Michael O'Leary (4 page)

Ryan, though, believed he was up to the challenge. He had planned his airline's growth in four phases. Initially, Irelandia would offer flights from Shannon to New York, Boston and London. The second phase would see Irelandia using Shannon as a gateway to Europe, launching flights which would originate in New York or Boston, stop off in Shannon and continue on to European destinations. For phase three Ryan planned to increase the number of US destinations, and phase four would involve the creation of Middle and Far East services, ‘perhaps with a weekly extension into Australia'.

The fares proposed – £160 return for a transatlantic flight, and
£40 for a return flight to London – were just a fraction of what other carriers were charging in 1980, but Ryan's plans were not immune to inflation; when a second draft of the Irelandia proposal was drawn up in August fares for the London route had risen to £50 return and New York had risen to £198 return.

‘Irelandia would address itself to the demand of today's air traveller for cheap, no-frills, efficient travel,' Ryan wrote in a second proposal document in August 1980. ‘It would compete aggressively with the foreign airlines which will otherwise dominate this aspect of Irish air travel and which cannot be successfully opposed at present.'

The keystone of Irelandia's operation will be low overheads, efficient operation and forceful marketing. The airline will be dedicated to the further development of Irish tourism and to the well-being of the southwest region…

   Irelandia will respond to the deregulation philosophy currently implicit in American aviation policy and now gaining ground in Europe. Deregulation is a word that appears offensive to most national airlines; nevertheless, in the long term deregulation combined with competition is the only method by which the travelling public will enjoy low fares.

In his August proposal Ryan identified six ‘hurdles': the procurement of government support and the necessary regulatory permissions; the assembly of talented staff and the formal establishment of the airline; the raising of the necessary finance; the building up of a network of supply services headquartered in Shannon; the inauguration of an aggressive marketing campaign; and the resistance that would inevitably be prompted by Irelandia's challenge to the status quo.

Ryan was right to be cautious. Even though the first phase of his plan was relatively modest, launching a new airline in the 1980s was a complicated, expensive and highly political operation. Ryan knew that getting a licence to operate routes between Ireland and the UK would be an uphill battle, and yet he also knew that winning the licence would be the least difficult part.

‘The number of casualties in the airline business is enormous,' says Liam Lonergan, one of Ryan's early collaborators in the airline that became Ryanair.

There are very very few survivors and there are very few success stories. And the success stories tend to be people who had a considerable amount of money before they started. There are many airlines, innumerable airlines, big, small, medium, who have all just bitten the dust, some of them in rather quick time unfortunately. Never to be heard of again. And they have cost investors a great deal of money. It's a seriously quick way to lose money. It's like a black hole. It is something any sensible business person, if they knew the full commercial extent of running an airline, would run a mile from. Unless they've got more money than sense.

Ryan had the money and he thought he had the sense. His shareholding in GPA earned him millions each year in tax-free dividends and he was prepared to use that money to invest in other, riskier projects. ‘Tony is not the sort of guy who salts away money for a rainy day. He is so confident, so arrogant some might say, that he never believes there will be a rainy day,' says one former colleague.

The road Ryan was preparing to take had been travelled over the previous seven years by Avair, an early competitor for Aer Lingus. Gerry Connolly, a young entrepreneur, launched Avair in 1978. Connolly's airline started life as a charter operator, but soon branched out into operating scheduled services within Ireland. Aer Lingus, which had failed to develop an internal network because it believed that it could not operate one profitably, was prepared to tolerate the existence of Avair, which did not threaten the national carrier as long as it stuck to routes within Ireland and could actually help it by ferrying passengers into Dublin for onward flights to the UK, Europe and North America.

