by Alan Ruddock
The shifting structure of the European aviation industry, prompted by the emergence of the low-cost carriers and intensifying competition on the lucrative intercontinental routes, was forcing the flag carriers to think the previously unthinkable. Mergers were now on the agenda and in the summer of 2000 the possibility of British Airways joining forces with KLM, the Dutch carrier, was floated.
O’Leary professed to be unconcerned about the creation of a European aviation giant. ‘I can’t for the life of me think why they [BA] would take it over,’ O’Leary said in mid-June. ‘KLM is a basket case. BA is a basket case too. You put the two together and you get an even bigger basket case.’ He was, however, conscious that a low-fare airline backed by the two giants could pose a commercial threat. Each of the two potential partners already had its own low-cost airline, BA’s Go and KLM’s Buzz. ‘With BA and KLM’s deep pockets to tap, these low-fares units could sell tickets at a loss in order to drive carriers like us, with no rich parent to call on, from certain air routes,’ he said. ‘While we are keen to take on Goliath, we want a fair fight.’
With or without a BA–KLM merger, competition was already intensifying in the low-cost market. EasyJet had grown impressively from its humble beginnings in March 1995 when it had started operations with two leased Boeing 737s. Two years later the airline had ordered twelve new 737s, followed by an order for fifteen more in July 1998 and a further seventeen in March 2000. EasyJet had also expanded through acquisition, buying 40 per cent of Swiss airline TEA Basel AG in 1998 and rebranding it easyJet Switzerland. In June 1999 easyJet strengthened its Swiss position by increasing its stake to 49 per cent, and acquiring an option to buy out the remaining 51 per cent. Under the deal, easyJet Switzerland also moved its operations to Geneva, which became easyJet’s first continental European base.
The airline’s success meant that it too could plan for a stock market flotation. Stelios announced his flotation plans that summer, telling the market that the carrier was on course to make profits before tax of GB£20 million that year. It was an impressive number for a five-year-old airline, but still way behind the GB£ioo million Ryanair would make in the same year. Yet easyJet’s success was not a hindrance to Ryanair because it demonstrated that low-cost aviation was not a one-company phenomenon. Meanwhile, the well-funded loss makers, like BA’s Go, helped highlight Ryanair’s key differences. It was, in stark contrast to most of its rivals, a low-cost airline which delivered profits for its shareholders.
Go, launched in 1998, had been a marketing and promotional triumph, but it lacked the rigour and ruthlessness that marked out Ryanair. By the autumn of 2000 Go was flying to twenty-one European destinations, employed 650 staff, had a turnover of GB£150 million, and was speculatively valued at about GB£200 million, a sizeable return on the £25 million BA had invested just two years previously. But the airline had yet to turn a profit.
The BA group, under chief executive Rod Eddington, was in cost-cutting mode by the summer of 2000, with BA chairman Bob Ayling signalling compulsory redundancies across the group. Barbara Cassani, Go’s chief executive, was not impressed and began to speculate publicly about the benefits of BA selling off its low-cost wing. Throughout the summer speculation about a sale continued to mount, with Cassani expressing interest in a management buyout and easyJet reportedly considering a takeover bid.
While Go’s future was in the balance, Richard Branson’s Virgin Express was haemorrhaging cash. In the first quarter of 2000 Virgin Express racked up losses of GB£8 million – more money than the airline had lost in the whole of 1999 – and was now culling routes in a desperate attempt to stem its losses.
Ryanair’s profits demonstrated that the airline could thrive in a competitive market place. Mergers, however, could change the dynamics and O’Leary was not prepared to be rolled over by the giants. Ryanair, he said, would go to the European Commission and ask that ‘any merging airline’ surrender slots at London’s Stansted and any other airports where both of the merging carriers were present. ‘If the European Commission does not act, we may be pushed out of Stansted and other airports,’ he said. O’Leary also asked the EU to insist that Buzz and Go be sold if the BA–KLM merger went ahead. Before long, however, the merger talks collapsed.
In the autumn of 2000 O’Leary chose to reignite the Dublin airport row with his usual flair for controversy. In an interview with the Wall Street Journal O’Leary said that the best way to settle his differences with Aer Rianta was ‘with Semtex’ – ‘preferably during a board meeting’.
