Willie Walsh talks Brexit, growth plans for Aer Lingus, and need for industry consolidation

Willie Walsh occasionally recounts how, when he was chief executive of Aer Lingus, he found the notes from the interview he did after applying to be a trainee pilot with the airline. One member of the panel, with whom he'd clashed, summed the 17-year-old up bluntly: "cocky little b******s".

Human resources professionals may not use that language nowadays, but the interviewer spotted the streak of self-confidence that stood to Walsh when he was creating International Consolidated Airlines' Group (IAG), the London-based company of which he is chief executive, making the Dubliner an influential figure in aviation globally.

IAG owns Aer Lingus, British Airways, Spain's Iberia and Vueling, and a newer, low-cost venture, Level. Building it involved bringing national flag carriers, symbols of their countries, under one roof in the teeth of political, worker and public opposition. The nine months it took IAG to buy Aer Lingus in 2015 was no exception.

Walsh says subsequent events vindicated his belief that IAG was the right match for Aer Lingus.

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“We’ll be launching two new North American destinations this year, Minneapolis and Montreal, on the back of the six that we’ve launched since 2014 and we expect to add one new destination a year over the next few years,” he says of the group’s plans for the airline.

North American destinations

This year, Aer Lingus will receive the first of nine A321LR (long range) aircraft that it has ordered from Airbus. These can fly the Atlantic cheaply, will open up more North American destinations – and thus markets – and give the airline flexibility to offer two services per day to some of them, potentially creating even more business.

For travellers, this means cheaper flights to the US and Canada, not just on the back of Aer Lingus’s expansion, but because more airlines are moving into the Irish market. “If you can give people destinations at affordable prices, you will get people who will want to fly. And that’s exactly what Aer Lingus has been doing.”

Walsh was in Dublin at the beginning of the month for the annual Irish Tourist Industry Confederation (Itic) awards. The sector, which is worth an estimated €9.2 billion annually to the economy and employs 270,000 people around the State, was honouring its star performers – and the airline boss received a special recognition accolade.

Itic chairman Maurice Pratt reflected on Walsh's "significant contribution to Irish tourism", saying his work with both Aer Lingus and IAG "has been instrumental in delivering positive change to Irish tourism".

“Tourism is a key sector for the Irish economy and it is only right that there is a national event to acknowledge and celebrate the best companies, operators and initiatives in this vibrant industry,” Walsh said on receiving his award.

IAG bought Aer Lingus as part of its plans to offer cheap transatlantic flights, developing a business connecting travellers between North America and Europe through its Dublin Airport hub. Walsh says the Irish carrier was too exposed doing it on its own.

Just too high

“The risk for Aer Lingus trying to do it on their own was just too high, and there was nobody else that would invest or buy into Aer Lingus and support what it was they wanted to do. Because everybody else’s interest would not have been in expanding Aer Lingus the way we have done and in maintaining the Heathrow connectivity.

"We've grown the airline faster than we committed to, we've grown employment, it's an Irish airline. Sean Doyle, the new [Aer Lingus] CEO, he's an Irish guy living in the UK for many years. I didn't appoint him because he's Irish. I appointed him because he's an excellent guy, who happens to be Irish."

Nevertheless, in 2015, a lot of people took convincing, including the Government, which held the State’s 25 per cent stake in Aer Lingus. Walsh expected opposition but the negativity surprised him.

“I could understand some of it, but a lot of it was misplaced. You had a number of people who came out and said that this was going to be the worst thing that ever happened. This would be the end of connectivity in Ireland.”

An Oireachtas committee grilled Walsh in February 2015. He enjoyed it but it left IAG colleagues bemused. “A lot of people couldn’t appreciate it and I think that, had it been somebody who wasn’t Irish and didn’t understand the politics of it, and didn’t understand the sensitivities, I think they may have been inclined to walk away but I always said we were patient.”

One potential barrier was Ryanair boss Michael O'Leary, whose airline owned 29.9 per cent of Aer Lingus and had three times tried to buy it, despite opposition from regulators, unions, the Government and politicians of every hue. IAG aided Ryanair's third bid in 2012 by offering to take over part of its short-haul business and run competing services between Ireland and Britain to ease regulators' concerns.

