Michael O'Leary (8 page)

Ryan had originally planned to base his new young assistant at his home in Kilboy, but that plan was abandoned because of Ryan's growing frustration with the financial problems at Ryanair. ‘By the time I started there was a crisis at Ryanair,' says O'Leary, ‘and I was sent in.'

The crisis stemmed from Eugene O'Neill's dash for growth. The young Ryanair managing director had decided to forge ahead with the airline's expansion into regional British airports, even though this would put him on a collision course with Aer Lingus. The Irish government was happy to approve Ryanair's expansion into the UK, but still refused to let it challenge Aer Lingus on the lucrative routes to continental Europe.

But for Ryanair the figures didn't stack up. Even though it was
carrying more passengers than ever, it was also losing more money than ever. O'Neill's expansion strategy was being shot down in flames by Aer Lingus, which fought back viciously on price and by increasing flights, and Ryanair was increasingly exposed. It could not compete with Aer Lingus's apparently bottomless pockets and instead of standing on its own feet and trading profitably on the back of its passenger growth, it was fast becoming a costly embarrassment to Ryan. He needed to find out what was going wrong and how his pet project could be salvaged. And so he turned to his new assistant.

When Michael O'Leary first walked into Ryanair's central Dublin offices at the beginning of May 1988 it was, he says, ‘like you'd arrived at the pearly gates'.

Although the airline had lost ever-increasing amounts of money since its launch three years earlier, its lavishly furnished offices screamed success. O'Leary recalls a ‘gorgeous blonde chick at every desk', plush carpets, beautiful furnishings, and then the pièce de résistance: the chief executive's office, which was dominated by a ‘huge big massive table' so large it could not be carried up the stairs; the windows had to be removed to get it in and the floor strengthened to support it. The effect was dramatic: instead of a sense of crisis, there was still a buzz of expectation. ‘The place was a shambles and yet it was still amazingly sexy,' O'Leary says.

The young Ryanair was living up to airline tradition. It may have been the dynamic newcomer, the upstart that would challenge the Aer Lingus–British Airways duopoly over the Irish Sea, but it was going to mount that challenge with style. When it launched new routes, it would do so in the extravagant style so beloved of airlines at the time. Commemorative crystal glasses and gold-plated letter openers engraved with the name of the route and the date of the first flight were ordered by the hundreds to hand out to staff and passengers. Champagne flowed at the launch parties as the new airline wooed the media, projecting the image of a young successful company that was going to take the industry by storm.

It was an exciting, glamorous and chaotic place to work, a shaft of light in an Ireland that was still in the depths of economic gloom. It was also a company full of young people and run by young people. Eugene O'Neill, the chief executive, dressed sharply, courted the newspapers and projected the image of a new generation of Irish business leaders. Ebullient youth was replacing the
stodgy corporate grey hairs, but it was not making any money. In its first year of operations Ryanair lost £4 million, followed by £5.5 million in 1986 and a further £7 million in 1987. The more passengers it carried, the more money it lost.

‘The place was in a mess. There was no cost control. They were trying to be a me-too airline like everyone else and not really succeeding very well with it,' O'Leary says. O'Leary's role was to find out what was happening, and to ensure that further money did not flow into a black hole. It was a heavy responsibility for a twenty-seven-year-old with no experience of the airline industry, a man who had failed to stay the course in his chosen accountancy profession and whose only commercial success had been to turn a profit on a few corner shops. O'Leary had made no effort to study the airline industry before he walked through Ryanair's doors for the first time. His immediate objective was to stop the airline bleeding cash, not to understand the dynamics of a global industry.

At first, he could see no hope for Ryanair. ‘No one had a handle on the finances and money was leaking out all over the place. All Ryanair was doing was cutting 20 per cent off the fares charged by Aer Lingus and British Airways and losing loads of money.' It took him less than a month to conclude that Ryanair could not be turned around and that it would continue to be a drain on Ryan's wealth. He had but one solution: close it down.