Aer Rianta spokesman Flan Clune said he ‘wouldn’t stoop so low as to respond to that remark’. Clune’s colleagues, however, were happy to stoop. O’Leary’s comments were ‘malevolent and shocking’, said Rita Bergin, an Aer Rianta director. ‘[O’Leary proposes] to resolve business differences in a manner which is far too fresh in the minds of people on the island of Ireland,’ she admonished, referring to the terrorist campaigns that had blighted the country for the previous thirty years. ‘Here we have an individual worth well in excess of £100 million behaving in a shockingly irresponsible manner.’
O’Leary was unmoved and refused to apologize. A week later at Ryanair’s AGM he renewed his attacks on Aer Rianta and Dublin airport. Conditions at the airport were ‘shambolic’, he said. ‘They’ve spent £50 million on a five-storey extension which nobody wants to use,’ he said, adding that the new baggage hall was ‘something designed by Russian architects’, while ‘Pier C was designed by Aer Rianta to win an architectural competition rather than serve the needs of airlines.’
Could Ryanair accomplish more with a bit of diplomacy, wondered the Wall Street Journal. ‘Nahhh,’ said O’Leary. ‘You want to take on monopolies, you’ve got to be ready to fight.’ The fights, he told the paper with a laugh, ‘are good for the soul’.
*
In November 2000 Ryanair’s staffpolicies came in for sharp media coverage when it emerged that Ryanair’s pilots were considering going on strike. Until then, Ryanair’s pilots had negotiated directly with O’Leary, and with reasonable success. ‘We used to have what were called “town hall meetings”,’ recalls one pilot.
O’Leary would come and he would negotiate with pilots, and there was an ERC [employee relations committee] who sat down with him. The ERC wasn’t elected as such by the pilots, but they were pilots and they used to talk with O’Leary. They never did a very good job, and we got these pay agreements, two-page things, but we had a bit of power. If O’Leary turned around and said, ‘No we don’t want to do this any more,’ then we turned around and said, ‘Screw you.’ In the early years, because Dublin was the main hub, we could do that.
In 2000 the Ryanair pilots were due to negotiate another wage agreement and O’Leary was not in a generous mood. ‘He did one of these sweeps of the pen, changing the amount of hours we could work in a week,’ recalls the pilot. The pilots were not impressed, and in mid-September it was reported they were considering a go-slow. The pilots had also beefed up their negotiating power by bringing in the pilots’ union IALPA and its larger affiliate IMPACT, the largest public-sector union in Ireland, to help defeat the changes.
They had hoped that with the experience and organization of IALPA they would be better equipped to fight their corner. But they were quickly disappointed. ‘IALPA just didn’t deal with it very well,’ recalls another pilot. ‘There was a few meetings and then, “Right, we’ll go out on strike.”’ A strike was first mooted in late September, but IMPACT then announced that it was being deferred because Ryanair had reached an agreement with its pilots on working hours.
For Ryanair, the simple fact that IMPACT, with SIPTU the dominant union at Aer Lingus, was saying anything at all about the airline’s internal industrial relations was an unwelcome development. ‘As always these matters were discussed and clarified directly between Ryanair and our pilots and this will continue to be the case. Rumours of disruption within Ryanair which emanate from an Aer Lingus trade union should be seen for what t
hey are,’ Ryanair said in a statement. But despite the airline’s denials pilot unrest continued, and in early November the pilots voted by 77 to 1 to reject the company’s pay deal and take industrial action.
O’Leary professed bafflement at the development. It was, he said, ‘quite extraordinary that Ryanair’s pilots would fail to accept a five-year pay package which included all captains rising to £100,000 per annum’. But reject it they did, and strike action was set for 23 November. Faced with an imminent and potentially ruinous dispute O’Leary switched to diplomatic mode and successfully convinced the pilots to call off their strike on the promise of fresh negotiation.
