Michael O'Leary (56 page)

‘The [fighting] with Aer Rianta transcended business,' says Jeans. ‘It went to the very heart of what Ryanair was about. It was about Ireland, it was about Ryanair as an airline delivering growth…I thought O'Leary and the management team were passionate about Ireland and the difference that we would make to Irish tourism. It wasn't an altruistic, misty-eyed view of the mother country. It was based on the fact that we knew we could make money. The two interests coincided.'

By January 2005 O'Leary could point to some movement from the Irish government – the break-up of Aer Rianta the previous year into separate authorities for Dublin, Shannon and Cork had been a nod towards change because it would allow the three airports to compete against each other for new business – but he had begun to accept that his vision for Dublin airport simply would not be realized. O'Leary's competing terminals, with one dedicated to the needs of the low-cost industry – rudimentary infrastructure and speedy turnaround times – were not going to happen.

Dublin was also edging towards a new slot-controlled system, which would create a more rigid structure for airlines flying in and out of the airport, rather than the more flexible, negotiated system that had existed for years. O'Leary was firmly opposed to slot control – ‘Dublin doesn't need slot control because there is no problem with access to the runway; it's the terminal that's the problem,' he says – and he would fight legal actions to prevent it, but Ireland's aviation regulation authorities were in favour. If it came to pass, incumbent airlines would be in a stronger position than new entrants. The pressure on Ryanair to increase its presence at Dublin was mounting inexorably.

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Three years after Seamus Brennan, as minister for transport, had sought tenders for the building of a second terminal at Dublin airport, the Irish government was finally ready to make a decision in May 2005. After studying all the proposals it decided to award the tender for a new terminal to the state-owned Dublin Airport Authority.

O'Leary's response was withering:

the Taoiseach has dithered for three years on providing a second terminal at Dublin airport. As a result, Dublin airport today is not just a slum; it is a testament to the failure of Bertie Ahern to keep his own election promises…Another terminal provided by the people who brought us the Black Hole of Calcutta is not competition, it's still the Black Hole of Calcutta. The government has been forced to open up telecoms, electricity and other sectors to competition and airports shouldn't be any different. This is anti-competitive and anti-consumer.

It had also always been a fait accompli. The Irish government's slowness to make a decision did not mean that it was ever in any doubt about what that decision would be. It was not that it could not make up its mind, just that it wanted to give the appearance that it had considered all the options and that, on balance, the proposal from the Dublin Airport Authority was the best. In truth, private tenderers did not have a hope of winning the contract. The trade union movement was vigorously opposed to private competition at Dublin airport and would have reacted aggressively to anything other than a continuation of the state monopoly that gave it and its members power and influence over the airport's affairs. SIPTU, the strongest union at the airport, had toyed with suggestions that it should participate in the ownership of a second terminal, but had always been determined that union control would not be diluted by private competition.

O'Leary knew that continued opposition to the government's plans was probably futile, but he was not prepared to retreat quietly. ‘We'll go to the Competition Authority and the European Commission and challenge this on the basis that it contravenes
competition and public procurement rules,' he said. ‘It's time for this monopoly to be tested in the courts and in Europe. It's a state monopoly and it's illegal.' In July O'Leary confirmed that Ryanair would bring full proceedings under Section 82/86 of the Competition Law under the European Treaty. ‘Competition works, but Bertie giving in to his buddies in the trade unions doesn't,' he said.

O'Leary's case to the courts alleged that Ahern ‘entered an arrangement with the trade union movement in relation to union work practices'. The agreement, O'Leary alleged, meant that similar if not identical work practices would be applied to the new terminal as were already in place in the existing terminal. He also claimed that Ahern ‘wrongfully and in breach of duty' imposed the agreement on his minister for transport.

The case was adjourned, and the Dublin Airport Authority pressed ahead with its plans, revealing details in September and prompting another O'Leary tirade. According to the DAA, the new terminal would not be completed until 2009, and would cost €1.2 billion. ‘We, as the largest airline in the country, have not been consulted on either the location, the cost or design of this terminal. It's an absolute bloody disgrace that it's not going to be here until late 2009 [and] how you can spend €1.2 billion when the private sector has offered to build it for €200 million with no extra cost to the taxpayer is equally a disgrace.'

