by Alan Ruddock
‘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.
O’Neill was only partly wrong. Despite the millions he had poured into Ryanair, Tony Ryan was not struggling for cash. A few weeks after dismissing O’Neill, Ryan spent £35 million acquiring a 5 per cent stake in the Bank of Ireland, the country’s most prestigious financial institution. O’Neill’s problem was that the state of the airline’s finances was hidden from view and investors, no matter how wealthy, hate surprises. Ryan had been led to believe that the airline’s success in attracting passengers had started to translate into bottom-line profitability – O’Neill’s wildly optimistic estimate that the airline would make profits of a million pounds that year had been unravelled late in the day by O’Leary – but the truth was different. Under O’Neill the company’s accounts had become a black hole and his expansion strategy was fraught with risk. Instead of seeking out markets that were underserved, he had chosen to pitch Ryanair directly at Aer Lingus, inviting the national airline to strike back. It had, and had finished him off: Ryanair’s ignominious retreats from Manchester and Glasgow were a sad epitaph for a man whose energy and charisma had put the airline on the map, but whose lack of basic financial acumen had cost him his job.
Bitterly angry at his ousting, O’Neill launched a series of court actions against Ryanair and, bizarrely, against Aer Lingus and its chief executive David Kennedy, claiming that they had all conspired together to reduce the value of his shareholdings in Ryanair.
O’Leary recalls the events with bewilderment. ‘He then said he was removed because he wanted to sue Aer Lingus and the Irish government, and Tony Ryan wouldn’t allow him…And then he said that we were cooking the books just to shaft his court case, and make it look like he was incompetent.’
Eventually O’Neill settled his case against Ryanair – the Ryan family bought back his shareholding in the company – and subsequently lost his action against Kennedy. A career that had promised so much had passed its zenith, and as O’Neill was dismissed, his legacy was already being dismantled. ‘People would have been pretty loyal to Eugene and they would have been pretty shocked at his dismissal. The old guard left when Eugene left,’ Clifton says.
But while O’Neill’s exit from Ryanair was acrimonious, O’Leary sees the value in O’Neill’s reign.
In a perverse way, if Ryanair had been run properly from the start, it would never have got off the ground. Eugene had a lot of faults, but he did such a good job with the marketing and he gave it great credibility from a standing start. If it had been started by a bunch of accountants it would never have gotten the credibility. And so in a fucked-up bizarre way, the best way to do it was to start with the panache and the style. Problem was, what they hadn’t built into the model was a cheque for ten million to pay for all this pizzazz.
With O’Neill out, O’Leary was becoming a more powerful force in the company. His style was in sharp contrast to O’Neill’s flamboyance. O’Leary worked from a modest office at Ryanair’s Dublin city headquarters and was rarely seen at the airport. Most of the airline’s staff had no reason to know he existed. Those who did were not to know that he was not even a company employee, but was instead personal assistant to the man whose money funded the company, even if that man’s children held nominal control. O’Leary’s role was to report to his master, not to the board or other executives. His brief was to watch over Ryan’s personal investments, and Ryanair was the biggest and most expensive of them all.
‘When he started he was very much shut away in head office,’ says Clifton. ‘The staff hadn’t a clue who he was. He was another guy who worked in College Park, who was fairly high up. That was it. Nobody assumed that he was a hatchet.’
O’Leary’s personal life was as understated as his approach to business. He drove a Honda Civic, a car more suited to students than business executives, and lived in an apartment on Morehampton Road in Dublin’s Donnybrook, a low-key if affluent suburb near the city centre. He rarely socialized in Dublin, returning to his parents’ farm in Mullingar most weekends. And while the young O’Leary grappled with the complexities of the airline industry – and any other problems thrown his way by Ryan – his father continued down his own entrepreneurial path, evolving from rendering plants and rabbits to his latest venture, making herbal remedies from nettles picked by students on the family’s land.
O’Leary’s working life did not, yet, revolve completely around Ryanair. His knowledge of the industry was thin and his responsibility was narrow. He was charged with finding out where the money was going, not with charting the airline’s future. And as Ryan’s assistant he still had other investments to divert his mind from Ryanair’s difficulties, including Ryan’s shareholding in the Bank of Ireland. O’Leary was not a candidate to replace O’Neill as chief executive and had no desire to take the job even if it had been offered. He did not want to become centrally involved in an air
line that he believed had no future, and Ryan wanted to import a seasoned aviation industry professional to instil much-needed management discipline.
