Michael O'Leary (6 page)

‘I was much more like Del Boy [the notoriously dodgy trader from the popular TV series
Only Fools and Horses
] than Dev in
Coronation Street
. I was going around in this van that had no back seat in it, going up and down to Musgraves [the wholesaler] getting all the cash and carry stuff. It wasn't very glorious.'

During his first Christmas as a shop owner in Walkinstown O'Leary proved that he had mastered the art of supply and demand and demonstrated a propensity to exploit which has stayed with him.

We had a turnover in the shop of about £1,000 a day, and being a greedy little bugger like I was at the time, we decided we'd open on Christmas Day. The staff weren't too happy – since it was just my younger brother and my younger sister I announced that the management had taken an executive decision.

I had this theory that people were stuck on Christmas Day for stuff to do, so we bought these big boxes of chocolates. And we stocked up on an unbelievable quantity of batteries. And we spent most of Christmas Eve trebling the price of batteries and the price of the big box of chocolates.

By lunch time on Christmas Day we had been cleaned out. Of everything. They bought cigarettes by the 200s, they bought the big boxes of chocolates. I had tripled the price of batteries and I still sold them out. And we took in about £14,000 in the day, fourteen times the normal turnover.

I have never had a sexual experience in my life like it. The feeling of having one wad of notes pushed down one side of my trousers and another wad of notes down the other, waddling out of the newsagent in
Walkinstown with about fourteen grand, hoping I wasn't going to be mugged going to the car.

O'Leary had tasted success and he liked it. His instincts had been proved right: he had the talent to succeed on his own, and he did not need to work for a large corporation to make his way in the world. He had learned the basic rules of business in the sharpest possible way – with his own money at risk. He had dealt with customers, grappled with stock and come to a conclusion that would stick with him for the rest of his business career: cost reduction was the key to profitability. If he could cut his costs – by working harder, buying smarter and opening longer – then his margins would rise.

Most of all O'Leary discovered what he had always suspected, but never tested to the full: he loved working, he adored making money and he was good at it. He would make whatever sacrifices were necessary to feed his obsession – long hours and inhospitable locations mattered nothing. Social and family life would be sacrificed to the greater god of Mammon. His appetite whetted, O'Leary was ready for his next challenge. He knew that he had learned a lot, but that there was much, much more to learn if he was to take the next step. Success did not sate him, it fuelled him.

While Michael O'Leary was striking out on his own, turning a profit by raising the price of batteries in a Dublin corner shop, Tony Ryan was launching his assault on the Irish aviation market. From the moment he had been awarded his operating licence in early 1985 Ryan and his partners had assembled a small team to launch the airline which they believed could in time become a serious competitor to Aer Lingus. Eugene O'Neill, a young former merchant banker who had worked as Ryan's personal assistant, headed the team, which first operated from a small prefabricated building at Waterford airport. Another key player was Christy Ryan, a former managing director of Aer Arann who had worked with Ryan at GPA and was godfather to his son Declan.

The airline's inaugural route would be from Christy Ryan's hometown of Waterford to Gatwick. That route was never going to make their fortune – Waterford in 1985 was a small coastal town known for its port and its hand-blown crystal glass, not a burgeoning metropolis – and Ryan decided to operate a fifteen-seat propellor aircraft which he brought in from GPA.

In July the new Ryanair took to the skies for its inaugural service, operating one return trip a day between the two airports. If Ryan managed to sell every seat on the plane every day of the week he would carry no more than 10,000 passengers a year – a tiny fraction of the overall market between Ireland and the UK – but it was a start. The initial response was encouraging: within weeks Ryanair had achieved load factors of 50 per cent – an impressive way of saying that an average of seven people flew on each leg of the route. Ryan was encouraged enough to double the daily frequency to two return flights and add a Sunday operation as well.

