Ryanair’s O’Leary: ‘He really does seem to enjoy a crisis’
The budget airline boss completes 25 years as CEO with a reputation for ruthlessness to match his brilliant record of success
In 2001, British Airways’ budget offshoot Go began flying from Dublin to Glasgow and Edinburgh. “It’s about time Irish travellers had the opportunity to combine low fares with high quality,” then BA chief executive Barbara Cassani told The Irish Times when she launched the service that July.
The opportunity did not last long. Ryanair began flying to Edinburgh from Dublin, offering IR£5 each way on both that and its existing Dublin to Glasgow/Prestwick route. Within six months of take-off from Dublin, Go was gone. It was more or less as the Irish carrier’s chief executive, Michael O’Leary, had predicted when he heard a competitor was moving into his back yard.
“We got a thrashing,” a chastened Cassani wrote later, conceding that it cost millions of pounds. “You can’t take on someone with lower costs because they dig deeper than you to lower their prices and still make money, while you’re bleeding.”
“Make money while your rivals bleed” sounds like an O’Leary mantra. No matter what the conditions in what is a notoriously cyclical industry, the airline he took over 25 years ago this month has grown consistently from the early 1990s. These days it flies more than 135 million passengers a year around Europe and will make at least €1.25 billion profit in the 12 months to March 31st.
When O’Leary became chief executive in 1994, Ryanair made about €2.6 million profit flying more than two million passengers. In 1997, when it floated on the Dublin market, it carried four million people and made IR£37 million (€46 million). It has grown consistently in the face of recession, the aviation sector’s near collapse following the 9/11 terrorist attacks in the US and belligerent opposition from the old state-owned flag carriers whose monopolies it challenged in its early days.
It’s no less true for being a cliche that Ryanair revolutionised European aviation.
As Cassani found to her cost in 2001, Ryanair did this by keeping its costs lower than its competitors.
During the recent six months from March to September, excluding fuel, each passenger cost the airline an average of €27. At Wizz, its nearest competitor on cost, the figure was €40, while at Easyjet, its biggest competitor, it was €51. Ryanair charged those customers an average of €39, against €46 for Wizz and €60 for Easyjet.
Working your aircraft harder than your rivals allows you to cut fares
Ryanair operates on the same principle that propels mass production: the more you make of something, the lower the cost of each individual unit. Excluding fuel, aircraft have a fixed cost. It is the same whether they are flying around full of paying passengers or sitting empty on the tarmac. Thus, the more you fly them, the lower the cost of each seat, and therefore the less you can charge for it.
Working your aircraft harder than your rivals allows you to cut fares, drawing customers from more expensive carriers and expanding the market by making flying more affordable for more people. This allowed Ryanair both to compete on routes served by others and stimulate new business from previously untried destinations.
O’Leary found the template for this in 1992 when he visited South West Airlines, the giant US low-cost carrier founded by another colourful chief executive, Herb Kelleher, who died earlier this month.
South West had a formula. It flew point-to-point, using one type of aircraft, the Boeing 737, which kept things simple and, more importantly, kept maintenance and training costs low.
Significantly, the US airline worked these planes hard. It turned them around quickly, with less than 30 minutes from landing to take-off, compared to 1½ hours or more for others. Consequently, the aircraft spent more time in the air serving more routes and carrying more passengers than those of its rivals.
South West was disciplined about costs, favouring cheaper, secondary airports over primary gateways. It expanded every year, adding new routes and aircraft, but always at a pace the company could manage. The approach appealed to O’Leary, who returned to Ireland with the idea of adapting it to Ryanair.
Ryanair had all the glamorous trappings then associated with airlines but was haemorrhaging cash
He had never gone into the airline with the intention of running it. In fact, he first turned up in Ryanair in 1988 as a troubleshooter for his boss, Tony Ryan, founder of both the airline and the successful aircraft leasing group Guinness Peat Aviation (GPA), who had first met the young O’Leary as a trainee in accountants Stokes Kennedy Crowley before hiring him to look after his personal investments.
Ryanair had all the glamorous trappings then associated with airlines but was haemorrhaging cash. It flew from Dublin to Britain, offering 20 per cent discounts on the fares charged by the Aer Lingus-British Airways duopoly, but a dash for growth under chief executive Eugene O’Neill racked up £17 million in losses over three years. O’Leary often recalls that he and Ryan’s son, Declan, who owned the carrier with his brothers, advised his employer to “close the thing down” but he refused.
Over the next few years, O’Leary got sucked into Ryanair. He and subsequent chief executives, including PJ McGoldrick and Conor Hayes – whom O’Leary succeeded – had to find a formula to make the airline work.
By 1992, Ryanair was getting traction under Hayes, who was upping the competitive ante, doing things such as promotional seat sales ahead of the summer. While this ran counter to industry orthodoxy, O’Leary, then chief operations officer, backed him. It boosted demand to the point where the airline increased services on routes such as Dublin-Stansted and opened new ones. More importantly, it demonstrated that low fares worked.