While he sought the right candidate he installed his son Declan as interim chief executive. Four months later Ryan appointed Peter (P.J.) McGoldrick to the position in October 1988. O’Leary would maintain his watching brief but remain in the background. ‘P.J. McGoldrick was sent in as a fireman,’ says one former executive. ‘He was expected to stem the losses and turn it round. There was a lot of confidence that McGoldrick would be able to do it.’
McGoldrick had a track record in the aviation industry, but not one which was a natural fit with a commercial airline business. He had run an air transport company out of Stansted airport in Essex and had subsequently sold it to Trafalgar House, a British conglomerate with diverse interests in shipping, hotels and the Far East. Ryan, his reputation as businessman on the rise, had been invited to join Trafalgar’s board, and when he came across McGoldrick he identified a ‘fellow traveller’, according to an executive who knew both men.
McGoldrick, at forty-nine, was substantially older than his predecessor and most of his workforce. He lived in Killaloe in County Clare, near Shannon airport, flying to work in his private plane. To the eyes of the people who worked under him, he lacked O’Neill’s dynamism. ‘He was not at all inspiring,’ said one senior manager. ‘An accountant would be a good description, not in relation to costs but in his manner. Kind of slow-speaking, not dynamic at all. One time he called me into his office and delivered a speech which was supposed to be uplifting and I could hardly hear the guy.’
Tony Ryan, however, was not interested in charisma or people skills; he wanted a veteran who could stop his airline losing money. ‘McGoldrick was a maverick and, as they say in Ireland, a bit of a chancer. He would take risks, and he would play right to the edge. He was not short of self-confidence, and he was in the Ryan mould,’ says a Ryanair veteran.
McGoldrick’s early priorities were to impose some order on the chaos within the airline. He needed to rationalize its route network, which had grown incoherently under the O’Neill expansion strategy; he needed to sort out the fleet and the schedules to make the airline more efficient; he had to kill off routes which were failing; and he had to impose some financial discipline. ‘It would be easier to say what we didn’t change than what we did change,’ he said some months later.
The first step was to revamp the loss-making Luton-based Ryanair Europe. McGoldrick’s solution was harsh. In January 1989 Ryanair Europe closed its Brussels office and abandoned its scheduled services.
Ryanair Europe’s scheduled operations had been that most dangerous of hybrids – low fares with all the frills. ‘It was patently obvious that that was the way not to go,’ says O’Leary. Its acquisition, he says, had been a flawed response to Aer Lingus’s decision to develop Manchester as a hub. ‘The Ryans decided they would copy that strategy and they bought this bankrupt airline in Luton and relaunched it…It lost a fortune. It was all nuts, using Luton as a hubbing airport. It is hard to know looking back, with the wisdom of hindsight, how you could be so stupid in the first place,’ he says.
From London, Ryanair Europe was facing competition from British Airways and Sabena, who pandered to business travellers who did not pay their own fares because air travel was an expense paid by companies. A remarkable 80 per cent of BA’s passengers paid business-class fares, and Ryanair Europe had tried to compete by offering a similar quality of service but at a third of the price. Unsurprisingly, it had incurred heavy losses. McGoldrick had no option but to shut the service down before its losses dragged down Ryanair itself.
Back in Ireland McGoldrick embarked on a restructuring programme which included replacing the entire second management tier, revamping the accounts system and altering ‘all basic systems from holidays to promotion’. He reordered the company into five coherent parts: Ryanair, the main airline, based in Dublin; Ryanair Europe, based at Luton airport and now reduced to small-scale charter operations; Ryanair Engineering, also based at Luton; Ryanair Fleet Management, established to manage the aircraft of the two airlines; and Ryanair Tours and Leisure, designed to move into the tourism and hotel sector of the travel industry.
‘What we are doing is broadening the base of the group,’ McGoldrick said in early 1989.
Instead of operating just the two airlines, we had to change direction and place the group on a strong and more viable financial footing.
The airline started to run into problems early last summer [1988]. It just didn’t have the organization or structures to cope with the way business had grown. We had over-expanded our fleet. The company has now been restructured and we are on course for breaking even in the coming year.
On a pure business basis, what went wrong was that [Ryanair] expanded very quickly – it doubled its fleet within months. I don’t think the organization and head office were able to keep up with that expansion and a lot of things fell apart because of that. On top of that you had fairly aggressive competition from other carriers, particularly in Manchester and Glasgow, where we made major losses.
