by Alan Ruddock
‘It was a great success,’ says Bellew.
They were really good holidays, because it was the first time there had been low-cost, high-volume holidays by air, from England to Ireland, because Aer Lingus was very expensive. For the Punchestown races in 1991 we brought about 700 people – which at the time was a lot.
It was good cash flow for the airline. This was great because they were getting paid for these seats about eight weeks before they got paid for normal seats.
By the end of 1989 McGoldrick was confident that the airline had turned a corner. In November, in an interview with trade magazines, McGoldrick said that the two-airports deal had been a resounding success for both airlines and predicted that Ryanair was ‘on course to do better than break even this year. We are determined not to lose money.’
We have almost all been winners as a result of liberalization and the relaxed bilateral [that] was signed between the governments in Dublin and London. Aer Lingus is making more money and so is the Irish Airports Authority. It just goes to prove that competition does work…This year, the airlines will carry a total of 750,000 passengers, with present load factors running at around 78 per cent. We have our heads down and are working our way out of our troubles.
But his confident assertions would prove a nonsense: Ryanair eventually reported losses for 1989 of just under £5 million, despite McGoldrick’s corrective actions and the late benefit of the two-airline policy. His confidence was not based on simple bravado; the harsh reality was that just two months before the end of Ryanair’s financial year, and eighteen months after O’Leary had been sent in to find out what was happening to Tony Ryan’s money, the airline’s senior management had no idea about the company’s underlying financial performance.
McGoldrick’s confidence in the future was to prove more valid than his belief in the present. With the two-airline policy secured and with wider deregulation of European aviation on the way, he was entitled to dream of expansion, growth and profits.
We see an expanding regional operation to more European points from the existing airports in Ireland, a build-up of our charter operations based on the BAC One-Eleven and the A320, and a possible move into long-haul charters with the Airbus A3 40. And we would like to get into scheduled services from Britain into Europe at some stage in the future.
Provided we keep ourselves slim and the utilization of our aircraft up, we will be capable of taking on anybody when the European Economic Community frontiers go down at the end of 1992.
Winning a respite from the struggle with Aer Lingus was only part of the battle. If Ryanair was to survive and Tony Ryan’s latest £20 million investment was not to be wasted, the company simply had to get to grips with its elusive finances.
O’Leary was trying to learn about the business, to get a feel for where money was being spent and how it could be saved, but instead of studying the industry by reading books and poring over financial statements, he started to work on the ground. ‘Michael had the beginnings of an enthusiasm which went on and on,’ says Clifton. ‘You’d see him in on Saturdays and Sundays and he’d be helping board flights and stuff like that. But Michael was pretty poor in those days at being one of the boys, something he’s tried to become later. He would appear on the ramp, and he’d be something of a stranger. He wasn’t well known at that stage. And he’d appear on the ramp and people would be doing their job and saying who the fuck is this guy.’
Scrabbling through the undergrowth of the company, O’Leary started to work out where the money was flowing to, and how it could be saved. He had yet to formulate the rigorous business model that would transform Ryanair into the leanest and most profitable airline in the world, but he could identify waste and he could identify ways of doing business more cheaply.
It was not, he says, about saving paper clips but about instilling discipline. ‘It’s the decision that one guy down in operations can make on one Friday evening on leasing in an aircraft that can cost you £10,000 or £20,000 at a stroke,’ he says. ‘It’s those decisions that we had to clarify and clear up in people’s minds.’
O’Leary replaced the marketing department with an outside public relations agency and renegotiated contracts which had never been questioned; insurance costs and fuel costs were hammered lower as the airline grew and started to exploit its new market power. ‘It was all about getting rid of the lunatics who were running the asylum and putting some order on it,’ he recalls. ‘I was doing a lot of the ripping and burning and slashing at the lower end, which you couldn’t have done if you were the CEO.’
