Nine years after he had first been asked to sort out Ryanair, Michael O’Leary remained a largely anonymous figure in Irish life. Ryanair was still a private company and flew under the radar of the financial media. Coverage of the airline’s progress from loss maker to serious profit generator had been muted, and scrutiny of the man who had led that transformation was underwhelming. The scale of O’Leary’s wealth was unknown even to his closest colleagues. All that was about to change.
David Bonderman’s arrival at Ryanair had altered the dynamics of the company. Until Bonderman had invested, Ryanair had been a small and moderately successful regional airline. It could have stayed that way: a small, profitable, niche operator. Bonderman’s investment, however, heralded a far more ambitious strategy.
Publicly, the company tried to dampen speculation that flotation was imminent. In early January Tim Jeans tackled the gossip by saying that he had ‘read with interest the speculation about a stock market flotation, but would stress that it is just that – speculation. We have recently announced the acquisition of six Boeing 737 aircraft from Lufthansa which were financed by the traditional methods of cash and bank finance. These will be sufficient for the medium-term expansion into Europe, so there is no pressing need for finance on any grand scale. When you have a guy like David Bonderman coming on board the industry tends to start putting two and two together. I feel that this time they may have come up with five.’
Behind the scenes, though, Ryanair’s executives were moving with pace. Within weeks of Jeans’s attempt to downplay speculation, O’Leary was in New York to talk to major investment banks about a flotation, an exercise known as a beauty parade. ‘We went for a day, and all the major banks were pitching,’ says O’Leary. Each bank was trying to convince O’Leary and Bonder-man that it would be best suited to take the Irish airline to the stock market, and in time-honoured fashion bragged about how much it could sell the company for. ‘The lowest valuation was $600 million and the highest was $3.5 billion,’ says O’Leary. ‘Crazy stuff. We went with Morgan Stanley, who were somewhere in the middle.’
The valuations bandied about by the Wall Street bankers were far in excess of Ryanair’s assumed value. Bonderman’s investment just six months earlier had valued the company at about £130 million, yet now, at the start of 1997, bankers reckoned that the lowest achievable price was $600 million. That valued O’Leary’s stake alone at more than $100 million, enough to catapult him, age thirty-six and still single, into the top rank of Ireland’s wealthiest individuals.
On 9 February 1997 the speculation ended and the countdown to the stock market began when the Irish Times announced that Morgan Stanley had been chosen to ‘pilot Ryanair through’ its flotation.
For O’Leary, life was about to change irrevocably. The anonymous obsessive who spent his life at his desk was about to be thrust into the limelight. While potential investors would sift through his financial accounts, hunting for signs of weakness before they committed their millions, Ireland’s media was about to discover a new target.
Just as O’Leary was about to embark on his new life, hawking his company to global investors while dealing with his new-found celebrity status at home, his former life as Tony Ryan’s personal assistant came back to haunt him. In 1992, when O’Leary was still doubling as Tony Ryan’s assistant, Cathal Ryan had allegedly assaulted Michelle Rocca, a former Miss Ireland and the mother of his child. Ireland’s justice system grinds slowly, and it was not until February 1997 that the case finally opened in Dublin’s High Court.
It was, inevitably, a media circus. Rocca was a photogenic celebrity, and by the time the court started hearing evidence she had become the partner of Van Morrison. Cathal Ryan’s celebrity status was also assured; since the high-profile collapse of GPA the Ryan family had been regular fodder for the Irish media. Tony Ryan’s rise and fall had been chronicled in detail, and his financial resurrection with Ryanair had added extra spice. Cathal Ryan, too, was flamboyant in his own right. A pilot with all the stereotypical attributes of the breed – he was seen as an arrogant playboy – he was grist to the media mill.
The trial had everything the media could have wanted – sex, violence, bizarre humour, celebrities at war and a rare glimpse of the lifestyle of the rich and pampered. In the trial’s opening statements the court heard that Ryan and Rocca had begun dating in 1988 and in April of 1991 had had a daughter, Claudia. Rocca’s lawyer told the court that Ryan had assaulted her in the early hours of 22 March 1992 at a party at Blackhall Stud near Clane in County Kildare. Rocca said that at the time of the incident she and Ryan were still a couple though they were living apart. Rocca was left badly bruised, the court heard, and Cathal Ryan had never apologized to her. ‘He did send his daddy, Dr Tony Ryan, with flowers to say sorry,’ her lawyer told the court.
