Keeping up with O'Leary

Keeping up with O'Leary - Ryanair's buccaneering boss dismisses his flag-carrying rivals with loud-mouthed contempt and isn't too polite about some of his passengers - which has won him many enemies. But it's hard to deny him credit for the spectacular success of the service his airline offers. Alan Ruddock reports.

by Alan Ruddock
Last Updated: 31 Aug 2010

Ryanair's buccaneering boss dismisses his flag-carrying rivals with loud-mouthed contempt and isn't too polite about some of his passengers - which has won him many enemies. But it's hard to deny him credit for the spectacular success of the service his airline offers. Alan Ruddock reports.

Earlier this year, Tara Palmer-Tomkinson, the celebrity It girl who prefers to turn left when she enters a plane, made a simple error: she tried to check in for a Ryanair flight without the correct photo ID. Any other airline might have made an exception for a celebrity, might even have used Ms Palmer-Tomkinson for a bit of positive public relations, but not Michael O'Leary's Ryanair. Her usually effective cry of 'Do you not know who I am?' was met with a straightforward yes, now go away. And when the story found its way to the PR men in Ryanair it was gleefully reproduced on the airline's web site: top toff turned away, just like any other traveller who turns up brandishing a Blockbuster video card instead of a passport.

'It's true,' says O'Leary, 'we can be confrontational, but we want to be upfront about what our policies are, and the policies aren't changing. When they book the ticket, they tick the box which says they've read about the photo ID and all they have to do is produce the f***ing ID. So what do they do? Turn up with f***ing video cards. Go away. We don't care.'

O'Leary, Ryanair's 42-year-old chief executive and largest shareholder, swears instinctively and frequently, like many of his countrymen (just listen to Colin Farrell, the Irish film star, accept an award and you'll get the idea). He overflows with contempt for his traditional competitors like British Airways, Lufthansa and the Irish national carrier, Aer Lingus; he is withering about the competence of politicians (the Irish government is run by 'spineless retards') and dismisses BAA, which manages most of Britain's airports, as run by people who 'know everything about airports except how to run them'.

In O'Leary-land the enemies are everywhere and only Ryanair and its US hero Southwest Airlines are the good guys. It is not a style that wins friends and admirers in the City, in the media or in Ireland's more staid business circles. People simply do not like him.

'Most of them hate me because I'm a loud-mouthed, arrogant, rich bullyboy. Some of them think I'm great because I'm a loud-mouthed, arrogant, rich bullyboy. Does it matter? No. I swore when I hadn't two shillings to rub together that if I ever got rich I wouldn't give a f*** what people wrote about me in newspapers. I could be rich and get abuse, or not be rich and get no abuse.'

It is a style that has driven Ryanair from the brink of closure in the early 1990s to becoming Europe's most successful, most profitable and most highly valued airline. Year after year, it has piled on growth - in the past three years, passenger numbers have spiralled and profits have grown by 44%, 44% and 59% - and last year it carried 16 million people around Europe. Its operating margins are the highest in the industry, its costs lower than anyone else's, and its ambition unmatched.

O'Leary has driven that growth, and still drives the company forward with a restlessness, a determination and a conviction that brooks no argument. He knows that the market will continue to grow, he knows that Ryanair can beat anyone on price and on cost, he knows that when he opens a new route the passengers will come. Sceptics are trashed, ferociously and forensically. Ryanair has proved that it can deliver, and Southwest in the US has proved, after 30 years of operation, that low-fare airlines can stay the course and win.

But will Ryanair? This year, O'Leary embarks on his most audacious expansion yet, with capacity set to soar by 60%. He is, he says, in talks with 74 airports across western Europe, 10 of which have the scale to become base airports; his once-ageing fleet is being replaced by a stream of new Boeing 737s (Ryanair has firm orders for 125 planes and options on a further 125, at a cost of about dollars 25 million each - bargain prices that will nevertheless put severe strains on Ryanair's cashflow).

Even by O'Leary's standards, it is hugely ambitious and his success or failure over the next 18 months will be determined by the numbers that his expansion generates: if he hits the targets and maintains profit growth and margins, the sceptics will be silenced; if he falls short then they will pile in to denounce his hubris, murder his share price and dance on his grave. Gleefully. In the first quarter of 2003-04, revenues are up 26% and profit 12% - so far, so good.

Twelve years ago, O'Leary wanted to shut down Ryanair. 'I could see no future in it, I was pushing hard to close it down. I told Tony Ryan (the founder) to forget it,' he says. A business studies graduate from Trinity College, Dublin who had cut his commercial teeth building up and selling a chain of newsagents, O'Leary had been brought into the management team by Ryan in 1988. For the next three years the airline bled cash and showed no signs of recovery.

