Michael O'Leary (45 page)

At the end of October the final list of thirteen interested bidders was unveiled, and O'Leary wanted to proceed at speed to actual construction. He would be frustrated. As he complained to Brennan in a letter, ‘Your department now proposes to waste two further years appointing consultants, designing, planning and tendering, with the result that even allowing for no slippages in planning, etc. a new terminal won't be available until summer 2006, almost the entire life of the present government. This is ridiculously lethargic.'

He backed his call for immediate action with his own proposals for the second terminal. Under Ryanair plans the facility would
cost €114 million to develop, would be able to handle ten million passengers a year and would be operational by 2004. The airline also backed plans to build a third terminal at the airport, but to no avail. Brennan's spurt of activity, his promise of early action and his sense of urgency had swiftly dissipated. The debate about a second terminal went far deeper than economics and passenger comfort; it was a political argument and a deeply divisive one. Brennan faced formidable opposition from the unions and from Aer Rianta and, by extension, from members of his own government, who had no interest in going to war with the unions, particularly if the main winner of that war was Michael O'Leary.

O'Leary's belief that all publicity was good publicity had been severely tested in the preceding months. Earlier in the year he had stumbled into a political row when his decision to open a route to Austria's Klagenfurt airport had turned into a publicity stunt for Jörg Haider, the far-right Austrian politician. The alleged attempted hijacking in Sweden had caused another flurry of headlines, resurrecting fears of another 9/11-style terrorist outrage, and then came news of the court action against Ryanair by Bob Ross. Passenger bookings were holding up, but the company's share price was not.

O'Leary needed to review his public- and investor-relations strategies, and he needed to improve the share price performance. At the time the company's in-house communications unit was low key, reporting to Michael Cawley, and not directly to O'Leary, who dealt mainly with Murray Consultants, Ryanair's external PR advisers. The challenges that lay ahead required a new strategy and O'Leary decided to appoint a communications manager who would report directly to him, and to give the position senior executive status. O'Leary judged candidates on two main criteria: they had to be strong-willed enough and self-confident enough to handle him, and they had to have an instinctive understanding of how the media worked.

His choice was Paul Fitzsimmons, a young Northern Irish man who knew nothing about the airline industry. Fitzsimmons, who worked for Today FM, a young independent radio station,
had been a journalist and understood the media, but he also had to handle Eamon Dunphy, Today FM's explosive and unpredictable star performer. Dunphy, a former footballer, was Ireland's self-styled media maverick: abrasive, opinionated and addicted to controversy. Fitzsimmons says,

He thought if I could handle Dunphy I could handle him. Dunphy is tough and he's demanding and he rants and he raves. And also he wanted someone who really could understand media. I'm a journalist by profession. I didn't know anything about airlines. I did my usual read-up before the interview, but when I got there I realized I knew nothing about it. And he said that's a distinct advantage, we don't want people with baggage and the old way of doing things.

Apart from the steady onslaught of poor publicity, O'Leary was also conscious that his own high profile had created the impression that Ryanair had metamorphosed into O'Learyair – a perception which was accurate but dangerous for the company, and particularly for its relationship with investors. A key part of Fitzsimmons' role would be to withdraw O'Leary from the media spotlight and build up other managers in the company so that Ryanair would be perceived as a mature business rather than a one-man band.

The overriding strategy was to withdraw him and build up [Michael Cawley and Howard Millar]. If I had an investment magazine from the US ringing up asking lots of financial stuff, I'd have said to O'Leary, ‘Let Howard handle this one.' If it was something they were comfortable with, no problem. But if it was anything outside of that, or a sticky situation or anything we needed to put our dancing shoes on for then it would have been me and O'Leary all the time.

O'Leary left Fitzsimmons in no doubt about his publicity philosophy.

In my first week there was a huge article in the travel section of the
Sunday Telegraph
, O'Leary's dream paper. They'd spent a day at Stansted,
and it was shitty weather and there were lots of flight cancellations and delays and stuff and this was two pages in a big important travel section.

I said to Michael, ‘Did you see that piece in the
Telegraph
?' And he said, ‘What was wrong with it?' And I said, ‘We were slated, the flights were late, there was no information, it was awful.' He said, ‘Come here and have a look at the booking figures for Sunday.' [The
Telegraph
story] was the only story about us that Sunday. And the figures had actually gone up. He said, ‘There's no such thing as bad publicity.' And so, on the premise that there is no such thing as bad publicity, we went after everything.

We'd have done anything to get publicity. We were complete full-on prostitutes for publicity.

Ryanair's relentless expansion into Europe was now more than just an irritant to the major airlines who had failed to anticipate the growth of low-cost travel. Air France, Lufthansa and British Airways had all been forced to slash airfares on short-haul routes to stave off the competition from Ryanair, easyJet and the growing number of small low-fare carriers who were eating away at their business. Now the fightback was about to move to a different level.

In October Ryanair launched a twice-daily service between Strasbourg in north-eastern France and London Stansted. Amid the fanfare of the launch Ryanair mentioned that it would receive €1.4 million in marketing support from the airport for the launch of the new route. Brit Air, the Air France subsidiary which was Ryanair's main competitor at Strasbourg, was not impressed. In November Brit Air's chairman Marc Lamidey publicly denounced the marketing support as a ‘subsidy' and threatened to sue the local chamber of commerce, which owned the airport, unless the same offer was made available to his airline.