Nothing was too small to escape O’Leary’s attention, whether it was the cost of aviation charts (he discovered that Ryanair was paying for maps of the world rather than for the small number of charts it needed for its routes) or the cost of its planes. O’Leary had the nerve to question Ryanair’s arrangements with GPA, and discovered that instead of getting favourable terms from its owner’s company, it was being screwed.
‘The guys down in GPA couldn’t be seen to do a soft deal for Ryanair so they raped Ryanair. And the muppets in Ryanair thought, ah well, it’s GPA and they’ll look after us because of Tony Ryan. And so Ryanair spent its entire life being ridden by everybody when everybody assumed it was getting looked after because of the connection with Tony Ryan.’
Caution and cost-cutting were the watchwords through 1990. Route launches were kept to a minimum as McGoldrick and O’Leary concentrated on developing their existing routes and maximizing passenger numbers and aircraft efficiency while assiduously cutting waste.
Towards the end of 1990 Declan Ryan, Tony Ryan’s eldest son and Ryanair’s then managing director, decided it was time for O’Leary to immerse himself in the operations of the airline. He asked Hamish McKean, the operations manager, to ‘take O’Leary under his wing’ and teach him how the airline worked. O’Leary was not amused. He had already spent much of the year finding out for himself what worked and what did not, and he ‘absolutely didn’t want to be taken under anyone’s wing’, says McKean, who suggested that O’Leary be sent away for training. ‘Michael responded with several expletives in a very short sentence,’ McKean recalls. ‘He took that as a very huge insult. Michael would rarely take advice from anybody.’
Tensions had been building between O’Leary and Declan Ryan, and the company rumour mill rumbled with speculation that Tony Ryan would sideline his own son and wanted O’Leary to take over from him as managing director. For the moment, though, Declan was still in the post and in a position to assign an unwilling O’Leary to McKean for a couple of days a week for four or five weeks.
With McKean O’Leary learned about how ‘ops’ worked – rostering, dealing with pilots and crew, making the best use of planes and controlling fuel. ‘On the logistics side he was an eager pupil,’ says McKean. ‘On the technical side, he couldn’t be bothered with it. He just regarded aircraft as a vehicle for generating revenue, carrying passengers – didn’t care how it was done. He did not take well to being told anything.’
During this time Ryanair was renegotiating its fuel contracts, and O’Leary sat in on the meetings. ‘He was very confrontational in fuel meetings, effing and cursing and swearing, quite bizarre behaviour,’ recalls McKean.
Aviation is a very conservative business, a bit like banking or accounting. You would expect people to be in black or navy suits, polished shoes, all of that. So him turning up to these meetings in jeans and open-neck shirts was unusual…People didn’t take him seriously at all. They just questioned his sincerity. The feedback was, ‘Who the hell is this guy? Who does he think he is telling us that we can’t charge this?’ He was demanding parity of price with BA and larger carriers who had huge quantity. But it worked, we got almost parity with B A. He was effective in shocking people into realizing that we were a small carrier but an emerging force in aviation.
Soon O’Leary’s influence would be felt on a wider scale. In early 1991 he moved from Ryanair’s administrative headquarters in College Green
to the airline’s offices at the airport. He quickly turned his attention to catering, a key cost for the airline. Charlie Clifton was installed as catering manager, and O’Leary spared few words when giving him his brief: ‘Cut the fuck out of it.’
There was certainly a lot to be cut out of it. ‘When I arrived into the catering department there would be meal presentations, there would be a meeting about the tray, the quality of the tray…Then there’d be, would you get cloth, would you get plastic, would you have rotatable or disposable equipment, knives and forks, stainless steel, would you have them branded, would the glasses be branded?’ Clifton recalls.
Within months Clifton and O’Leary had made sweeping changes: the catering department was reduced to a fraction of its former size with most of its functions outsourced to Gate Gourmet to save money. ‘It was pretty obvious what had to be done at that stage,’ Clifton says. ‘Which was even if you’re serving smoked salmon and it’s ridiculous, you might as well get the smoked salmon at the best possible cost. At this stage there was no talk about just not serving smoked salmon.’
