Michael O'Leary (32 page)

O'Leary tried to put the delivery to good PR use, promptly announcing the new plane would fly neither to nor from Dublin, because of the ongoing Aer Rianta stand-off. It was a gambit to garner a few column inches, but it was an empty threat. Within a month the
Irish Times
had spotted the shiny new plane on the Stansted-Dublin route.

For several weeks now skywatchers have been reporting that Ryanair's new plane is indeed flying in and out of Dublin. This week, Ryanair
confirmed this was the case, but described the journeys as ‘proving flights' – the test-runs used by new pilots. The flights are, however, carrying fare-paying passengers on board. Ryanair now says this plane will not be used in Dublin for long, and that when the summer schedule starts, it will be moved to Stansted for routes to the Continent only.

Foreign airlines might have been easy prey for O'Leary, but at home the media had grown wise to his stunts.

Less than two years after Ryanair launched its route between Stansted and Kerry, with the route a success and tourism numbers on the rise, Kerry airport was looking to expand. The expansion would need funding, and the airport's management decided the best way to secure that funding was a £5 ‘development levy' to be paid by all departing passengers from 1 May.

In April O'Leary took to the newspapers and airwaves, denouncing the charge – which would add 6.25 per cent to its lowest fares of about £80 on the route – as ‘unworkable' and urging passengers to refuse to pay it. A former Kerry executive says the airport was surprised by Ryanair's reaction. ‘On the [first] anniversary of our first flight [June 1997] we said to Ryanair, “Listen, we're going to bring in this thing,“' he says. ‘They said, “Grand.” They didn't seem too perturbed. And then they just decided against it, I think on the basis that if this was successfully introduced in Kerry this would happen everywhere and it would be a bad precedent for Ryanair to accept it.'

He was right. What was the point, O'Leary thought, of winning lower airport charges if a small-time operator like Kerry could then turn around and introduce new levies on his passengers? If he allowed Kerry to charge his passengers five pounds, how could he prevent them charging ten? Or object if Treviso or Charleroi introduced similar charges? Kerry had negotiated low landing charges with Ryanair in good faith, and Ryanair had delivered the passengers. The airport's opportunity was to make money from those passengers by selling them goods and services, not by slapping on levies.

The Irish media, however, was instinctively sympathetic to Kerry and growing tired of O'Leary's relentless hostility, with the
Irish Independent
reporting, ‘Ryanair, the discount airline, has declared war on yet another Irish airport.' O'Leary did not care about the media's attitude and rolled out another pamphlet campaign, distributing 20,000 ‘No to Kerry levy' leaflets on Kerry-Stansted flights. ‘They handed them out for about a week,' says Bellew. ‘We just thought, fair enough, if that's what they want to do. We weren't happy about it, I suppose, but it was just a bit of a nuisance.'

The leaflet's impact was limited to the felling of a few trees, and the levy stayed, for the moment.

A year on from the IPO, Ryanair was still perceived as a family firm. The Ryans were no longer the airline's sole shareholders, but about 27.7 per cent of the airline's stock was still controlled by Tony, Declan, Cathal and Shane Ryan. At the end of May 1999 the company moved to correct that, announcing that the airline's major stakeholders would sell a total of 15 per cent of Ryanair's equity valued at about GB£168 million. The Ryans would reduce their holding by a third, leaving them with just over 17 per cent of the stock, and Ryanair would become a more attractive proposition to investors, who often shy away from companies where families exert a dominant influence. Bonderman was to almost halve his interest, reducing his 6.3 per cent stake to 3.2. O'Leary disposed of 1.5 per cent of the company, retaining a 9.3 per cent stake.

The timing of the share sale was critical to its success and Ryanair opted to synchronize it with the announcement of its fourth-quarter results for 1998. The results once again showed record highs, with a 20 per cent rise in adjusted net earnings (to £37.7 million) and a 28 per cent rise in turnover to £182.6 million, and earnings per share up 11 per cent to 27.47 pence.

Ryanair also had good news on its protracted row over Dublin airport charges. Aer Rianta had insisted it would cease all rebates for airlines, but at the end of May had submitted a plan to Transport
Minister Mary O'Rourke that would allow operators of new routes a 75 per cent discount on charges for the first year and a 50 per cent discount for year two. The compromise offer represented some progress: Aer Rianta was clearly prepared to encourage new routes with lower charges. But the plan fell short of Ryanair's demands, and the market responded negatively to the news: the airline's share price dropped 14 per cent, to GB£6.69). It was a short-lived plunge. The sale of the Ryan family, O'Leary and Bonderman shares proved a resounding success, with the share price closing at an all-time high of GB£7.30 on the day of the sale.