As a gesture of goodwill, the pilots pledged to donate their flight allowances from 23 November to the North Dublin Hospice. O’Leary had taken a public relations hammering during the baggage handlers’ dispute two years previously, and was forced to admit to RTE radio in 1999 that ‘if you look back you’d have to accept that it was a PR disaster’. Keen to avoid a repeat of that error and ever keen for a publicity coup, O’Leary said that Ryanair would match the amount donated. He then went on a promotional offensive, determined to make what use he could of the press coverage of the dispute, and offered free flights on all available seats between Ireland and the UK on 24 November, with passengers paying only taxes and charges.
His tactics worked. Direct negotiations with the pilots produced marginal improvements in their pay and conditions and the dispute was settled. The deal included a €100,000 share option package for all pilots and a 15 per cent increase in basic pay over its five-year term, which would see pilots’ annual pay increase to more than €127,000 per year. The pilots signed up, and the unions were eased back out of the company. IMPACT’s Michael Landers said pilots would be ‘reasonably happy’, and conceded there were ‘significant improvements on roster patterns and working hours’.
For the pilots it had been a bruising battle, and not all of them were satisfied. ‘A really bad pay agreement and a really bad working agreement was signed,’ recalls one pilot. For Ryanair, however, the battle had proved something of a coup. The airline had attracted some decent publicity from its charitable donation, the original terms of its pilots’ package had been altered only minimally and, most importantly, Ryanair had once again managed to steer its way out of industrial strife without having to sit down with the trade unions.
O’Leary’s growing skill at turning even the worst story into a positive publicity stunt would be tested more and more in the months to come.
In September Ryanair’s attempts to place advertisements in Glasgow’s central railway station had been met by a sniffy letter from Malden Outdoor, agents for the sites, which said, ‘Regrettably we are unable to accept any form of advertising within the station which is deemed as direct competition to the train services provided.’
Ryanair’s flights from Glasgow to London were of course a competitive threat to the trains, but it was naive of the agency to spell this out. O’Leary made the affair public. ‘We’re knocking the stuffing out of the rail competition with our £9 plus tax return fares from Scotland to London,’ he said, ‘and the best Railtrack can come up with is “You can’t advertise that here.”’ The result was that the refusal to carry advertisements drew more attention to Ryanair than the advertisements themselves would have generated.
Soon afterwards O’Leary had another opportunity to practise the art of turning bad news to his company’s advantage. In late October 264 Ryanair passengers, including 49 school students, were stranded in Beauvais, the tiny airport on the outskirts of Paris, for two days due to bad weather. Mike O’Hara, the leader of the school party, complained that they were ‘practically ignored’ by the airline. ‘I am furious about the treatment we received from Ryanair staff at Beauvais airport,’ he told the Sun. ‘The handling staff were absolutely brutal and made no effort with us whatsoever. We weren’t offered any food, not even a cup of tea, and no one tried at all to accommodate us.’
The Irish Times ran a 1,100-word story on the ‘trauma’ endured by one passenger, David Gibbons. ‘The accommodation we were offered for the night was in a hangar in the airport with beds like army cots and no showers,’ Gibbons complained. ‘Anybody with any money went into Beauvais. I got a two-star hotel for £30 and paid £10 on taxis.’ The airline eventually offered passengers a roll and ‘a thimbleful of tea’ according to Gibbons.
Any other airline faced with a hostile media onslaught and images of distraught passengers would have made conciliatory noises and perhaps offered compensation. Not Ryanair. The affair was instead another opportunity to hammer home the company’s mantra: low fares, nothing more, nothing less. ‘It’s not part of our service to provide accommodation or even a cup of tea in these circumstances,’ O’Leary said. ‘Some people paid as little as £9 return for their fares, so they can’t really expect such extra benefits.’
O’Leary’s attack was considered: if you paid a pound for your flight, how could you expect the airline to pay £50 to put you up if the weather was bad? He was also irritated by the Irish media. Ryanair’s success did not receive the attention or praise it deserved from a domestic media fascinated by the negatives and bored by the positives. O’Leary’s opposition to trade unions, his refusal to become part of the cosy establishment, his wealth and his aggression had turned most of the media against Ryanair.