Ryanair had another stroke of good fortune in January 1991, when British Airways announced that it was pulling out of its Irish routes after forty-four years. The move was out of character for the British giant. ‘This is the first time BA has ever moved off a route as a result of competition,’ said Michael Bishop, head of rival airline British Midland. BA had operated flights from London to Dublin, Cork and Shannon and from Birmingham to Dublin, but after many months of vicious price competition BA concluded the routes were ‘uneconomic’.
Less than two weeks after B A announced its withdrawal Ryanair seized the opportunity to announce extra services to and from Stansted. From 28 April the airline would operate six flights a day from Stansted to Dublin, three a day to Galway and Waterford, and one a day to Kerry and Knock. The Stansted expansion came at a cost to Luton, where six destinations were cut, leaving daily services to Dublin, Knock and Cork. Never a man to understate his decisions or achievements, on 5 February P. J. McGoldrick told journalists, ‘The decision to operate into Stansted represents the culmination of a twelve-month turnaround by the airline.’
Hammering costs remained top of the agenda; just days before the Stansted announcement Ryanair pilots were forced to take severe pay cuts or lose their jobs. Ryanair’s top pilots, who were earning £35,000, lost £6,000. Lower-salaried pilots were harder hit, losing about £5,000 each on salaries of £20,000. The pilots’ union IALPA was not impressed at the airline’s rationalization: ‘The pay cuts mean that some pilots will now be on salaries lower than the average industrial wage,’ said its president Ted Murphy.
Pay cuts were soon followed by staffcuts. Hamish McKean recalls,
One day I received a bundle of letters addressed to staff members who were to be made redundant. There was no prior warning given – the letters appeared at about 12.15, and I had to tell the ten or twenty staff by one o’clock.
I couldn’t get hold of McGoldrick so I managed to get Declan, who had signed these letters, and I was told that they had to be sacked, and if you don’t you will be sacked. We knew there was something afoot but certainly not the large-scale redundancies that were foisted upon me with a total lack of consultation.
By April 1991 Ryanair and Aer Lingus were once again locked in a battle that seemed to be strangling both airlines and the pilots’ union called on them to form a quasi-partnership to avoid the mounting job cuts and financial losses. ‘In a global context, the skirmish now being fought on the Irish Sea routes is more expensive than any airline can afford,’ said IALPA spokesman Ross Kelly.
The wheel had turned full circle, and once again Ryanair and Aer Lingus were scrapping for supremacy, but this time there was one crucial difference: Ryanair had finally stopped haemorrhaging cash. O’Leary had forced through swingeing salary reductions – Ryanair’s pilots swallowed cuts of up to 37 per cent – and the air of excited expectation he’d experienced on his first day had been replaced by an atmosphere of doom. Ironically, just as the company’s survival prospects looked brighter, its employees started to fear the worst. The results for 1991 showed a small profit. It may have been just £293,000, artificially boosted by the sale of Ryanair’s stake in a tourism business – the underlying business was still losing money – but it was a remarkable turnaround after years of steepling losses which had accumulated to more than £20 million.
At the end of the year McGoldrick resigned – a decision that came as much from him as from Ryan, who recognized that he had served his purpose. He had inherited an airline in financial chaos and on the brink of collapse, and had led it, painfully and slowly, to the point of profitability. His low-key leadership, combined with his industry savvy, had dovetailed effectively with O’Leary’s war on costs throughout the company. It was without doubt a harsher place. The touchy-feely customer service of the early years, the sense of youthful adventure, had been replaced by a steelier resolve. Ryanair would survive, but its transformation from upstart to major player had changed the nature of the company as well as its financial performance.
