Michael O'Leary (12 page)

Ryanair had another stroke of good fortune in January 1991, when British Airways announced that it was pulling out of its Irish routes after forty-four years. The move was out of character for the British giant. ‘This is the first time BA has ever moved off a route as a result of competition,' said Michael Bishop, head of rival airline
British Midland. BA had operated flights from London to Dublin, Cork and Shannon and from Birmingham to Dublin, but after many months of vicious price competition BA concluded the routes were ‘uneconomic'.

Less than two weeks after B A announced its withdrawal Ryanair seized the opportunity to announce extra services to and from Stansted. From 28 April the airline would operate six flights a day from Stansted to Dublin, three a day to Galway and Waterford, and one a day to Kerry and Knock. The Stansted expansion came at a cost to Luton, where six destinations were cut, leaving daily services to Dublin, Knock and Cork. Never a man to understate his decisions or achievements, on 5 February P. J. McGoldrick told journalists, ‘The decision to operate into Stansted represents the culmination of a twelve-month turnaround by the airline.'

Hammering costs remained top of the agenda; just days before the Stansted announcement Ryanair pilots were forced to take severe pay cuts or lose their jobs. Ryanair's top pilots, who were earning £35,000, lost £6,000. Lower-salaried pilots were harder hit, losing about £5,000 each on salaries of £20,000. The pilots' union IALPA was not impressed at the airline's rationalization: ‘The pay cuts mean that some pilots will now be on salaries lower than the average industrial wage,' said its president Ted Murphy.

Pay cuts were soon followed by staffcuts. Hamish McKean recalls,

One day I received a bundle of letters addressed to staff members who were to be made redundant. There was no prior warning given – the letters appeared at about 12.15, and I had to tell the ten or twenty staff by one o'clock.

I couldn't get hold of McGoldrick so I managed to get Declan, who had signed these letters, and I was told that they had to be sacked, and if you don't you will be sacked. We knew there was something afoot but certainly not the large-scale redundancies that were foisted upon me with a total lack of consultation.

By April 1991 Ryanair and Aer Lingus were once again locked in a battle that seemed to be strangling both airlines and the pilots'
union called on them to form a quasi-partnership to avoid the mounting job cuts and financial losses. ‘In a global context, the skirmish now being fought on the Irish Sea routes is more expensive than any airline can afford,' said IALPA spokesman Ross Kelly.

The wheel had turned full circle, and once again Ryanair and Aer Lingus were scrapping for supremacy, but this time there was one crucial difference: Ryanair had finally stopped haemorrhaging cash. O'Leary had forced through swingeing salary reductions – Ryanair's pilots swallowed cuts of up to 37 per cent – and the air of excited expectation he'd experienced on his first day had been replaced by an atmosphere of doom. Ironically, just as the company's survival prospects looked brighter, its employees started to fear the worst. The results for 1991 showed a small profit. It may have been just £293,000, artificially boosted by the sale of Ryanair's stake in a tourism business – the underlying business was still losing money – but it was a remarkable turnaround after years of steepling losses which had accumulated to more than £20 million.

At the end of the year McGoldrick resigned – a decision that came as much from him as from Ryan, who recognized that he had served his purpose. He had inherited an airline in financial chaos and on the brink of collapse, and had led it, painfully and slowly, to the point of profitability. His low-key leadership, combined with his industry savvy, had dovetailed effectively with O'Leary's war on costs throughout the company. It was without doubt a harsher place. The touchy-feely customer service of the early years, the sense of youthful adventure, had been replaced by a steelier resolve. Ryanair would survive, but its transformation from upstart to major player had changed the nature of the company as well as its financial performance.

O'Leary's role in the company was formalized with his appointment as chief financial officer, but still he did not want to step up to the top job. In a bizarre move Ryan instead appointed Paddy Murphy, a veteran of the Dublin business scene who had been chief executive of Irish Ferries.