Declan Ryan agreed and both men travelled to Kilboy to tell Ryan their conclusions. He disagreed, refused to close the airline that carried his name and told them to sort it out. Ryan's stubbornness was not grounded in blind faith alone. GPA made its money by leasing aircraft to airlines across the world and Ryan knew how poorly those airlines were run. ‘He made millions from their incompetence,' says O'Leary, ‘and he thought he could do it better than them.' The trouble was, O'Leary adds, that Ryan may have thought he understood the industry but in truth he knew ‘fuck-all' about running an airline. O'Leary knew even less, but he was to prove a better student than Ryan.

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By May 1988, the month O'Leary arrived at the Ryanair offices, O'Neill was able to boast to the London
Times
that ‘in one day we are taking more telephone calls than in a week last year. Competition has benefited everyone. All the airlines on the [Dublin–London] route are now carrying more passengers.' But while his confidence was high, his accounts were a mess.

Throughout the first half of 1988 O'Neill had pressed ahead with Ryanair's expansion, ignoring the financial returns and concentrating instead on driving his passenger numbers ever higher. On 1 March he launched a Dublin–Manchester service in direct competition to Aer Lingus, and by April Ryanair was operating fourteen flights a week on the route. Also in March O'Neill launched new services from Galway to Luton and followed that three weeks later with Shannon–Luton. In April, while increasing the number of flights on the Manchester route, O'Neill went head to head with Aer Lingus on the Dublin–Glasgow route as well, and in May, as O'Leary started his forensic analysis of the accounts, O'Neill pitted Ryanair against the national carrier once again, this time on Dublin–Liverpool.

It was a suicidal strategy. Following the first wave of European deregulation in 1987, which brought an end to the bilateral agreements that allowed airlines to carve up routes between themselves and loosened the restrictions on what fares could be charged, Aer Lingus had decided to build up its operations into and out of Manchester. This, the airline's management believed, was Aer Lingus's future in a world of unrestricted air travel. It would be a connecting hub for services to Amsterdam, Copenhagen, Hamburg, Milan, Paris and Zurich. In a foreign country, Manchester allowed Aer Lingus to compete directly with British Airways in a market more than ten times the size of Ireland.

Developing Manchester would be Aer Lingus's response as Europe cut back on the red tape and started to liberalize the industry. The 1987 measures were the third stage of a process that would carry on for another decade as European Union airlines were allowed to fly between other member states as long as they started in their home country. So Aer Lingus could fly from Manchester
to Copenhagen if the flight started in Dublin. This allowed it to pick up passengers in Manchester for the Copenhagen leg of the flight, and it could also market the route in Britain. It was an elaborate response to the new freedoms on offer, but Aer Lingus believed it would be able to compete profitably in the bigger British market, catering to the millions in the north-west of Britain who did not want to travel to London to catch a European flight. It also had longer-term plans to link up with airlines in Asia and the Far East, but for the moment it was committed to becoming a European player. Ferrying passengers from Ireland to its new European hub was an essential part of the strategy and it was prepared to defend it with as much firepower as it could muster. O'Neill's decision to challenge it head on ensured a sharp response, just as his decision to chase Aer Lingus's other UK routes ensured that he would face a host of price wars, and not just one.

Aer Lingus responded to Ryanair's attack by cutting prices and increasing the number of flights on offer on the newly competitive routes. The response was so savage that some Ryanair executives began to suspect a conspiracy. ‘You got the sense that Aer Lingus was happy to allow Ryanair to get these routes because it believed it could finish it off,' says one former Ryanair executive. ‘It was like an ambush, and they gunned us down.' By July, just four months after Ryanair launched its Manchester route, the airline was forced to cut its flights there to eight a week. Three months later it pulled the route completely, its expansion strategy in tatters and its finances blown apart.

Ryanair's Glasgow challenge to Aer Lingus met a similar fate. The national carrier lowered its prices and timed its flights so that they took off earlier than Ryanair's. This was so effective that Ryanair abandoned the route in September.

The impact of the new routes – however short-lived – and the extra capacity and rising passenger numbers that they delivered had a further debilitating effect on Ryanair because they meant that the airline needed more planes. O'Neill, driven by the desire to expand no matter the cost, decided to order two new turboprop ATRs at a price tag of $18 million.