He said that the DAA's terminal would be built in the wrong place, and would not meet the requirements of its airline customers. ‘It's a shambles,' he said. But it was a shambles he would have to live with.

At 8.50 a.m. on 7 July 2005 three bombs exploded in London's Underground within fifty seconds of each other, and one hour later a fourth bomb exploded on a bus. The attacks killed fifty-two people and paralysed London's transport system. Fourteen days later four more bombs went off, again targeting London's public transport, but this time the main explosives failed to detonate and there were no serious injuries.

Inevitably, the stock markets reacted by marking down the value
of airline companies, fearing that terrorist attacks would cause an immediate slump in travel, but the impact of the bombings on air travel was not as calamitous as the fallout from 9/11. Ryanair reported a sharp fall in bookings to London in the days after the attacks, but the slump was not matched for other destinations. Quickly, too, London traffic returned to the pre-bombing levels as travellers seemed to shrug their shoulders, accept the risks inherent in the new age of terrorism and carry on regardless.

Far more serious for airlines was the linked problem of rising oil prices, pushed ever higher by the continuing instability in the Middle East. In 2004 steadily rising prices had forced long-haul carriers to introduce fuel surcharges on their ticket prices, and after a brief lull the oil price had started to spike alarmingly through 2005. Fuel surcharges on international routes were hiked up again in March 2005, and soon spread from long- to short-haul flights. ‘Our fuel bill next year is expected to be an extra £300 million,' said BA's commercial director, Martin George. ‘With prices continuing to rise, a surcharge increase is regrettably unavoidable.'

In May Giovanni Bisignani, director general of the International Air Transport Association, had said that the high oil price was ‘destroying' the profitability of the global airline industry, which was facing losses of $6 billion in 2005, its fifth successive year of net losses. Ryanair, though, was revelling in its rivals' discomfort. Its advantageous price hedging on oil had allowed it to report a 29.5 per cent increase in pre-tax profits to €295.9 million on the last day of May and O'Leary was confidently predicting further growth in 2005/06. In O'Leary's view high oil prices could even be seen as a positive. ‘At $60 a barrel there will be even less pressure on pricing, there will be no new entrants and some [recent start-ups] will disappear. The bloodbath in Europe is continuing and will get worse at $60 a barrel. It is not pretty out there. If oil stays at $60 per barrel over the next twelve months, most of Europe's airlines will show enormous losses,' he said. In America, while the traditional airlines struggled Southwest was also reporting strong profits, despite a 25 per cent rise in its fuel costs.

By the summer of 2005 BA's fuel surcharge had increased
fourfold to £24. O'Leary's response was predictable. ‘Only Ryan-air guarantees no fuel surcharge on all of our fares, not now, not ever,' he said in a statement. ‘Why don't BA reduce other costs instead of always gouging their passengers?' He then rammed home his point by wearing a highwayman's outfit to a press conference in London, where he lampooned BA's ‘skyway robbery'. ‘While oil prices have doubled, BA fuel surcharges have gone up twelvefold,' he said. ‘BA and other airlines are simply using oil price increases to jack up fares.'

If war had created the impetus for the rising oil price, natural disaster soon sent it higher still. Hurricane Katrina, which crashed through the southern states of the US in September, sent oil above $70 a barrel, and analysts were quick to predict that $100 was now a distinct possibility. In mid-September IATA predicated the global airline industry was now heading for losses of $7.4 billion for 2005 and said that oil was ‘once again robbing the industry of its return to profitability'. Worse, there was no end in sight as the oil price remained stubbornly high. War, terrorism and natural disaster ensured that airlines would have to come to terms with a new price regime, one that would increase pressure on the weakest players in the market and re-emphasize that the future lay with the leanest, lowest-cost operators.

The previous year O'Leary had generated acres of press coverage by saying he was thinking of charging for baggage, an idea that sparked heated debate across the travel industry. The travel supplement of the
Sunday Times
, which has more than four million readers in Britain and Ireland, devoted its cover story to the idea of travelling with hand baggage only.