It undercut prices on routes from Ireland to Britain by about 20%, yet all it did was lose even more money than its competitors, as well as a series of chief executives. Reluctantly, O'Leary was persuaded to take over the reins. His road-to-Damascus moment came on a trip to the US to check out Southwest Airlines, a low-fares upstart from Texas that had defied the odds by emerging stronger and more profitable from the aftermath of the first Gulf War, which had pole-axed the major American airlines. Southwest is now the most profitable airline in America.

O'Leary, leaning forwards, describes the journey that was to transform his company. 'Tony Ryan said: 'Go on over there and take a look at it.' So I went. I didn't go and see Herb Kelleher (Southwest's larger-than-life chief executive); I went and flew around the system and saw, f***, you can turn around an airplane in 25 minutes. That's the rocket science. It's very simple: if you can turn around an aircraft in 25 minutes instead of 45 minutes or an hour, you get two more flights per day per aircraft. That's it. There is nothing more complicated to this business.

'Everything is driven by the 25-minute turnaround. People think we go to secondary airports because we get very good deals - and we do - but we won't go there unless we can get a guaranteed facility to achieve that turnaround.

'Where BA does six flights, we do eight: we're 33% more efficient than BA straight out of the blocks. Where they do eight, we do 10 - 25% better. We don't even have to be f***ing very good to be 25% more efficient than BA. Now after that - no business class, maximise the seating, much lower fares, much higher load factors, sell the stuff on board rather than giving it away for free, don't pay travel agent commissions, sell it over the internet ... The rest of it's all simple. And yet we are the only airline in Europe that has copied the Southwest model in a disciplined way: all the rest duck out of it.'

With the model in place, Ryanair moved purposefully towards profit. The dramatic shift in the airline's fortunes came, however, from the EU regulators when, in 1997, the 'fifth freedom' was introduced, allowing Ryanair to fly anywhere in Europe.

'We were the airline in the best position, in terms of size and scale and scope, to take advantage: we'd been at the thing for 10 years, had built a scale, built a profit and built a knowledge. After that, it was a question of controlled growth,' adds O'Leary.

In that controlled growth, passenger numbers have soared from 3.9 million in 1998 to 15.7 million in the year to March 2003, with profits rising from pounds 30.6 million after tax to pounds 164.2 million. Ryanair now flies to 128 destinations in Europe, persuading travellers to reach parts of Europe that they didn't even know existed. In just six years Ryanair has transformed the whole concept of airline travel within Europe, just as in the previous six it had revolutionised the market between Ireland and Britain. People who had never been on a plane could now afford to fly, and it didn't seem to matter where. O'Leary's passion for 25 minute turnarounds has sent millions of flyers to Paris via Beauvais, a small airport nearer the Channel than the French capital, just as millions have flown to Frankfurt via Hahn, an old Nato base 70 miles away.

Distance was never a barrier for O'Leary's now notorious advertising stunts: he happily called his destinations whatever he wanted and calculated that if the fares were low enough, not many would care. And in the search for passengers to fill his planes, controversy translated instantly into valuable publicity. Rows with advertising standards agencies, with flag-carrier rivals like BA, Lufthansa, Air France and Aer Lingus were welcomed with open arms and spewing invective.

O'Leary sought confrontation wherever he could find it, determined to blow apart what he sees as the pomposity, the com- placency and the political power of the traditional airlines. One by one, they rose to his bait and were humbled. His 'expensive BA****DS' jibe at British Airways prompted a court case where a judge witheringly summed up BA's complaint as being that it was three times more expensive than Ryanair, and not five times more expensive.

When Go, the low-fares airline launched by BA, tried to muscle in on the Irish market by running flights to Edinburgh and Glasgow from Dublin, Ryanair's ferocious response blew them off the routes and out of the market in a matter of weeks. The latest airline to feel O'Leary's wrath is Lufthansa and its increasingly harassed chief executive Jurgen Weber. He predicted that Germans would not fly on a low-fares airline, and said that Hahn would never work as an airport: with each new passenger flying into Hahn, O'Leary forces Weber's predictions back down his throat.

Life for O'Leary is constant warfare, with his competitors, with regulators, with trades unions (whom he despises) and, bizarrely, with his customers, who he sometimes seems to despise almost as much as everyone else.

His mantra is low fares, not customer care; he promises nothing other than a safe, cheap flight from one point to another. He doesn't want passengers connecting from one flight to another ('They're a pain in the arse') and he doesn't want to know them if they cannot work out the rules, like carrying one of three specified forms of photo ID.