The Waterford–Gatwick route was always just an entry point.
Ryanair had to demonstrate to the Irish government, which granted the airline licences, that it could operate a simple route safely and efficiently. Ryan's target from the very beginning was the lucrative Dublin–London market. That, he knew, would be the real battleground with Aer Lingus, and Ryanair's entry as a competitor would inevitably provoke a ferocious response. Direct competition on flights to Heathrow was out of the question – apart from the expense of flying to a major airport, simply getting landing slots was beyond the means of a small start-up airline – so Ryan and O'Neill had to find an airport from which to launch a Dublin–London service.

Their choice was Luton, a small and underutilized airport which lay to the north of London. It could be reached by the MI motorway, and by train from London's King's Cross station. Most important of all, Luton, though close to London, was technically not a London airport. If it had been a London airport, Ryanair would have been legally bound to charge fares in line with those of other airlines who were flying between London and Dublin. But as Luton was legally perceived as a different destination, and as Ryanair was the only airline flying to that destination, the only fares Ryanair had to match were its own.

Luton was not ideal – passengers would have to take a bus from the airport to the train station before travelling on to central London – but it was more than adequate for Ryan's purposes. It would allow Ryanair to charge whatever fares it chose and the journey time to London, at just over an hour, was not excessive. In December 1985, just five months after the first flights from Waterford, Ryan applied for and received a licence to fly between Dublin and Luton, with the new route scheduled for take-off from August 1986.

The route gave the airline its first opportunity to compete directly with Aer Lingus. Ryan was acutely aware of the significance of the development and described it as ‘the most exciting route opportunity ever to be given to any independent airline operating into or out of Ireland'.

The breakthrough prompted Ryan to revisit his strategy for his
airline. In January 1986 the revised business plan for Ryanair was completed. It envisaged an airline focused firmly on expansion with the resources to carve out a market. The company had set aside £1.5 million to develop its route network, which it hoped would soon expand to include a route from Shannon to Gatwick, and added a further £500,000 in buffer funding to cover any extra costs. Plans for services to America and Australia had been shelved in favour of developing short-haul services from Ryan's three favoured airports, Luton, Shannon and Waterford.

The company had high hopes for its Dublin–Luton route, commenting that even though Ryanair's flight time would ‘admittedly be slower' than Aer Lingus (or ‘marginally slower' as Ryan amended it by hand in his own copy of the proposal), their lower price would attract plenty of passengers. The proposed Shannon– Gatwick route was ‘an essentially proven route', the document noted, but it was more vulnerable to price competition because Dan Air, a UK-based early pioneer of low-priced flights, held a licence on the route. On its one existing route, Waterford to Gatwick, the document noted that it was a ‘fundamentally high yield route…with a proven traffic potential of at least 15,000 passengers annually'. But despite its ‘fundamentally high yield', the business plan showed that the airline was heading for a loss of about £150,000 during its ‘first formative year'.

The losses had eaten into Tony Ryan's original investment of £313,000, made by the trust which he had established for his sons, and within a year a third of his money – £109,000 – had already been lost. Ryanair owned fixtures and fittings valued at just £12,000, while the cost of establishing the Waterford route was £300,000. On the plus side, the airline also had stocks valued at £33,000 and debtors owed it £77,000. But it was also grappling with a £75,000 bank overdraft, and £211,000 was owed to trade creditors.

Despite its bumpy financial start Ryanair said that it was confident of making a profit of £600,000 in its second year, a profit which would be driven largely by the Dublin–Luton route. Route creation, though, was temporarily consigned to the backburner when
Ryanair's application for a Shannon–Gatwick licence was refused, leaving the airline to focus on the launch of the Luton route.

The expected demand for the new route meant Ryanair would need to serve it with more than a fifteen-seat turboprop, and as a short-term measure Ryan took in two ageing Viscounts which could handle forty-three passengers each. He planned to introduce a jet service as soon as he could, but his first priority was to get in the air and establish a presence.

The initial Waterford route may have been below Aer Lingus's radar, but Dublin to Luton was not. In the run-up to the route launch Aer Lingus and British Airways introduced a new cheap fare of £95 return, prompting Ryanair to introduce its first cheap fare of £94.99. Competition was already beginning to bite, and Ryanair's planes had yet to take off from Dublin.

