by Alan Ruddock
O’Neill’s marketing skills won him recognition from the media – Ryanair won the Sunday Tribune’s advertisement of the year award in 1987 for a campaign against Aer Lingus – and the admiration of his staff. The customers, too, were happy – the service was often as chaotic as the airline’s finances, but in a country gripped by recession Ryanair’s low prices won the airline many fans. Reservations, handled by phone and often scribbled on pieces of paper, were routinely lost, but the early Ryanair put a premium on customer relations.
‘We were so customer-focused in the very early days that if you were a flight steward or stewardess and you clocked in for your flight maybe an hour beforehand and the flight was delayed, you’d be sent up to the boarding gate, and you’d float around the boarding gate talking to passengers, apologizing profusely and buying them a cup of tea or coffee. So people loved it,’ says Clifton. ‘It was very touchy-feely. And, erm, pretty hopeless. People really liked that, but it was unsustainable.’
European expansion, however, remained elusive because of the government’s refusal to grant new route licences. Ryanair’s ambitions to get a foothold in the continental market were continually thwarted by the government’s willingness to protect Aer Lingus from further competition.
Frustrated by his failure to win licences to Paris and Amsterdam Tony Ryan had dabbled with European expansion by paying £630,000 for an 85 per cent stake in struggling Luton-based London European Airways in late 1986. Ryan’s original intention was to run LEA and Ryanair separately, with Cathal Ryan at the helm of the new UK operation. In January 1988, however, LEA was relaunched as Ryanair Europe, and began to cooperate with Ryanair, allowing the Irish airline to sell services from Dublin through to Brussels using Luton as a hub. Despite a steady trickle of Ryanair passengers, Ryanair Europe’s attempts to start profitable services from London to Amsterdam and Brussels foundered quickly and the airline limped to eventual closure at the start of 1989.
The profit Ryan had envisaged for Ryanair remained similarly elusive, and by mid-1987 his airline had racked up losses of more than £2 million. The money itself wasn’t a problem for Ryan – in 1987 alone his dividend from GPA had been in excess of five million – but he was becoming increasingly frustrated with Ryanair’s swelling losses despite its rising passenger numbers, and with its failure to provide a serious challenge to Aer Lingus beyond the Irish Sea.
O’Leary too was getting restless. In the previous two years he had made about £200,000 from the newsagents – ‘serious twine’ as he puts it – but his interest in shopkeeping was waning. ‘I was bored,’ he says, ‘but it was very good money. I wasn’t overly concerned about the future. I just wanted to make a lot of money by the time I was thirty.’
He had, he says, no grand plan, just a hunger to make money. The shops were sold, and O’Leary invested his money and his energies in property dealing. ‘I’d made very good money in the newsagents,’ he says. ‘I’d had enough of them and I sold them, bought some property, was making some nice money. That was the first time I didn’t need to work for money.’
He felt invincible. Barely three years out of university, with a short career in tax affairs already in his past, he now had more money in his pockets than any of his contemporaries – and more, indeed, than many of the partners in the accountancy firm that he had left behind. He could choose his own future and decided that he still had plenty to learn. Smart, driven and ambitious, he decided to see whether Tony Ryan, who had courted him in the past, was still prepared to offer him a job – on O’Leary’s terms.
O’Leary wanted to learn at the feet of a master, and money gave him the freedom to try his luck. He decided to offer his services to Ryan for free, asking only for a 5 per cent cut of any money that he made for Ryan in a year. Ryan didn’t hesitate. O’Leary was hired as a personal assistant or apprentice with a bizarre array of duties ranging from the menial to responsibility for overseeing Ryan’s private investments.
‘I just wanted to see how somebody at that level operated,’ he says.
Ryan was working at an international level; I had been working at a newsagent in Walkinstown. I’d already worked at SKC, so I’d seen a lot of big Irish business. But here was a guy who was going across the UK, across the US, across Asia. He had a global business and I don’t think there was another business like it – maybe Jefferson Smurfit [the packaging giant] was close – but there certainly wasn’t another business like it in Europe. He was the guy who started with nothing and was going all the way across the world. And I thought if I can’t learn off this guy in a year or two…
O’Leary’s learning curve was steep in his first year with Ryan.
Ryan’s style was abrasive: he did not suffer fools, ruled his company aggressively and regularly savaged his senior executives at their weekly management meetings. He demanded excellence, worked obsessively long hours and was at the peak of his considerable powers. A consummate salesman and superb negotiator, Ryan also understood the dynamics of the airline industry better than the men who ran it. His ability to predict the industry’s fortunes and to plan for future trends before they were apparent had made GPA astonishingly profitable, and its location in Shannon airport’s business park allowed the shareholders to take tax-free dividends each year. The company had just reported profits of $25 million for 1986, and 1987’s profits were expected to almost treble.
Under Ryan’s dominance GPA was a battleground, with little room for the faint-hearted. Each week started with an 8 a.m. meeting at Kilboy, Ryan’s farm in County Tipperary. The meetings were infamous for their bad temper. The cellar in Kilboy was the nerve centre of the operation. Filled with electronic equipment, it resembled NASA mission control, where Ryan could track the planes that he had leased and the movements of his GPA executives throughout the world and chart them onto large maps.
Anxious to be accepted as a serious player in world business circles, Ryan collected a heavyweight board of non-executive directors, inviting high-profile businessmen and statesmen to join GPA. The company was growing so fast and was making so much money that a stock market flotation was already a possibility; big names, he believed, would ease his company’s acceptance and would enhance its burgeoning reputation. In April 1987 Ryan secured the services of a former Irish taoiseach, Dr Garret FitzGerald, who had just retired from politics. FitzGerald was joined on the board by Sir John Harvey-Jones, who had just left ICI, the chemical company, and who had chosen the GPA appointment over a position on several other higher-profile boards.
While GPA prospered, however, Ryanair continued to struggle financially.
‘I was trying to get involved in private investments,’ recalls O’Leary, ‘like the farm at Kilboy and Ryan’s property investments. [Ryan] had a huge dividend income from GPA, and I had to advise on what to do with the money.’ O’Leary had come in at a time when Ryan’s personal finances were in some disarray. Money had been lost on a variety of failed investments ranging from an Irish Sunday newspaper to a jetfoil boat service, according to O’Leary.
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.
5. Pearly Gates
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.