Author Dan Ryan and his partner struggled to cope on a weekend away, despite carrying O'Leary's mooted ten kilos of free carry-on luggage. Sweating and uncomfortable from layers of clothing worn to bolster his weekend clothing options, Ryan was irritated by the sight of two amply built passengers who clearly weighed more than he and his baggage combined. Why, he wondered, do airlines not charge fat people more than they charge thin people?

O'Leary, who has the lean physique of a man with a high metabolism rather than a body honed by hours spent in a gymnasium, was quite taken by the idea. He also delights in telling audiences that he cannot wait to show pornography on late-night flights (adding that he would be its best customer) and wonders aloud about the possibility of his fleet of aircraft becoming flying casinos, using international airspace to evade gaming laws, as soon as the technology to extract instant settlement of inflight debts is foolproof and cheap. ‘These things may happen, and some of them certainly will,' he says. ‘Paying for baggage is logical, because if we can persuade people to fly with what they can carry, we can carve another chunk off costs and take fares lower still. But yes, it generates publicity, and every time we get publicity, good or bad, bookings spike up.'

Some ideas worked, some failed. At the end of 2004 O'Leary, with some ballyhoo, had announced the arrival of inflight entertainment on a select number of flights and plans to roll it out across the whole fleet throughout 2005. It was a carefully planned project but within months had been abandoned. The average Ryanair flight was simply too short to encourage passengers to part with cash for a portable player with modest amounts of programming. And those who were prepared to pay for a player were less likely to buy anything else on board – like food or a drink – and so the revenue impact even on flights where they proved popular was negligible. ‘It was a good idea but not fully thought out,' says Paul Fitzsimmons. So inflight entertainment was dropped, without remorse or apology, because it did not work. Charging for baggage, however, would become a firm fixture.

Adding revenue streams went hand in hand with reducing costs, and O'Leary was always on the hunt for ideas, big and small. Aspirant pilots applying for a post with Ryanair had to pay a non-refundable fee of €50 with their applications, and if they landed a job had to pay for their own retraining on Ryanair's fleet of Boeings. Finding cabin crew for his ever-expanding fleet drove O'Leary into the eastern European labour market, as Ryanair started to employ hundreds of Latvians, Lithuanians
and Poles to staff the planes. They too were expected to pay for their training, subsidize their uniforms and work punishing schedules to earn their wages. The more they flew, the more they earned, but it was a far cry from the gentle work rosters of traditional airlines.

Success, though, seemed to have blunted O'Leary's edge. He started to muse aloud about leaving the company that he had led to such dominance in such a short space of time. He told the
Sunday Times
he would be gone by 2008, sparking a flurry of speculation about who could replace him and confirming a growing view among stock market analysts that O'Leary was bored. ‘Ryanair is maturing into a solid business, one that will grow steadily and which no longer needs the sort of a driven personality that O'Leary gives it,' said one. ‘Mature businesses need a different style of leadership.'

O'Leary's life was starting to change as well. His marriage had been followed that autumn by the birth of his first child, a son, and by a shift in priorities. In an interview that year he said,

I'm nearly certain I won't be here in five years' time. I'll be fifty! I think it'll be partly staleness, partly boredom. I think it will be time for a change in here. There are good people coming up through the system here; they need to be able to see there's something. There are about four guys on the senior management team here who could run this place tomorrow morning. The best businesses have a logical sequence of succession. One of the weaknesses of the company now is it is a bit cheap and cheerful and overly nasty and that reflects my personality.

But if O'Leary's competitors thought they could relax, they were wrong. Far from laying down a template for the three years to come, O'Leary was simply doing what he always does with the media: mischievously thinking aloud and letting the press coverage flow. He may be gone by 2008 or he may still be driving the airline forward; he just does not plan that far ahead. ‘There's no point in having some long-term plan because that long-term plan gets knocked on its ass. We have a five-year plan here, the next twelve
months is set in stone, years two to five are fluid. There is no point in having too many plans.'