Principal of consolidation

That did not play well with the then government or Aer Lingus, particularly given that Walsh was a former chief executive. Walsh did it because he believes the industry needs to consolidate. “I’m not one of these people that, having said I believe in the principal of consolidation, I oppose it when it’s somebody else doing it.”

Even though flag carriers such as Aer Lingus and British Airways are a favourite target of O’Leary’s wit, the two men get along. Walsh is not sure if IAG’s support for Ryanair’s third bid helped when it sought to buy its rival’s shares, but, he convinced his opposite number that the €2.55 a share offer, coming to about €400 million for its stake, was good value.

Possibly tougher was Paschal Donohoe, the then minister for transport – now finance – who led negotiations on behalf of the State. Its holding was meant to protect Aer Lingus's Heathrow services and valuable landing rights at the airport. Business people and politicians believe these are vital to trade and tourism, as they channel traffic to and from here via the London hub.

Donohoe made safeguarding them a crunch condition of any deal. Walsh knew the routes were profitable and fed passengers to British Airways, but nonetheless feared that too firm a commitment on his part would leave IAG open to exploitation by Heathrow, as Aer Lingus would have no choice about flying there.

“Yea,” Walsh recalls of the talks, “he was tough, he was very clear and, to his credit, and this is why I respect him so much, he said to me ‘look, you deliver this and I promise you I will deliver what I am supposed to deliver, I’m not telling you this so I can con you and come back later and say I tried. You honour the commitment you give, and I’ll honour the commitment I give’. And he did, and to his credit, he got a lot of abuse.”

The two found themselves either side of a table again recently, this time over the special 9 per cent VAT rate for the hospitality industry, which Donohoe axed in October’s budget. Itic was one of those lobbying hard to keep the incentive, meant to boost competitiveness.

Walsh views Donohoe’s move as surprising, particularly with Brexit looming next month, but acknowledges the Government had few revenue-raising options.

Drives up prices

“It’s not an easy decision for a minister for finance, but it’s clearly something that will have an impact because, you know, the consumer will pay and anything that drives up prices has got to be an issue of concern to people.

“Go back 15 years, maybe even 10 years ago, before we saw the crisis in 2008-09, and Ireland had developed a reputation for being expensive. I used to get that from friends in the UK. They would talk about paying €8 for a pint of Guinness. They were obviously drinking in the wrong places.”

That has changed. Walsh knows a group of about 40 from the US who plan to stop off for three days of golf at the Old Head of Kinsale in Cork on their way to the Paris Air Show in June. “And it’s because somebody went and played golf there and thought ‘this is brilliant’. You’re getting more and more of that.”

Not surprisingly, given Aer Lingus’s ambitions, he says North America is a key market, partly because tens of millions of people there identify as Irish and like travelling. But he warns against the complacency that crept in during the early years of the century.

“You can’t sell two-star quality at five-star prices and I think there was an element of that 15 years ago.”

Brexit threatens our biggest tourism market along with the broader economy. Walsh opposed it during the 2016 referendum that ended with 52 per cent of UK voters – 17.4 million people – opting to leave the EU. He believes a second poll won’t happen and would change nothing.

“I think it’s better for everybody that the result is not just acknowledged but honoured and that people act on that and manage the situation as best they can.”

Fears that a no-deal Brexit could ground flights between the UK and the EU have been allayed, with both Brussels and Westminster agreeing that aviation would carry on as normal. Even a proposed cap on services, tied to 2018 activity, seems off the agenda. In a managed Brexit, with a transition period, flights would continue while the EU and UK thrash out an aviation agreement.

Walsh cannot predict which Brexit will transpire. But he acknowledges that the process has damaged relations between the two countries, because many in Britain see the Republic’s efforts to avoid a hard border with the North, to protect the peace process, as the only barrier to a deal.

Walsh criticises normally informed British politicians for failing to understand the issue’s importance, even claiming there was never a Border. “They clearly never drove through or across it,” he observes. Even so, he maintains Brexiteers do not want a hard border.

Conversely, he compliments Minister for Foreign Affairs Simon Coveney and Minister of State at the same department, Helen McEntee, for the way they have explained and defended the Republic's position in the British media.

“I think they’ve been really impressive. I’ve no political allegiance, but I’m not sure that anybody could have handled it better.”

