Michael O'Leary says there is nothing complicated about the Ryanair formula yet few have replicated its success, writes Cliff Taylor, Economics Editor
Running a low-cost airline: lesson I
Ryanair, a company with 1,800 staff, will carry 16 million passengers in the year to March. KLM, the Dutch airline, will carry roughly the same number of passengers. It has 26,000 staff. In its next financial year - ending March 2004 - Ryanair aims for 24 million passengers, with staff numbers set to rise to around 2,200. This will mean it is carrying roughly the same number of passengers as Air France - which employs 42,000 staff.
No wonder chief executive Michael O'Leary, the man who epitomises the gung-ho Ryanair formula, feels the "kids" who work for the company (average age 26) do not get enough credit. "Abuse me," he says, "but give the kids the credit." Ryanair's staff are non-unionised but, says O'Leary, are well rewarded, partly through a share option scheme.
In a couple of years time Ryanair aims to be the biggest in Europe, with close to 30 million passengers. Can you think of any other young Irish company that has grown from nothing to be up there with the biggest in Europe over the past 15 years, asks O'Leary. Rhetorically.
Yet, he argues, talking to The Irish Times this week, "the usual chattering classes" still don't give the company the credit it deserves. "They say 'they only want to make money'", says O'Leary. "Doh."
Running a low-cost airline: lesson II
This week Ryanair started its first flights from Bergamo airport near Milan. This year it will carry two million passengers into and out of the airport. The same goes for a new base near Stockholm, where it starts flying next month. "All over Europe airports are fighting to get us in," says O'Leary. A central element of the Ryanair formula is to fly only to low-cost airports and thus relentlessly drive down the cost of travel for the public.
Ryanair has been flying a route between Shannon and Frankfurt over the past three years and next month a deal under which Aer Rianta waived charges runs out. The Irish airline authority is, says O'Leary, looking for €6 a passenger. Unless this changes, the route will be cut to just one day a week, he says.
Doesn't Aer Rianta have to make money? "That's not my problem," says O'Leary, pointing to the tourism benefits of providing cheap access to Ireland for German tourists.
By the end of the decade, Ryanair aims to be carrying 50 million passengers per annum and to be the dominant carrier in Europe. "Don't ask me what we do after that," he adds.
Running a low-cost airline: lesson III
The average cost of a Ryanair ticket is now around €47 and many tickets are sold for much less. Surely travel cannot get any cheaper? Not so. Ryanair aims to continue to reduce fares by around 5 per cent a year for the next five years (which would bring the average down to around €36). Costs will fall further because of efficiencies offered by new aircraft, the continued drive into lower-cost airports in Europe and the low cost of selling airline tickets on the Internet. In 1996, the travel agent took €8 from a €55 airline fare - the cost of taking an Internet booking is less than 10 cent.
"There is an insatiable demand to fly, once you can keep it cheap," he says. "Even unemployed people can afford to fly with Ryanair - and many of them do."
Strong financial results published this week and soaring traffic volumes for January show the continued success of the formula of low costs and rising volumes. Ryanair's acquisition of Buzz - another low-cost carrier - and an order for another 100 Boeing aircraft show the confidence of the airline's management about growth possibilities.
O'Leary says the widely quoted ultimatum to Buzz staff - work to Ryanair rules or we will close the airline - is not quite what he said. Rather it was that Buzz is losing £1 million a month and unless the Ryanair "formula" can be brought to bear to turn it around over the next couple of months, it will be closed.
O'Leary insists that the "formula" - pioneered in the US by Southwest Airlines - is not complicated. Ryanair offers the lowest fares, doing this by buying a single aircraft type at the bottom of the business cycle and "fighting like banshees with everyone over costs". The resulting low-cost base means profit margins on the average passenger remain healthy. Once these margins remain strong, then higher passenger numbers translate into higher profits.
Does Ryanair look after its customers? "Our traffic figures don't lie." Passengers are offered low fares, new aircraft and punctuality - but should not expect "anything else".
"A group of high-class infants could do it," he argues. "We are a one-trick pony - we are very good at what we do."
But don't expect Ryanair to be expanding - Virgin-like - into other businesses. That, to O'Leary, would be a sign that the company was losing the run of itself - to be avoided at all costs.
So why hasn't anyone else replicated Ryanair's success? "I never, for the life of me, understood it," replies O'Leary.
Some have tried, including Easyjet, which is now the second largest low-cost airline. However, O'Leary argues, none has stuck as rigidly to the Ryanair formula, losing out by committing such heresies as flying to high-cost airports or having the wrong aircraft mix.
Even Ryanair did not have the formula right from day one. Michael O'Leary joined in 1991 and took over as chief executive in 1993. He had previously worked as personal assistant to Dr Tony Ryan, whose family funded the establishment of the airline.
Back then (he points out in a somewhat incredulous tone), passengers were given free drinks and the airline ran a frequent flyer programme - the bulk of whose participants resided in Knock and used the programme for cheap flights.
And (incredulity rising another notch) "we were giving away 5,000 free flights a month to journalists and PR people and expecting the ordinary punter to pay IR£100 a ticket. Now we are more respectful to journalists, we say - buy your own bloody ticket!"
There is nothing complicated about Ryanair's success, he insists. "It's the oldest, simplest formula, you pile 'em high and sell 'em cheap."
Its timing was key, of course, launching the low-cost model as the European industry deregulated. Now, such is Ryanair's growth, that O'Leary believes that no competitor can now emerge to rival it "unless we f... it up."
Hubris or arrogance must be avoided at all costs. "If we start to believe we can walk on water, then we are in trouble." It is a mindset which has O'Leary relentlessly preaching the gospel to staff, investors and anyone else who will listen. And, reports one surprised supplier who had sent an invoice for a few thousand euro, O'Leary ringing personally to see if the bill could be reduced.
It is also an approach which has seen him engage in a long drawn-out battle with the Government and Aer Rianta to bring down the cost of operating from Ireland.
Here, the arguments are well rehearsed. Ryanair wants competition in the provision of airport facilities and is one of the groups offering to build a second terminal at Dublin Airport - and arguing that, in time, a third and even fourth terminal might be needed. Given the right facilities at the right price, the airline says it can hugely expand traffic in and out of Ireland, particularly from Continental Europe, increasing traffic from four million a year now to 10 million a year.
The message is that if the cost of flying to and from Ireland is not low enough, then Ryanair will simply grow its traffic even faster elsewhere in Europe and passenger numbers from here will remain static. It already has four continental European bases and is in discussion with another eight potential bases.
"We don't need Ireland, Ireland needs Ryanair," is O'Leary's view. Following a lengthy battle with the former Minister, Mary O'Rourke, he now appears more confident that the current Minister for Transport, Seamus Brennan, will introduce competition in airports.
He quotes approvingly a recent comment that O'Rourke was "always one consultant's report away from making a decision". He seems surer that Brennan and the Government understand the need for low-cost access and the resulting tourism pay-off.
However, discussing the issue with him, it is clear that the current administration will never be far from earning his favourite (printable) insult: "gobdaws".
But despite his frustration with official Ireland and the growth of the business in continental Europe, O'Leary is unequivocal that Ryanair's base will remain here. "We're Irish and proud of it."
He sees the company as epitomising the can-do spirit of the younger, well-educated part of the population. The old "we reached the quarter-final of the World Cup, didn't we do well" is anathema to him.
"We bow down to nobody. We'll stuff every one of them in Europe, we won't be second or third and saying 'didn't we do well'."