O’Leary got the chance to go full throttle with the South West approach when he took over from Hayes. In 1994, Ryanair converted fully to the Boeing 737, the aircraft it operates to this day. It began moving on secondary airports, with its chief executive driving famously hard bargains even on their lower charges, arguing that the money from the extra passengers the airline brought in would more than compensate for any initial sacrifice on fees.
This focus on the longer term is a characteristic on which everyone who has worked with O’Leary remarks. However, not all airports agreed with him, at least at the beginning. His clashes with Aer Rianta – now DAA – over charges at Dublin created a rancourous relationship between the two.
One particular fair wind blew his way. Peter Sutherland, then Irish EU commissioner for competition, introduced Europe’s open skies regime. This deregulated air travel, among other things allowing airlines licensed in one member state to fly between two others, giving Ryanair access to a market of 300 million people (now 500 million).
His knack for negotiating regulations manifested itself in a famously quirky way
O’Leary recognised both the opportunity and that he had a formula to exploit it. Ryanair opened bases in the UK – including Stansted which is now its biggest – Belgium, Sweden, Italy, and so on. When the EU expanded east in the early years of the century, so did Ryanair, building a strong presence in central Europe and the Baltics.
Attention to detail
His attention to detail allowed him to grasp the laws and regulations governing aviation quickly. “He’ll really roll up his sleeves and get stuck into all that stuff,” says one former colleague, who adds that the airline boss knows the intricacies of the open skies rules better than most.
This knack for negotiating regulations manifested itself in a famously quirky way. As gridlock gripped Dublin’s roads in the early years of the century, O’Leary bought a taxi licence and plate for his own car – a Mercedes – allowing him to use bus lanes to sail past bumper-to-bumper traffic on the way to his office at the airport every morning.
It would be wrong to say that O’Leary left it at mimicking South West. Sources say that he adapted the approach to the needs of Ryanair, taking a more aggressive, even more cost-disciplined, approach. For instance, South West crews frequently spend nights away from their bases, at the company’s expense; that does not happen in Ryanair. “He just got a lot more out of it,” says one observer.
Another difference with South West, and virtually all competitors, was Ryanair’s refusal to recognise unions (although it could not block staff from joining them). Few insiders believe that this was ideological, more that O’Leary saw them as a barrier to the flexibility and productivity needed to make the low-fares approach work. Thus, unions joined Aer Lingus, Aer Rianta and other state monopolies on a list of the airline’s natural enemies.
Travel agents also found themselves in his crosshairs. In 1997, he began selling tickets direct through a call centre and cut the agents’ commission to 7.5 per cent from 9 per cent, knowing he had a solid competition law case if they collectively refused to sell Ryanair flights. By the early years of the century the airline had ditched them altogether, although it happily backtracked on this in 2014 when it began chasing more business travellers.
Predictably his direct approach to vested interests annoyed many in the Republic’s – and Europe’s – business and political establishments. Most who have followed the organisation down the years argue that O’Leary’s approach was required if Ryanair was going to break the industry’s monopolistic mould.
“You have to behave the way he does if you are willing to take on the tough battles that nobody else wanted to take on,” says one.
Colleagues see this combative style too. He frequently “flame grills” – as one puts it – senior, middle-ranking and junior staff, even external advisers. Tony Ryan had a similar style although, unlike him, O’Leary does not deliver these dressings down in front of all and sundry. It is said they happen in his office and reach a pitch that many can hear until someone quietly closes the door.
They always relate to work; O’Leary does not get personal. Most say that it stems from his own drive and the fact that he expects the same of everyone who works for him. He typically starts at 7am and works through until the same time that evening. “He expects everyone around him to work as hard as he does, no matter what level they are at,” one associate says.
Those who have seen him in action regularly say O’Leary is “ruthless” when it comes to business. While the public – and the media – see plenty of evidence of his wit and sense of humour, it shows up less frequently in the office. “Work is work – there’s no messing around.”
Some of his flame grillings take place at his Monday morning meetings with his executive and department heads. These begin at 9am and run for two hours.
Insiders say that O’Leary is always “incredibly well-prepared” for these gatherings, with a clear picture of what is happening in each element of the business. Woe betide anyone who is not up to speed in their own area.
During the industrial relations problems last year, he knew the details of virtually every row, down to each protagonist and their grievances.
At the other end of the week, he spends part of Friday afternoon scrutinising all invoices over a particular value. More or less nothing happens in Ryanair without his knowing about it.
This attention to detail and a knack for getting to the heart of problems quickly make it difficult for others to counter when he goes on the attack. “He’s often right, that’s the problem,” says one.
Others challenge the notion that down through the years, those executives closest to him were most likely to stand up to him. However, this does not mean he’s impervious to change. His U-turn on trade unions in late 2017, his welcoming travel agents back to the fold, and Ryanair’s recent shift to primary airports, all show that O’Leary will dramatically change tack when it suits, and he does take colleagues’ advice on board.
Another point on which most agree is that he still relishes a challenge . As one says: “That’s when he gets stuck in; he really does seem to enjoy a crisis.”