It was a sanitized description of the company’s problems under O’Neill, and it was economical with the truth by suggesting that Ryanair had only started to run into problems in the summer of 1988. That was when Tony Ryan had become aware of the scale of its difficulties, thanks to O’Leary’s intervention, but they had been building from the start.
McGoldrick had taken over a company in crisis, that much was clear. What remained opaque was the depth of that crisis. Throughout 1989 the real devastation of the previous year became more and more apparent as O’Leary worked his way through the accounts. The previous July’s optimistic forecast of profits had been replaced by the certainty of losses, but quite how deep those losses would be did not emerge until the following autumn.
In March 1989 the Financial Times reported that Ryanair’s losses for 1988 were expected to be in the region of £2.5 million; in September that estimate had risen to £6 million, and when the results were finally announced in October 1989, a year after McGoldrick had taken charge, the figure was £7.34 million. It had been, a company statement said drily, ‘a very difficult period’. Almost half of those losses had been incurred on the failed expansion into Manchester and Glasgow – a painful lesson in how not to compete with Aer Lingus and retrospective justification for the dismissal of O’Neill.
‘I never wanted a battle with Aer Lingus. Ryanair has proved there is enough business out there for both of us. I’m not going to waste the Ryans’ money fighting Aer Lingus,’ McGoldrick told the Financial Times. He was confident that his overhaul of the company would produce substantial rewards, and he announced in October 1989 that the airline had responded well to treatment and was now on course to make a profit.
But his optimism would come to look as foolish as O’Neill’s because he too was heading for abysmal losses in his first full year in control. Michael O’Leary, working quietly behind the scenes, would also feel the pressure. Despite his attention to the financial details of the business, he had failed to shed light on the airline’s core difficulties. His master’s investment remained a basket case, and O’Leary was expected to come up with solutions, and fast. His job, after all, was to mind Ryan’s private investments and Ryanair’s losses had become the most important part of his agenda. Until those losses were staunched, O’Leary would have little time to devote to what he really wanted to do: use Ryan’s money to make more money, and take his 5 per cent of the action on the way.
6. Cohabitation
Michael O’Leary likes to claim that a ‘cursory’ look at Ryanair’s accounts was all that he needed to understand the depth of the airline’s problems, but it actually took the best part of two years for him to get to grips with the finances and help steer the airline towards stability and eventual profitability. ‘The accounts were hopeless,’ says one former director, ‘and the management accounts were five or six months ou
t of date. No one knew, or could possibly know, what was happening because the information was just not available.’
While O’Leary tried to unravel the financial mess, P. J. McGold-rick focused on sorting out the operational chaos that had enveloped the company, closing routes and shutting down Ryanair Europe. The route closures were morale-sapping for the young company but did not mean Ryanair was in full retreat. McGoldrick was pulling apart the flawed expansion plans put in place by O’Neill and also dismantling the equally misplaced ambitions of the Ryan family, who had wanted to expand into Europe before they had managed to secure the future of the core airline. But he still wanted to grow. His objective was to reposition Ryanair by retreating from the head-to-head competition on routes that was crippling the airline. He was also trying to maintain forward momentum by identifying routes that Aer Lingus would leave alone and where Ryanair had a chance of making some profit. So he went for new route launches in the early part of 1989 that brought services from Knock airport in the west of Ireland to Leeds/Bradford and to the new Stansted airport in Essex, as well as from Kerry airport to Luton. These were a far cry from the battles with Aer Lingus on the Dublin to Manchester and Glasgow routes, but they gave Ryanair the opportunity to expand while it regrouped.
At the end of May 1989 McGoldrick announced a further new route, which would, as events unfolded, prove to be the most significant in the transformation of Ryanair from loss-making company into a profitable and viable European airline. Ryanair, he said, would fly from Dublin to Stansted – a move that would open a new front in the Dublin to London air war and which would pitch the man who claimed he wanted to avoid a fight with Aer Lingus into another struggle with the national carrier. This time, however, Ryanair would fight on the political as well as the commercial front.
In truth, McGoldrick had little choice but to challenge Aer Lingus again. It was one thing to withdraw from the ill-chosen fights over Manchester and Glasgow, quite another to allow Ryanair’s growth to be dictated by fear. His dilemma was one of scale. McGoldrick knew that Luton airport, which had messy transport links to London and was in need of serious investment, could not provide the growth opportunities that Ryanair needed, if it were going to survive. The solution, he believed, was Stansted airport, a new facility in the middle of Essex which had been his base at his previous job as chief executive of Heavylift, an air cargo business.