He even ended up in Dublin's courts when he refused to honour an agreement with the airline's millionth passenger, who had been promised free flights for life. He rails now against a 'bunch of f***ing do-gooders' in Britain who are bringing a case against Ryanair claiming that its identification policy discriminates against asylum seekers.

'What the f***? What the f***? These people are in England seeking asylum and now they want to fly around Europe? Well, they can't do it on Ryanair.'

His instinctive hostility is fuelled by his sense of urgent mission: he is trying to re-educate Europeans about air travel ('it's a f***ing bus') and he is trying to debunk what he sees as the myths propagated by the traditional airlines.

'Take the British Airways strike in July. BA is always telling people that it looks after its passengers, that if there are delays it puts them up in hotels and gives them hot food. And look what happens - hundreds of people sleeping on the airport floor.' I tell him I was surprised not to see him on the TV news, marching through Heathrow doling out free flights to the stranded passengers. 'Nooooo. There are times - not many - when you shut up,' he says.

His restraint lasted a few short days: the following week Ryanair launched a bruising advertisement campaign to capitalise on BA's misery. The strike ended quickly, but cost the airline about pounds 40 million.

While he may be mistrusted at home and in Britain, O'Leary is recognised as a business genius by the American media. Twice in the past months, first by Wired and then by Fortune magazine, he has been nominated as one of the most influential and powerful men in the business world, a leader who has transformed both his industry and the way we live. According to management consultants McKinsey & Co, passenger growth for the low-fares airlines in Europe will average 20% a year until 2007, but will ease back as competition intensifies from the traditional high-fares carriers, which will by then have brought their costs under greater control.

But McKinsey stresses that the growth will not be evenly shared. There is a Ryanair success story in Europe, rather than a low-cost airline success story, McKinsey's Lucio Pompeo said at a recent presentation on the industry in Frankfurt. 'The winner takes all.'

O'Leary is determined to remain that winner and intensify his assault on his rivals. Until now, Ryanair and easyJet, its closest rival in the industry, have kept a respectful distance from each other. While O'Leary excoriates the management culture at BA and Lufthansa, he is surprisingly calm about easyJet and is prepared to praise its successes while casting doubt on its rights to be included in the low-fares end of the industry.

The two airlines go head-to-head on only six routes in Europe ('We're beating the crap out of them on each one,' says O'Leary), and although easyJet flies to major airports like Nice and Barcelona, Ryanair sticks to the periphery. That could be about to change.

O'Leary believes that easyJet has made a critical error by mixing its fleet of aircraft between Boeing and Airbus - Ryanair sticks rigidly to the Boeing 737 so that flight and maintenance crews can handle the whole fleet with minimum of retraining between the models. 'Mixing up the fleet is crazy. It won't work,' he says. Already, easyJet's costs are about 40% higher than Ryanair's, and O'Leary knows he can kill them on price on any route. To go for the jugular, he will have to attack easyJet at its bases in Luton and Belfast, targeting the price-conscious leisure segment of easyJet's customer base.

If he does, it will be just part of a campaign that continues to ridicule and denigrate Europe's elder statesmen of the airline industry while stealing their passengers. Ryanair's aggressive cost control, low staff numbers - O'Leary employs less than 2,000 people and will fly 24 million passengers, while Lufthansa employs about 39,000 to fly 37 million - and its ability to earn millions of euros from 'ancillary' sales to passengers once they step on board gives him a flexibility and a nimbleness of foot that is denied to the older carriers. Profit margins of 20%-30% look great next to the -1% expected from Lufthansa.

'He is blessed by his competitors,' argues Joe Gill, an analyst at Goodbody Stockbrokers in Dublin. 'The flag-carriers are sitting ducks and they do not have the cost base to compete. And while they are trying to curb those costs they risk contaminating their brand and their market - just look at the BA ticket desk fiasco in Heathrow.'

The sheer size of the European market, and Ryanair's small share of it at the moment, also creates plenty of room for growth: last year EUR40 billion was spent on ticket sales in Europe and Ryanair's share was just EUR800 million.

The sceptics, however, will not let go. Their main concern, articulated by Andrew Lobbenberg, an industry analyst with ABN Amro bank, is that Ryanair will be forced to pay more for its landing rights in Europe and to its staff. Whatever happens with staff costs - and O'Leary concedes a relatively high staff turnover - it is the cost of flying to obscure airports that could prick O'Leary's bubble.