The Ryans, who had almost lost everything five years earlier after the collapse of Tony Ryan's Guinness Peat Aviation, grossed £137.3 million, Irish Air grossed £34.3 million and Michael O'Leary got £16.6 million.

Dublin, Stansted, Kerry and then Manchester. Early in 1999 Ryanair's five-year deal with Manchester airport came up for renewal. The airport seized upon Ryanair's improved financial position to demand higher landing charges. O'Leary was not impressed. ‘Michael decided that he would withhold some of the increase whilst in theory we would continue to try to negotiate a more acceptable cost base,' says Tim Jeans. ‘Ryanair had delivered on all its promises in Manchester, and Manchester then flexed its monopoly muscles, hid behind the fact that it had to charge all airlines the same, which of course is nonsense because there are all sorts of one-off arrangements.'

O'Leary's tactic of non-payment worked well for a few months, but by June Manchester airport had had enough. On 19 June flight 553 from Dublin arrived in Manchester fifteen minutes ahead of schedule. The airport staff directed the plane, with 126 passengers on board, to a taxiing area for impounded planes. The airport then sent a blunt message to Ryanair: pay us what you owe us – rumoured to be about £500,000 – or you won't get your plane back. The passengers and crew were allowed to disembark but the plane had been seized.

O'Leary caved in. The debt paled in comparison to the value of his Boeing 737 and to the chaos that would hit Ryanair's schedules if it was deprived of a jet. Within five hours of the seizure Ryanair's bank had given a verbal guarantee that the debt would be paid, and the plane was released.

The airline was quick to criticize the airport for its actions, claiming the non-payment had been a ‘clerical error‘. But, Jeans says, the seizure had longer-term implications for the airport. ‘It did have an impact on our relationship with Manchester ever after.' Ethel Power agrees:

We were not expecting it as we had done a lot of business with Manchester airport. Basically it was Manchester airport being bolshie, as Ryanair would always be negotiating lower landing fees, and in my opinion it was an airport manager saying, ‘I'll fix them.' But really it could have backfired in their face as Manchester airport had an awful lot more to lose than Ryanair. In our world it was a one-minute wonder – bill was paid and away we went.

Manchester manager Jim Stockton was unrepentant. ‘I agree the powers we exercised were severe but they were justified in the circumstances,' Stockton told journalists. Seven years later, his views haven't changed. ‘If we hadn't acted as we did, we would never have been paid what we were owed, and the scale of the debt would have grown each day. We had no choice.'

In August of 1999 the military airfield at Baldonnel in west Dublin returned to the spotlight when Defence Minister Michael Smith brought forward plans to sell off parts of it. Tony Ryan, who had first proposed setting up a commercial airport there in 1995, latched on to the news, terming it a ‘very positive development‘. But O'Leary was quick to distance Ryanair from the future of Baldonnel, pointing out that it was ‘important that the Ryan family's plans for Baldonnel do not cloud the debate' on the second terminal at Dublin airport. It was a rare public spat between the two men, but O'Leary's motivation was clinical.

‘Michael would have been annoyed that we were perceived to be fighting on two fronts,' says Charlie Clifton. ‘His view was, “Get Aer Rianta to give us a deal; don't let them off the hook.” Aer Rianta did start to say, “What are we talking to these guys about when they're pissing off down the road to Baldonnel?” And that's what he didn't want to happen. Michael's view was succinct: “Draw a line on Baldonnel, we're never going to get it.”'

O'Leary tried to drag the question of a second Dublin airport terminal back to centre stage in early August in a 445-word letter to the
Irish Times.
He began by congratulating the paper's editor, Conor Brady, on an editorial which recognized the value of tourism to the Irish economy. ‘Unfortunately the Aer Rianta monopoly represents a far greater threat to the health of our industry than Bord Failte [Ireland's tourist agency],' he wrote.

The facilities at Dublin Airport are inadequate, overcrowded, and ludicrously expensive. They are a testament to the failure of the Aer Rianta monopoly. The Irish taxpayer – through Aer Rianta – is investing heavily in hotels and airports in Birmingham and Düsseldorf [a reference to Aer Rianta's expansion overseas] – yet we are subjected to Third-World facilities at this nation's principal airport.