Ryanair's first flight from Dublin to Luton was delayed for forty-two minutes, but finally, at 8.42 on 31 May 1986, FR201 taxied to the runway and took to the skies. It was a quiet start to a revolution that would change the fundamentals of European air travel.

The service quickly proved popular, and within weeks it was hitting its passenger targets. The response was so positive that the airline introduced extra flights. Its planes were small and slow, its destination airport was a long way out of London, but Ryanair tickets were cheap and, just as important, easy to get hold of – a new phenomenon for air travellers.

Now that Ryanair had a foothold, however slight, in the Dublin–London market, Ryan wanted more. The airline applied to the Irish government for permission to launch five more routes, with its expansion strategy based firmly on cherry-picking the busiest routes out of Ireland. Ryan wanted to fly from Dublin to Paris, Amsterdam and Manchester, as well as from Cork and Shannon to Luton. The choice of continental routes was based purely on existing traffic volumes. Figures from ICAO (International Civil Aviation Organisation) for 1984 showed that Paris and Amsterdam were the two biggest European routes from Ireland, accounting for 48.3 per cent of that traffic.

At the time the Dublin–Paris route was usually served twice daily – in the morning by Aer Lingus and in the evening by Air France. During peak season, July and August, there were four extra afternoon flights a week and an additional flight each on Saturday and Sunday. In its application to launch the new routes, Ryanair projected that on the Paris route it would stimulate the market by at least one third, and that Ryanair would carry 20 per cent of the newly enlarged market, giving it a projected 27,930 passengers and a load factor of 63.9 per cent.

The Dublin–Amsterdam route was served by just Aer Lingus, with Dutch carrier KLM operating no services. Aer Lingus operated two daily services – morning and evening. Despite facing no competition the national carrier had not fared well on the route – Ryanair said that the ICAO data for 1984 showed the outbound load factor was ‘a disappointing 40 per cent'. Once again Ryanair projected a 33 per cent increase in the market, with Ryanair taking a 20 per cent share of the newly expanded market.

The Ryanair application stated,

Having seen the unprecedented demand for Ryanair's Dublin to Luton service, and bearing in mind the EEC's attitudes to competition in air travel within Europe and in particular the recent European Court ruling on air fares, it makes obvious sense to consider the extension of Ryanair's low-fare concept to other parts of Ireland and Europe besides Dublin and London; especially now that Ryanair has itself made the commitment to jets and high utilization of this equipment is key to success.

It said its early experiences on the Luton route ‘vastly exceeded even our most optimistic predictions'. In its first week it carried 1,525 passengers (a load factor of 72 per cent), rising to 1,777 passengers and an 80 per cent load factor in week two. ‘In week three the load factor was even higher,' it said, without specifying the numbers. It also claimed that Waterford–Luton had ‘proved more popular than anticipated'.

Price would once again be Ryanair's weapon of choice, and on the continental routes it had plenty of room to manoeuvre. Aer
Lingus's return fare to Paris Charles de Gaulle airport was £434 – more than a return flight to New York – and Ryanair said it would charge just £159. It argued that price would stimulate demand and that if granted the new routes it would carry 340,000 extra passengers in the first year.

The applications were a clear signal of intent. Ryanair wanted to evolve quickly from a low-key regional operator into a serious potential competitor for Aer Lingus. Its business plan was consciously predatory – it wanted to identify Aer Lingus's most profitable routes and then challenge the national airline on each one, undercutting its fares and stealing its passengers. But Ryan knew too, from his study of the effects of US deregulation on the domestic market, that low fares stimulated air travel and encouraged people to fly. Ryanair would steal passengers from Aer Lingus, but it would also start to introduce a new generation of customers to the airline business.

Ryan was confident that the government would grant permission for the new routes, but Aer Lingus, already stung by Ryanair's success in attracting passengers to its Dublin–Luton route, was on full alert. The national airline now believed that Ryanair posed a serious threat, and after years of operating in the comfort zone of a stagnant but profitable market did not believe that the market would grow. Instead, it argued to government and to officials in the department of transport, Ryanair would simply cannibalize Aer Lingus's market and rob it of profits. The upstart, it decided, had to be stopped in its tracks.