the ranks of the existing management team – Michael Cawley and Howard Millar are the most likely candidates – but could just as easily come from outside the organization.

Either way, when O'Leary leaves he says he will leave completely, refusing a seat on the board or even the offer of the chair.

He says there will have to be a clean break, and the new chief executive will not need him in the background ‘banging on about the business'. For the moment, though, O'Leary remains on course to fulfil his ambitions. He will, too, continue to make enemies. As Tony Ryan noted in one of his earliest proposals for a new airline, quoting Machiavelli,

There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order, this lukewarmness arising partly from fear of their adversaries, who have the laws in their favour; and partly from the incredulity of mankind, who do not truly believe in anything new until they have had actual experience of it.

O'Leary's reform of the skies is almost complete, but he still waits for news from Brussels on his proposed hostile takeover of Aer Lingus. It is unlikely that he will get approval. Despite his strident claims that a Ryanair-controlled Aer Lingus would be good for competition, the creation of such a dominant company in a relatively small corner of the European market is expected to prove a step too far for Europe's competition regulators.

The combined clout of Ryanair and Aer Lingus in Dublin would not be significantly different to Air France/KLM's dominance of Paris and Amsterdam, but O'Leary faces the hostility rather than support of his government. EU lawmakers will, however, be trying to ensure that any reasons they give for blocking O'Leary's ambitions cannot be used in future years to prevent the widely anticipated mergers between Europe's traditional airlines. Open Skies will bring as many risks as it does opportunities and it is likely that a number of major airlines will, in time, be forced into defensive mergers as they face intense competition from US carriers on the lucrative routes to North America. Europe does not want to create a precedent that could block those mergers so will tread warily. O'Leary professes to be unconcerned, and knows that
even if he is prevented from taking it over, Aer Lingus remains vulnerable and an attractive target for other airlines. In time, he may sell the Ryanair holding at a profit but for the moment he can sit tight and irritate the Aer Lingus management by using his position as a minority shareholder to demand improved performance.

Ryanair, in any case, is on course to become Europe's largest airline by 2011, overtaking Air France/KLM and Lufthansa, but O'Leary's hunger has yet to be sated. ‘I was always driven,' he says, ‘and I was always competitive. Maybe I was kicked by somebody at some stage, but if I was I don't remember it. Why are you the way you are? I haven't a bloody bull's notion. Would I want to spend a lot of time analysing myself? No. I think you make things happen. But an awful lot of things happen, and not because you are in control of them. The harder you work the luckier you get. You make your own breaks.'

He may talk of retirement, of trying new challenges and of devoting more time to his family and his farm, but as he said in November 2006, when questioned by stock market analysts, ‘You just have to remember that I also said that I would retire in 1992, that I would retire in 1995, and I think again in 1998. Some of my forecasts have not turned out to be terribly accurate.'

Or as one former colleague says, ‘I'll only believe it when I see him being carried out of Ryanair in a box. With a stake through his heart.'

This book would not have happened without Laura Noonan's determined research and relentless encouragement. She dug for information, talked to scores of people and assembled what she uncovered in carefully prepared files. Despite the increasing demands of her own burgeoning career she stayed with the project to the bitter end, checking, rechecking and adding new information. I am indebted to her.