In July, a French court ruled that Ryanair had been granted illegal financial aid by a local chamber of commerce to help establish a service between Strasbourg and London. Ryanair is to appeal. But even more critical is a forthcoming decision by the European Commission on a similar deal between Ryanair and Charleroi airport in Belgium. At issue is the pace and cost of Ryanair's expansion and, significantly, the pace of Europe's development as a vibrant air travel market.

The Strasbourg case was brought by Brit Air, a subsidiary of Air France, which was forced to pull out of its London-Strasbourg service because of Ryanair's competition. Air France, which is being warmed up for privatisation, is keenly aware of the threat Ryanair poses in the French market, where it now serves 19 airports, and is determined to fight back.

If the commission rules against Ryanair - and thus effectively against aggressive competition in the European airline industry - it will buy time for the flag-carriers and put intense pressure on Ryanair's costs.

O'Leary has threatened to pull out of both airports if this happens. If it rules in favour of competition between airports, and backs the concept of small airports and regions providing zero-cost facilities and marketing budgets as a legitimate means of promoting tourism and inward investment, O'Leary will throttle ahead. This battle, like many in aviation, will be as political as it is commercial and will be presented by O'Leary as a David-and-Goliath struggle, with the bold Michael fighting the good fight for consumers against the vested interests of the major airlines.

O'Leary is primed for the fight, just as he has been every day for the past 12 years. His manic energy, his single-mindedness and his bloodymindedness have been focused on one goal: making Ryanair the biggest and the most profitable airline, first in Europe and then the world. He plans to carry 30 million passengers a year within the next three years, while continuing to drive down fares. Yields and margins will take a hit, but Ryanair has more room than its competitors to take it and make the opposition sweat. Only when he has achieved his goal of becoming the largest international scheduled airline in the world will he consider stepping back.

Some have detected a slight change, even a softening, in the O'Leary persona as he prepares for the latest expansion battle (clutching, perhaps, at the straw that he plans to marry in the near future, a move that will render obsolete his claim that his breeding of horses and pedigree cattle was as close as he ever got to a sex life).

If he is calmer now, it only appears at the margin. Ryanair now makes almost as much noise about its punctuality - at 93%, the best in the industry - and its baggage handling as it does about its fares, suggesting an awareness that customers might need more persuading than simple cost, though it will always remain the primary weapon. Soon, for example, Ryanair will take delivery of its first leather-seated Boeing, though before you go misty-eyed at the prospect, remember that leather is quicker and easier to clean than cloth, and contributes to a faster turnaround time.

According to O'Leary, the only thing that could trip him up is 'believing our own bullshit. We have to stick to what we know we can do and not charge off into other areas.' There will be no expansion outside Europe, there will be no acquisitions, no travel shops or bridal boutiques. O'Leary believes that the airline could even withstand the disaster of a crash, something that would have doomed the company in its earlier years.

'There is no complacency, but we were much more exposed when we had Rumanian planes on short leases and Rumanian pilots.' Now, as the new Boeings come off the production line, O'Leary is creating a modern fleet and is retiring the older planes (some more than 20 years old) over the next two years.

Nothing, he believes, can stand in his way - not the competitors, the regulators or the faltering European economy. Low-cost travel is now part of our culture, and increasingly part of the European culture. He has, he believes, changed the fundamentals of the market to such an extent that he has created a new market that will grow, and grow. All you need to join in is the bus fare - and the right kind of ID.

< THE LOWDOWN: HOW RYANAIR BEATS BRITISH AIRWAYS ON COSTS RYANAIR - The low fares airline BOEING 737-800 2002-2003 REVENUES: pounds 578m of which: Fuel & oil 24.3 seats: pounds 88.4m Airport & handling 20.4 seats: pounds 74.1m Staff costs 17.5 seats: pounds 63.8m Depreciation 14.5 seats: pounds 52.7m Route charges 13 seats: pounds 46.9m Other 11 seats: pounds 40.7m Maintenance, marketing & distribution 8.2 seats: pounds 30.4m AVERAGE LOAD: 159 seats PROFIT MARGIN 50 seats: pounds 182m TOTAL: 189 seats BRITISH AIRWAYS BOEING 737-400 2002-2003 REVENUES: pounds 7.68bn of which Staff costs 29.2 seats: pounds 2.1bn Other 19.6 seats: pounds 1.4bn Handling and catering 13.4 seats: pounds 961m Fuel & oil 11.8 seats: pounds 842m Maintenance & leasing 11 seats: pounds 781m Depreciation 10.3 seats: pounds 734m Route & landing charges 8 seats: pounds 576m AVERAGE LOAD: 107 seats PROFIT MARGIN: 3.6 seats: pounds 295m TOTAL 149 seats

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