Ryanair has submitted a proposal to the Government which would see us finance and build a second terminal at Dublin [he reminded readers, in case they had managed to miss the acres of media coverage which had been dedicated to the issue]. Immediately after its construction we will hand this building, free of charge, back to Aer Rianta to own and manage. In return we would obtain a long-term low cost base, save Aer Rianta from the capital expenditure, launch at least ten new routes from Continental Europe to Ireland, carry over one million additional visitors to/from Ireland, and create over 500 jobs.

He concluded:

In recent years competition has transformed Ireland's airline sector, our telecommunications industry, our bus services, health insurance and broadcasting. Even the ESB will shortly be in a competitive environment.
Competition will transform our airport infrastructure by improving facilities and lowering costs. Aer Rianta now needs a similar discipline. Why not introduce competition now at Dublin? The facilities will be improved, the costs will fall, and low fares to a wide range of European cities will underpin the continuing success of our tourism industry.

Noel Hanlon, Aer Rianta's chairman, rose to the bait. Three days later he made his own appearance in the letters page of the
Irish Times.
It was a peculiar way for the leaders of two major companies to conduct business but such was the level of animosity between the two that direct negotiation was not on the agenda. Hanlon wasted no time in getting to the point.

Independent consultants have concluded that Ryanair's proposal to build its own terminal at Dublin Airport would mean the transfer of between £70 million and £80 million by Aer Rianta to Ryanair over a short period, hence Mr O'Leary's enthusiasm for such a proposal. Aer Rianta is the most competitive commercial airport company in Europe and frequent reference to the airport monopoly by Mr O'Leary does not change that fact.

Hanlon charged, ‘Mr O'Leary's quite extravagant claims about bringing in one million additional visitors from Europe is, I would suggest, a nice round figure but one which is very hard to accept.' He finished his letter by spelling out what he claimed were Ryanair's true motives. ‘I can only conclude that the constant barrage of spurious claims, frequently couched in superficially plausible language, from Ryanair and its highly paid spin doctors is more to do with Ryanair profits and its share price than with bringing in additional tourists to Ireland.'

Hanlon was correct, up to a point. O'Leary was primarily concerned with Ryanair's profits and not Irish tourism, but the two were not mutually exclusive. He wanted to exploit opportunities in Ireland but believed that he could not do so profitably enough unless Aer Rianta compromised.

*

Three days later Ryanair announced yet another set of record results, this time for the first quarter of the new financial year. Its pre-tax profit for the three months to the end of June had risen by 13 per cent to £14.2 million.

O'Leary always attributed Ryanair's success to its ‘simple' business model.

We have the lowest cost base of any airline in Europe. Business is simple. You buy it for this, you sell it for that, and the bit in the middle is ultimately your profit or loss. We have low-cost aircraft, low-cost airport deals, we don't provide frills, we pay travel agents less [than other airlines], our people are well paid but work hard and we deal in efficiencies. A second low-cost airline will only survive in Ireland as long as it is prepared to keep losing money. Britain is a tougher market, but even there nobody can match our efficiency.

Other airlines were failing to implement the same formula with success because, he said, ‘nobody else has our discipline.' It was a fair point. As Kerry had discovered, no airport was too small to escape his notice, no charge too minimal to be ignored. O'Leary's pursuit of lower costs was relentless. ‘It was a war, a daily war,' says one former executive. ‘Michael never stopped hunting for ways of cutting costs or boosting revenues, and his message was really simple: lowest costs means lowest fares.'

Aircraft turnaround time had been reduced to twenty-five minutes, compared with the one-hour turnaround that major airlines were used to at large airports. To achieve this Ryanair refused to sell peanuts, chocolate and other food so that it would take less time to clean the plane before take-off. ‘We can fly six aircraft a day where Aer Lingus or British Airways could fly four,' O'Leary explained. ‘Where they can get six in the air, we fly eight. So we're 20–25 per cent more efficient from the very start. It's so simple a four-year-old could work it out.' Ryanair's flights were staffed by three flight attendants, compared with the five used by other carriers; its planes were all one type, so that crews and pilots could move seamlessly from one to another
without retraining, while maintenance costs were kept to a minimum.