His reign was doomed even before it started. At the end of October it was reported that his brief was ‘to improve the airline's marketing, strengthen its corporate identity, improve the quality of service and develop stronger links with tourism officials in Ireland and Britain'. It was a momentary lapse, and so clearly at odds with the airline's still urgent need to reduce its costs even further while boosting passenger numbers that it could not last long. Sure enough, within six weeks Murphy had gone. O'Leary had been deeply unimpressed.

Murphy's replacement did meet with O'Leary's approval. Conor Hayes, a former accountant who had been chief executive of the Almarai Group in Saudi Arabia, started his new job in January 1992. Together, he and O'Leary would take Ryanair to the next logical stage of the airline's development – its metamorphosis into a truly low-cost, low-fare airline that would revolutionize air travel in Europe.

Conor Hayes, a thirty-five-year-old who had spent the previous five years reviving the fortunes of a food company in Saudi Arabia, knew little about Ryanair when he accepted the post as chief executive in the autumn of 1991. His expertise was and remains instilling financial discipline in troubled companies and nursing them back to health – a company doctor in all but name.

His background fitted Ryanair's needs. While Ryanair and commercial airlines were an unknown quantity for Hayes, he had experience of the aviation business. His years as an accountant with the Dublin firm Stokes Kennedy Crowley had exposed him to the intricacies of aircraft leasing, first through work for GPA and later for IAS, the aircraft leasing company run by Gerry Connolly, the man who had founded Avair. Ryanair was, from what he could see, a major challenge but an opportunity he could not turn down. It was a welcome route home – he had a young family and was keen to return to Ireland – and the job offered a reintroduction to the Irish business market. Opportunities to return were few in 1991, and he was eager to seize the chance,

When Hayes officially took the reins as chief executive in December 1991 the company remained in a critical condition. It could claim a market share in excess of 20 per cent on the Dublin–London routes following British Airways' withdrawal from the market the previous year, but it was still losing money.

The Irish government's embrace of the two-airlines policy two years earlier had given Ryanair crucial breathing space and had helped reduce its losses, but the airline remained vulnerable. The modest profit in 1991 had been generated not by the core business of flying people but from the sale of a shareholding in a small hotel business; at the operating level the airline was still losing money and Tony Ryan was increasingly worried that despite the remedial
work of the McGoldrick regime his airline remained doomed. He had kept it afloat two years earlier because he had hoped and believed that the removal of Aer Lingus from the Stansted route would give his airline an opportunity to carve out a profitable route network, yet the hoped-for profits had yet to materialize. If Ryanair could not be made to stand on its own feet, he would be forced to make further cash injections. He had, friends say, reached the end of the line. There would be no more money for Ryanair; if it could not survive on its own, he would admit defeat and retreat, selling the airline if he could find a buyer, closing it if he could not.

‘Hayes was brought in, and O'Leary given a more prominent role, so that there was clear distance between the Ryan family and any potential disaster. Hayes's appointment has to be seen as a damage limitation exercise for the family rather than a vote of confidence in the company,' says one former manager.

Ryan had already been badly bruised by the losses the family had incurred during its ill-fated venture into London European Airways. Cathal Ryan, his eldest son, had been appointed executive chairman of LEA and was closely associated with its failure. Declan had stepped up to the mark to run Ryanair after McGoldrick's departure and Ryan was not prepared to see the main company fail under direct family stewardship. If it had to close, it would not be with a Ryan at the helm.

Hayes's immediate priority was to find out what was happening, and to do that he had to put in place accurate and timely financial reporting systems. Despite Michael O'Leary's presence at the company for more than three years, the detailed financial information compiled for senior management and the board was months out of date. This had to change and quickly if the company had a hope of survival.

O'Leary's early firefighting had highlighted the financial chaos at the company, but he had not radically altered its course. He had brought greater discipline to contract negotiations, had lowered costs and eliminated waste, but he was still being diverted into family business in his role as Ryan's personal assistant and had not
come to grips with the minutiae of the company's accounts. Hayes brought different and essential skills. Where O'Leary could high-light waste, he could implement a basic accounting system that would deliver the numbers on which they could start to plot a survival plan.