O’Leary’s role in the company was formalized with his appointment as chief financial officer, but still he did not want to step up to the top job. In a bizarre move Ryan instead appointed Paddy Murphy, a veteran of the Dublin business scene who had been chief executive of Irish Ferries.
His reign was doomed even before it started. At the end of October it was reported that his brief was ‘to improve the airline’s marketing, strengthen its corporate identity, improve the quality of service and develop stronger links with tourism officials in Ireland and Britain’. It was a momentary lapse, and so clearly at odds with the airline’s still urgent need to reduce its costs even further while boosting passenger numbers that it could not last long. Sure enough, within six weeks Murphy had gone. O’Leary had been deeply unimpressed.
Murphy’s replacement did meet with O’Leary’s approval. Conor Hayes, a former accountant who had been chief executive of the Almarai Group in Saudi Arabia, started his new job in January 1992. Together, he and O’Leary would take Ryanair to the next logical stage of the airline’s development – its metamorphosis into a truly low-cost, low-fare airline that would revolutionize air travel in Europe.
7. The Last Handout
Conor Hayes, a thirty-five-year-old who had spent the previous five years reviving the fortunes of a food company in Saudi Arabia, knew little about Ryanair when he accepted the post as chief executive in the autumn of 1991. His expertise was and remains instilling financial discipline in troubled companies and nursing them back to health – a company doctor in all but name.
His background fitted Ryanair’s needs. While Ryanair and commercial airlines were an unknown quantity for Hayes, he had experience of the aviation business. His years as an accountant with the Dublin firm Stokes Kennedy Crowley had exposed him to the intricacies of aircraft leasing, first through work for GPA and later for IAS, the aircraft leasing company run by Gerry Connolly, the man who had founded Avair. Ryanair was, from what he could see, a major challenge but an opportunity he could not turn down. It was a welcome route home – he had a young family and was keen to return to Ireland – and the job offered a reintroduction to the Irish business market. Opportunities to return were few in 1991, and he was eager to seize the chance,
When Hayes officially took the reins as chief executive in December 1991 the company remained in a critical condition. It could claim a market share in excess of 20 per cent on the Dublin–London routes following British Airways’ withdrawal from the market the previous year, but it was still losing money.
The Irish government’s embrace of the two-airlines policy two years earlier had given Ryanair crucial breathing space and had helped reduce its losses, but the airline remained vulnerable. The modest profit in 1991 had been generated not by the core business of flying people but from the sale of a shareholding in a small hotel business; at the operating level the airline was still losing mone
y and Tony Ryan was increasingly worried that despite the remedial work of the McGoldrick regime his airline remained doomed. He had kept it afloat two years earlier because he had hoped and believed that the removal of Aer Lingus from the Stansted route would give his airline an opportunity to carve out a profitable route network, yet the hoped-for profits had yet to materialize. If Ryanair could not be made to stand on its own feet, he would be forced to make further cash injections. He had, friends say, reached the end of the line. There would be no more money for Ryanair; if it could not survive on its own, he would admit defeat and retreat, selling the airline if he could find a buyer, closing it if he could not.
‘Hayes was brought in, and O’Leary given a more prominent role, so that there was clear distance between the Ryan family and any potential disaster. Hayes’s appointment has to be seen as a damage limitation exercise for the family rather than a vote of confidence in the company,’ says one former manager.
Ryan had already been badly bruised by the losses the family had incurred during its ill-fated venture into London European Airways. Cathal Ryan, his eldest son, had been appointed executive chairman of LEA and was closely associated with its failure. Declan had stepped up to the mark to run Ryanair after McGoldrick’s departure and Ryan was not prepared to see the main company fail under direct family stewardship. If it had to close, it would not be with a Ryan at the helm.
Hayes’s immediate priority was to find out what was happening, and to do that he had to put in place accurate and timely financial reporting systems. Despite Michael O’Leary’s presence at the company for more than three years, the detailed financial information compiled for senior management and the board was months out of date. This had to change and quickly if the company had a hope of survival.