In 1983 that tolerance came to an abrupt end when Connolly was granted licences by the Irish government to operate a number of routes from Ireland into British regional airports. For the first
time Avair posed a threat to Aer Lingus, and its response was swift, brutal and very effective. Using the taxpayers' money that funded the national airline, it launched a predatory attack on Avair, opening new internal routes and slashing prices until the inevitable happened: in February 1984, less than six months after it went into direct competition with the state's airline, Avair was bankrupt. Aer Lingus had thrown down the gauntlet to all aspiring airline entrepreneurs in Ireland: if they tried to steal its market it would squash them.

Jim Mitchell, the government minister who had granted Avair its licence to expand, told the Dáil that he had refused to give the private airline a cash injection of £400,000 to save it from bankruptcy.

‘Apart from the very difficult financial position of the exchequer,' Mitchell said, ‘it would be totally contrary to established policy to subsidize a private airline.' He had no apparent difficulty, however, in subsidizing a state-owned airline so that it could use the state's money to undermine government policy.

Avair's collapse paved the way for Ryan to get his licence, but the risk could not have been more obvious: if his fledgling airline attempted to muscle in on Aer Lingus's market, it would concentrate its fire on him until he was broken. Worse, he knew that while the current government might be prepared to grant him a licence, Avair's demise had demonstrated that it was not prepared to stand up to Aer Lingus. It was a truly bizarre situation. Government policy was to encourage new competition in the airline market, albeit at a low level, yet the government's own airline was allowed to use public money to thwart that policy.

Avair was the most public victim of Aer Lingus's defiance, but Aer Arann, a small private airline that had been created in 1970 to fly passengers from Ireland's outlying islands off its Atlantic coast to the mainland, had also suffered at its hands. The airline had stumbled through the 1970s, losing money but surviving, operating charter flights, scheduled services and, during 1976 and 1977, allowing Captain Charles Blair, a former US Air Force pilot and husband of Maureen O'Hara, the Hollywood film star, to operate a
forty-two-seat flying boat from Lough Derg, in County Tipperary. Blair's plane, the
Southern Cross
, flew under the Aer Arann licence and took tourists to the south and west coasts of the country for a flat £15 fare. By 1978 Aer Arann could offer a charter service to 32 airports across Ireland as well as destinations in the UK and Europe. It was hardly a threat to the national airline, but by 1982 Aer Arann, still in deep financial difficulty, had decided to expand and started a service from Galway to Dublin.

Once Aer Lingus attacked Avair by launching services and cutting prices across Ireland, it was inevitable that Aer Arann would be forced to retrench. In 1984 it withdrew back to its narrow routes, abandoned its expansion plans and focused instead on flying to the islands. Remarkably perhaps the airline never went under and has been able to resuscitate its ambitions in recent years. It now operates flights from a number of Irish airports to destinations across Ireland, the UK and one continental European destination.

Tony Ryan, his GPA millions burning a hole in his pocket, was prepared to take the fight to Aer Lingus at a time when Avair's experience would have discouraged most aspiring airline entrepreneurs. Along with Lonergan and another early collaborator Christy Ryan, a namesake but not a relation, Ryan would have the field to himself.

The airline would bear Tony Ryan's name and swallow his cash, but it would be owned by a trust of which he would not be a beneficiary. It was an arrangement that allowed him to honour his contract with GPA, which prevented him from owning an airline. Ryanair was, he said, for his children. Declan was working in the airline industry in the United States at the time, while Cathal had trained as a pilot. Both were appointed directors. Shane, the youngest son, was still at school when the airline launched, but he would too become a beneficiary of the trust that owned the company.

No matter the ownership structure, the new airline was very much Tony Ryan's baby, and he was determined it would be successful. His determination to launch a new carrier came, in
large part, from his knowledge of what deregulation had already achieved in the US air transport market. Ryan's GPA leased planes to American operators, and Ryan excelled at predicting future growth patterns for the industry. He believed that deregulation in Europe would inevitably follow deregulation in the US, and he wanted to be one of the first to take advantage of the new regime. In the early 1980s Europe's aviation market was dominated by legacy carriers – state-owned airlines heavily subsidized by state coffers. State support had allowed these airlines to wallow in their own inefficiencies, and competition was nearly non-existent.