Lamidey's complaint, which would grow into a legal action, was the first strike in Air France's campaign against Ryanair. Weeks after Brit Air complained about Strasbourg the EC confirmed that anonymous allegations had been made about Ryanair's relationship with Charleroi, the state-owned airport near Brussels. ‘What we are doing is opening investigation proceedings into the advantages
granted by Wallonia [the regional government that owned the airport] to Ryanair operating from Charleroi,' Transport Commissioner Loyola de Palacio announced. She said that her commission had been conducting informal investigations into the situation at Charleroi for about a year, having received a complaint from an unnamed Ryanair competitor. That informal probe had raised ‘doubts regarding the nature of the measures taken by [the Belgian authorities] which exclusively benefit Ryanair and might constitute state aid incompatible with the proper functioning of the internal market'.

For O'Leary, de Palacio's decision to launch a formal investigation represented a serious worry. It was one thing to scrap with competitors, slashing fares and running in and out of court, but it was quite another thing to do battle with the EU. The European Union's commissioners tend to be seasoned politicians, often former cabinet ministers in their own countries. Nominated by their governments, the commissioners preside over the vast Brussels bureaucracy and have wide-ranging powers. De Palacio would be a dangerous foe for O'Leary, and was less vulnerable than elected politicians to his normal tactics of denigration and mockery.

Ryanair's operations at Strasbourg and Charleroi went to the heart of its business model. O'Leary used small regional airports for straightforward operational reasons – lack of congestion made for fast turnaround times – but a central motivation was money. Small underutilized airports were desperate for business and open to negotiation. Landing charges could be reduced to nothing or next to nothing, and O'Leary could also extract marketing contributions for each new route opened. Minimal landing charges combined with marketing incentives meant that Ryanair's costs were substantially lower than the costs of airlines that flew to more traditional and more expensive airports.

‘People always think the marketing support is a bit fishy but it actually isn't at all,' says one executive.

What we say is we're going to advertise your destination because we're the carriers, but you actually get the benefit. If €20,000 is spent on a
newspaper advertisement selling flights to somewhere, the benefit from those passengers does not stop the second they hop off the plane. The beneficiaries are the airline
and
the region. Essentially we are saying that if we're charging £19 for a flight to Strasbourg and Brit Air are charging £119, that's an extra £100 that the passengers are going to spend in your shops, in your hotels and restaurants and therefore there's a benefit.

At Charleroi, though, the benefits to Ryanair had been extensive. The airport had agreed to pay hundreds of thousands of euros towards Ryanair's recruitment and training costs and €160,000 for every new route. Ryanair was provided with free offices, and landing charges were set at €1 per passenger, less than a tenth of those at larger airports.

Most alarming was the realization that de Palacio's investigation had the potential to spread to every state-owned airport with which Ryanair had struck deals, and could unravel all of them. ‘We were in Milan doing a press conference when [news of the investigation] broke,' says Fitzsimmons. ‘We were fielding phone calls from journalists. We were trying to get holding statements put in place, and then when we got back to Dublin we thought, Oh fuck, this is going to be serious.'

O'Leary was for once uncertain how to respond. Should he choose all-out aggression or feign indifference? Initially, he went for indifference. ‘The arrangements at Charleroi airport are competitive, non-discriminatory and available to all,' he said. ‘Ryanair have no concern about any formal or informal inquiries made by the EU into our successful operations at Brussels Charleroi. Firstly, [the inquiry] will have no impact on Ryanair. Secondly, we welcome it.' He told the
Financial Times
, ‘Someone here is looking for a smoking gun and there isn't one.'

He also resorted to his favourite diversionary tactic of launching a seat sale, offering 200,000 seats to or from Charleroi for €9.99.O'Leary's public sangfroid, however, did not placate the markets. Stock market analysts fretted that challenges to Ryanair's lucrative deals with state-owned European airports could destroy its business plan, and the airline's share price subsided.

Indifference was clearly not going to work and O'Leary changed tack. The investigation, he decided, had to be portrayed as yet another David versus Goliath battle. He had to paint Ryanair as the champion of cheap fares for the common man, and the commission as the bureaucratic bad guys who, if they made the wrong decision, would be punishing the people. O'Leary put out a statement:

Ryanair and Brussels Charleroi Airport have been the champions of low fares choice and bringing the cost of air travel within the budget of ordinary consumers and not just the rich. Ryanair will continue to fight for low fares in Europe. We remain confident that the politically motivated investigation launched by the Commission this week will ultimately confirm that Ryanair's low-cost base at Brussels Charleroi is not in breach of state aid rules and we hope that Commissioner de Palacio will move quickly to expedite this investigation and allow Ryanair to get on with the process of rolling out competition, consumer choice and low fares all over Europe.

More than a quarter of the airports with which O'Leary had struck deals were state-owned, and therefore liable to investigation by the EU, whose remit was to prevent government subsidies from distorting the market place.

The irony was not lost on O'Leary. The EU was using powers it had been given primarily to prevent governments from bailing out national airlines to attack a private airline that had brought competition to Europe's skies. It was a legalistic and bureaucratic twist that infuriated him but that he could not avoid. He could argue that Ryanair's planes brought hope and prosperity to regions, like Charleroi, which had been dying before his airline's arrival; he could argue that low fares were egalitarian, that they worked in favour of closer European integration by making possible a mobile labour market; but he could not deny he was receiving payments from airports. And since a number of those airports were owned by the states in which they were located Ryanair was in receipt of state money. The key questions were whether that
money was a subsidy that distorted the market, and whether it was available to all airlines or just to Ryanair.

For the commission, its investigation of Ryanair would be a precedent-setting case that would establish the ground rules for the new low-fare market as it expanded across Europe. Its difficulty, however, would be in distinguishing competition between airports and competition between airlines. Was Ryanair's deal with Charleroi a problem for other airlines or a problem for rival airports? And how to balance the needs of a small airport trying to break into a new market with the needs of an established airport? Ryanair's case was further complicated by the fact the regional government was accused of giving illegal aid to a foreign rather than to a Belgian airline, an unusual twist on the more common accusation of governments propping up their own national carriers with taxpayers' money.