O’Leary’s competitors seemed incapable of learning that the best defence was simply to ignore him and his airline. In September BA had announced it was suing Ryanair in London’s High Court for running advertisements which it claimed amounted to trademark infringement and ‘malicious falsehood’. Britain’s biggest airline, which liked to call itself the world’s favourite, had been irritated by a number of Ryanair advertisements, but the one that stuck in its corporate throat had been run the previous year under the simple but effective headline: ‘Expensive BA———DS’.
BA wanted the courts to give Ryanair a public and expensive dressing-down and calculated that a successful action might take the wind out of O’Leary’s billowing sails. Big mistake. In December Mr Justice Jacob delivered his ruling, and it was devastating for BA. The ‘Expensive BA———DS’ campaign centred on a comparison of Ryanair’s and BA’s fares, with O’Leary’s company claiming that BA was five times more expensive on certain routes. Jacob said it was ‘particularly odd commercially’ that BA should complain that the comparisons were misleading. ‘The complaint amounts to this: that Ryanair exaggerate in suggesting BA is five times more expensive because BA is only three times more expensive,’ he said.
The advertisements ‘might amount to vulgar abuse’ but they did not constitute malicious falsehood. And then came his withering conclusion. ‘I suspect the real reason BA do not like [the advertisement] is precisely because it is true.’
O’Leary was a happy man. ‘They did not think we could afford to fight them in court,’ he said outside, playing his David card even though he would make profits of more than GB£100 million that year, easily enough to fund a few days in London’s High Court. ‘It is an age-old dirty trick by BA. But we did fight them and we won. It’s game, set and match to us.’
Win some, lose some. On the same day as Justice Jacob made his ruling, Ireland’s High Court found against O’Leary in a case brought by Aer Rianta. The airports company had sued Ryanair for £459,885 it claimed was owed to it for unpaid fees due on various routes. Ryanair had subsequently paid just over £103,000 for fees on the Dublin–Bristol route, but Aer Rianta had returned to court in December to claim the remaining £350,000.
O’Leary had claimed that he had held discussions with Aer Rianta’s assistant chief executive Brian J. Byrne in which the two men agreed a variation on the standard landing charges for Ryanair and that therefore the £350,000 was never in fact due. Byrne’s recollection was somewhat different. He denied any special deal had been agreed. Mr Justice Kelly took the same view, found that there was no written agreement between the airline and the airport, and that co
rrespondence demonstrated there was no evidence of any amendment to landing charges.
The verdict was squarely against Ryanair. What Ryanair was saying was not credible, Kelly said, and was undermined by documents exhibited by O’Leary. Kelly ordered the airline to pay the full £350,000, as well as 8 per cent interest and Aer Rianta’s costs. He also refused to give the airline leave to appeal and refused a stay on his order. For once, O’Leary stayed silent, concentrating instead on milking his victory over BA.
17. Customer Care
In October 1988 P.J. McGoldrick, Ryanair’s then newly appointed chief executive, had marched across the tarmac at Dublin airport to greet an incoming flight. As the passengers disembarked, McGoldrick scooped Jane O’Keeffe, a twenty-one-year-old, into his arms and carried her towards the terminal building, while press photographers clicked away for the next morning’s newspapers.
O’Keeffe was the millionth passenger to use the new airline. Her reward, McGoldrick said, would be ‘free flights for life’ for her and a partner. ‘What would that cost the company?’ a journalist wondered. ‘We don’t nitpick over the gifts we give,’ McGoldrick replied rather grandly.
At the time money did not really matter in Ryanair. McGoldrick had just taken over from the profligate, if occasionally inspired, regime of Eugene O’Neill and had no idea about the true state of the airline’s finances. Simple things like organizing a contract with O’Keeffe that might specify the precise nature of her entitlement and how she could claim it were bothersome details with which the young Ryanair did not concern itself.
For the next ten years O’Keeffe made use of her free flights, nominating first her sister then her new husband as her travelling companion. In the absence of a contract O’Keeffe and the airline had come to a mutually acceptable compromise. If she gave a couple of weeks notice, Ryanair would put her on the flight of her choice. But then came a crunch in the summer of 1998. ‘It blew up one weekend,’ O’Leary says.