With Hayes on board as chief executive, O'Leary started to devote more of his time to the airline and the two men became a firm double act. For the majority of the staff Hayes was the man in charge, but higher up the management chain it was clear that the company was being run by two men, not one. ‘Part of the time Hayes reported directly to Ryan, and part of the time to O'Leary. It was a strange relationship. O'Leary was both the conduit to Tony Ryan, and reported to Hayes as well. But for all its peculiarities, it worked,' says a former member of the senior management team.

‘To be fair, it was a partnership,' says Brian Bell, who advised the company on its marketing and public relations at the time. ‘Conor doesn't get the credit he deserves for the work he put in. They were good cop–bad cop. Michael was the bad cop and Conor was the good cop…They were very much on the same wavelength about what needed to be done. Both of them were cost cutters, they were accountants looking at how to make the bottom line work for them. They set out with the same aim.'

Hayes had been faced by serious financial difficulties when he had arrived in Saudi Arabia to run Almarai. Its accounts had been chaotic and it was losing money. In five years Hayes had transformed it into profitable order, and he tackled Ryanair with the same attention to detail. He drove through a rigorous internal accounting regime that forced transparency onto Ryanair's accounts. ‘In a matter of weeks we went from having information that was five months out of date to [information] that was just five days old,' says a former financial adviser. ‘It was a phenomenal turnaround, and it was not cosmetic. Hayes's system delivered monthly accounts for every line of the operation, and they were updated weekly. Basic stuff, perhaps, but it had never happened at Ryanair before.'

Meanwhile, O'Leary's profile in the company grew, as did his reputation for ruthlessness. ‘I saw him fire a financial controller, a young guy, in the office next to where I was waiting for him to come into our meeting,' says a former colleague. ‘He was screaming and shouting at this guy, how incompetent he was, and he could clear his desk and take himself back to wherever he came from.'

Hayes and O'Leary were men on a mission, and nothing would be allowed to get in their way. For Hayes, Ryanair was his chance to prove to the Irish business world that he was a force to be reckoned with. He did not see it as a long-term post – he signed a two-year contract and had no intention of extending it – but it gave him the opportunity to showcase his talents. If Ryanair had to close, Hayes could demonstrate his ability in an orderly retreat and perhaps find a buyer; and if he could save it, then his ability to turn around financially troubled companies in Ireland would be made. For O'Leary it was just as personal: if he could turn around the airline, then he would make his fortune.

The previous summer O'Leary and Ryan had struck an improbable deal.

‘I kept trying to get out,' recalls O'Leary. ‘I thought it [Ryanair] was a stupid business, and it was also very high profile. I didn't want a high profile; I wanted to make lots of money but not be known. That was the way my family would operate, there was no credit for being in the papers.' Ryan, though, wanted O'Leary to stay with Ryanair. O'Leary had agreed but only on condition that he was paid 25 per cent of any profits the airline made above £2 million.

Ryan has subsequently described it as the best deal he ever negotiated, but O'Leary was just copying his master. ‘I did the deal because it was a copy of what Tony had originally done in GPA. I didn't need to be a genius; I wasn't blinded by inspiration,' he says.

The scale of Ryan's generosity indicates that he had no concept of how successful Ryanair could become. He believed that it had a future as a niche airline, competing aggressively with Aer Lingus
on the Ireland–UK routes and on some continental European routes, but his ambitions did not run to European domination. After years of losses funded from his own pockets, Ryan hoped for stability followed by modest profitability. O'Leary had already shown that he could identify problems, and Ryan had enough faith in his young protégé to believe that he could, if motivated properly, guide the company to health. O'Leary's original deal – that he would work for free as long as he got a cut of the profits – revealed his hunger for success and money, and Ryan dangled both as an incentive to satisfy both their needs. He wanted a successful airline that no longer drained his personal reserves, and O'Leary wanted money.