Norwegian Air Shuttle

In his own sector, European aviation faces turbulence. There are too many airlines, particularly those flying short-haul, underscoring Walsh’s belief that the industry should consolidate around larger groups such as his own. One victim is Norwegian Air Shuttle, which has an Irish air operator’s certificate – airline licence – and its subsidiary, Norwegian Air International. It numbers IAG among its shareholders.

Norwegian, led by chief executive Bjorn Kjos, launched a business flying passengers cheaply from Europe to North America, including from Ireland, where it began serving New York and Rhode Island, and started Cork Airport's first transatlantic service.

Norwegian’s ambitions have been grounded by its aggressive growth plans – it has ordered 200 new aircraft from Boeing and Airbus – rising fuel costs and tough competition.

Last week, the airline announced plans to issue new shares to raise one billion kroner, about€300 million, just to stay afloat.

IAG had bought 3.96 per cent of the airline last year and expressed formal interest in acquiring Norwegian. But the group last week announced it would not be taking over its rival and pledged to sell the shares, so will not exercise rights to any new stock that its rival plans to issue.

Walsh confirms that he told chairman Bjorn Halvor Kise before Christmas that this was likely to happen. “I said, ‘Look, I’m letting you know now, we’ll be having a board meeting in January. At that meeting I will ask the board to endorse a decision not to proceed. Because I’d made it clear to people previously that we weren’t going to hold a stake in the airline unless we were proceeding to make a full acquisition. Given that we will not be doing that, we will be selling the shares that we have in the business.”

He believes Norwegian will raise the cash it needs but warns that it must do more to survive. “That business can’t continue to lose money. They have huge commitments for new aircraft, they had been expanding very rapidly, so it’s going to require some management. I wish them well in that. It’s not going to be an easy task.”

Troubled airlines

Walsh knows all about troubled airlines. He became chief executive of Aer Lingus following the September 2001 attacks on New York's World Trade Centre, that left aviation reeling. After painful cuts to turn the company around, he – with chief financial officer Brian Dunne and chief operation officer Séamus Kearney – launched what looked like a bid in 2004.

He says the move was meant to get privatisation on the agenda as they believed Aer Lingus otherwise risked regressing. His first direction from the then government was to find a buyer. He politely refused following talks with chairman Tom Mulcahy, as they felt it would have been a fire sale.

When the time came to resurrect the idea, Mulcahy had retired and it was not clear whom they should approach. The trio went to Julie O’Neill, then secretary general in the Department of Public Enterprise, now a Ryanair director, and said they wanted to prepare an “investment opportunity” for Aer Lingus. She, and many others, were taken aback.

Following weeks of controversy and criticism, they decided to withdraw. “Séamus and Brian were in Séamus’s office and I walked in and I said ‘guys, I’ve been thinking about this and I think what we should do now is withdraw our request. We shouldn’t pursue this. We put it on the agenda, so it’s now on the agenda’. So, I contacted Julie O’Neill and said we were no longer interested.

“And the following day Bertie [Ahern, the then taoiseach] had a go at us in Dáil Éireann, then we were appearing at an Oireachtas committee. I remember saying, ‘I don’t know where this is coming from because we’ve withdrawn our request’. It was actually good fun at the time and I’m glad we did it.”

The trio left shortly afterwards with Walsh becoming BA chief executive. Walsh is now 58, three years past the age at which he said he would retire. He is looking forward to giving up the responsibility of running a huge business but gives no indication of when he will do this.

He is almost certain to draw flak from some quarter, not that it will bother him. “You get a lot of praise and credit as well, you get to pick up the awards. As I’ve said before, you can’t take the awards if you’re not prepared to take the abuse as well.”

CV

Name: Willie Walsh

Post: Chief executive, International Consolidated Airlines' Group (IAG), owner of Aer Lingus, British Airways, Iberia and Veuling

Age: 58

Why is he in the news? The Irish Tourism Industry Confederation has given him a Special Recognition award

Family: Divorced with a 23-year-old daughter

Something that won't surprise: He began his career as a pilot with Aer Lingus

Something that might surprise: He owns a boat which he regularly takes up and down the Thames and plans bringing back to this country when he retires