Aer Lingus and British Airways had no interest in increasing the size of the market on routes between Ireland and Britain; all they wanted was to extract the highest possible price from every passenger. Competition between the two was irrelevant, because at the end of each year the two airlines simply divided the revenues from the routes between themselves. There was no incentive for either airline to win business, because the spoils would be split.

Change had long been in the hands of the politicians, but there was an initial reluctance to embrace reform because they feared that competition would destroy the market rather than prove a catalyst for growth, a view encouraged by Europe's legacy carriers, which exerted exponential influence on their own departments of transport.

Aer Lingus, which knew it would feel the direct brunt of any new competition, had lobbied intensely against it, arguing that it would bring about its destruction and, by extension, that of Ireland's tourist industry. The airline insisted that the market would be cannibalized, not stimulated, by competition: that no more passengers would fly, but that the existing pool of passengers would just be divided up between more players at lower prices, causing every operator to lose money. While the airline was confident that it could squeeze out local competitors on the Dublin to Britain routes – Avair's speedy collapse into bankruptcy had convinced Aer Lingus's executives that they knew how to kill local upstarts – what it feared most of all was a transatlantic raid on its lucrative routes to the United States.

Aer Lingus's policy, and the policy of Ireland's department of transport, was unremittingly hostile to increased competition on the transatlantic market. The airline argued that competitors would simply cherry-pick the most profitable summer months, leaving the state airline to bear the burden and costs of an all-year service. It was determined to fight tooth and nail to protect its position: local competitors could be crushed by classic predatory pricing, and international carpetbaggers would be fought through the courts, through the Dáil and by a rule that forced transatlantic flights to stop at Shannon airport on their way to Dublin.

Irish consumers, who owned the airline, were never high on the Aer Lingus list of priorities. Its responsibilities were to its workers, who were heavily unionized, and not to its customers. The sheer size of the airline – it employed nearly 10,000 people in 1984 – gave it significant political power, but its near-monopoly status did not guarantee that it made profits.

Its patchy financial performance was used to demonstrate not that the airline was poorly run, but that the market could not sustain competition. Indeed the poverty of Aer Lingus's performance actually had government approval. Jim Mitchell, the minister responsible for Aer Lingus, told the Dáil in 1984 that ‘for the first time since 1979/80 Aer Lingus have returned to profitability. The company are hopeful of making a net profit of £3 million in the year ending 31 March 1984 after taking into account an exchequer cost alleviation payment of £4 million to help the airline during a period of particular difficulty on the North Atlantic.'

In other words, Aer Lingus would make a profit of £3 million after receiving a cash injection of £4 million. It was, however, an improvement, as Mitchell explained. ‘Compared with net losses of £13.6 million in 1980/81, £9.2 million in 1981/82 and £2.5 million in 1982/83 [the latter figure took account of an exchequer “cost alleviation payment” of £5 million], the company's expected results for 1983/84 represent a significant improvement, particularly against the background of the very difficult trading conditions which continue to prevail.' The government and Aer Lingus might have been fooling themselves, but the reality of the airline's poor
performance was difficult to hide. Because, apart from the cost alleviation payments the Irish government had also pumped in £15 million in 1983 and was about to pump in another £15 million in 1984.

Aer Lingus had embarked on an expansion strategy that had seen it invest in a host of non-airline businesses, like hotels, recruitment, travel agencies, robotics and maintenance. Its senior management team, headed by David Kennedy, then CEO, believed that the cyclical airline industry was simply too risky and that the company needed to diversify to safeguard its earnings. It was a credible strategy for the time, but it meant, says one former senior executive, ‘that the core airline business was starved of investment and the better managers were moving into the newer businesses, because that's where the profit was. The fleet was getting older and that was becoming a major problem.'