Watching from the sidelines, O'Leary could see that O'Neill's expansion strategy was putting the airline on course to self-destruct. ‘They were opening routes fucking left, right and centre, the route network was nuts,' he says. ‘They had no fucking schedule at all. O'Neill got blown off Liverpool because he went in twice a week and Aer Lingus was doing Liverpool three times a day. No wonder they blew him away.'

O'Leary is also critical of the state of the Ryanair fleet at that time. ‘When I got here they had two BAE 748s, fifty seats; they had signed a lease with GPA for brand new ATR 42s which they didn't use; they were wet-leasing [taking both planes and crews] about six BAC One-Elevens from the Romanians. It was madness. It was all planes, planes, planes and no airline,' he says, because the strategy was chaotic.

The scale of the financial chaos started to become clearer once O'Leary started trawling through the paperwork. A Ryanair board meeting in July 1988 was told that the airline was on course to make profits of about £1 million, but O'Leary quickly shattered that illusion. ‘It [the profit] was completely estimated,' says O'Leary. The airline did not have a proper system for collecting money that it was owed and was saddled with bad debts – unpaid bills from travel agents and customers that had to be written off…It took little more than a cursory glance to realize that instead of making profits it was going to lose between five million and ten million.

The discrepancy between O'Neill's estimated profits and O'Leary's estimated losses was a rude awakening for Tony Ryan, and made a mockery of O'Neill's claims of success.

‘There was a massive hole [in the Ryanair accounts],' O'Leary says.

The numbers were rubbish. There was nobody collecting cash. We didn't know how much money we had, except we had nothing in the bank. The bottom line was that if Ryan didn't give us a million by the next Friday we couldn't pay the wages. There was no cash in the company, and that was the problem…The turnover in 1986 was
£4 million, and the cash at the end of the year was £18 million. The turnover in 1987 was £18 million and the cash at the end was £310,000. Where the fuck was our money?

We actually came to a point one night where we bounced a cheque to Aer Rianta for £24,000. They said if the cheque didn't go through on Friday they were going to put a yoke on the front of the plane [and seize it]. We had to call Tony and tell him we needed twenty-five grand or Aer Rianta were going to shut us down. Something had to give.

O'Neill, though, appeared oblivious to the source of the airline's crisis and the severity of the situation. ‘Eugene said this is all the fault of Aer Lingus,' says O'Leary. ‘He said if you allow me to sue Aer Lingus for anti-competitive [practices] in Brussels we will get 300 million in compensation and Aer Lingus will be ordered off the routes and all will be well.' The answer, thought O'Leary, was simpler: ‘There is a hole in this fucking company.'

The Ryanair board's response to O'Neill's proposal to haul Aer Lingus before the Brussels competition authority was blunt. He was told that Ryanair depended on the Irish government for its route licences and could not sue the state-owned carrier. And the board had begun to recognize, too, that the problems went deeper than the crippling battle with Aer Lingus. O'Neill's time was up, and he was acrimoniously fired at the start of the summer.

‘There was a meeting in a hotel, and Michael and Eugene were sitting beside each other on the podium,' says Charlie Clifton.

They announced that Eugene would be departing the company. They just said he was moving on to pastures new.

It wasn't evident to us at the time, but looking back it's clear that financial controls had been very lax under Eugene. The staff loved him because he was a bright shiny thing.

He'd give you anything. The purse strings were loose. For example, we were supposed to pay for our uniforms at the start – we signed up for it. Six months in he said look, don't worry about it, you've worked so hard. Of course that's nice, that's really nice. But nice costs money, and that's why we lost a shit load of money.

O'Neill's strategy of pursuing growth at breakneck speed had firmly positioned Ryanair as a serious player in the market – by the time he was fired the company had a 20 per cent share of the Dublin–London market – and had established the Ryanair brand in the marketplace. But success in positioning the airline had come at a very heavy price – one that he thought Tony Ryan was willing to pay. The early Ryanair never managed to shake off the sense that it was an indulgence for Tony Ryan, a plaything for his sons rather than a serious commercial operation. Money, so O'Neill thought, did not really matter in those early years because Ryan had plenty. The objective, he argued, was to build a business that would eventually make profits.