When Tony Ryan had apologized for his son, Rocca told him that she would not allow Cathal to see his daughter Claudia again. Ryan wanted some arrangement made for access and Michael O’Leary was dispatched to talk to Rocca. His role was uncomplicated: he was to offer cash and get Rocca to agree a settlement that would allow the Ryans to see Cathal’s daughter.
The court was told that in April 1992 O’Leary brought Rocca a document to sign. In return for agreeing access, the Ryans would provide £1,000 a month maintenance for Claudia and a further £5,000 one-off payment for Rocca. She signed on the dotted line but later said she had not realized that the document included a clause which stipulated that she could make no further claims against Cathal Ryan.
O’Leary was called to testify. ‘Tell me more about being the Ryans’ bagman,’ the lawyer began. ‘If the Ryans wanted someone to, say, go to the shop for a bag of sugar, would that be you?’ O’Leary was not amused.
The case was finally settled in mid-February with the court awarding £7,500 to Rocca and finding Ryan guilty of assault. The case was a tawdry embarrassment for the Ryans but it gave O’Leary a public profile as the Ryanair flotation drew nearer. In March the Irish Times did its numbers and estimated that the airline would be worth £250 million when the shares were sold. That, the paper realized, would value O’Leary’s stake at about £50 million, making him one of the wealthiest men in the country.
For O’Leary, the self-styled one of the boys, a chief executive who wore jeans and open-necked shirts and mucked in with the baggage handlers for a weekly game of football as well as helping out with the bags from time to time, the focus on his wealth was uncomfortable. ‘His big personal concern was, I’m a man of the people and can mix it up with the best of them, and I work harder than anyone else,’ said one source close to the flotation. ‘Once you are a rich guy in Ireland all of a sudden you’ve gone from labour to management. People, as opposed to saying, “This guy’s the man,” say, “Rich bastard.”’
Publicity, however, was unavoidable. In April the Irish Times decided that the time had come to publish its first major profile of the rising star of the aviation world. Of his life before Ryanair the paper said, ‘He began his career in KPMG, then trading as Stokes Kennedy Crowley, having graduated from Trinity College Dublin with a business degree. He worked in taxation for two years, but hated it. He left and dabbled in property, bought a couple of newsagents in Dublin, turned them around, made some money and sold them at a profit.’
On his personality the report said, ‘Publicity shy or not, Mr O’Leary is not afraid to fight his corner,’ referring to his campaigns against Aer Rianta and his frequent denunciations of Aer Lingus. The newspaper also speculated about O’Leary’s relationship with Tony Ryan: ‘O’Leary was undoubtedly once very close to Dr Ryan. Sources say this is no longer the case, that in some ways O’Leary has sought to distance Tony Ryan and his family from the business they founded.’
O’Leary was clearly being billed as the star of the flotation, the unconventional, publicity-shy chief executive who had transformed the company and would now lead it to greatness. But his own attentions were on simpler pursuits. That spring, while New York beckoned, O’Leary started a hobby – a rare departure for a man who seemed to devote every waking hour to his business. O’Leary decided that Gigginstown needed some purpose, so he decided to create his own herd of prime Aberdeen Angus cattle, prized for the quality of their meat.
‘At the time, I didn’t want to be in Charolais [a popular breed for indulgent farmers] because Tony Ryan and Tony O’Reilly and all those guys were into Charolais. I didn’t want to be pricking around as the latest idiot with his Charolais cows,’ he says. ‘I wanted something which was a native breed to Ireland, which means Whitehorns or Angus. The Angus were easy calving, they are very easy to handle. For someone who farms two days a week they were perfect.’
While he didn’t tell journalists about his new passion, he was quick to suggest that he was planning for a life more ordinary. O’Leary, uncomfortable with media attention and conscious that his privacy was a thing of the past, lusted for a return to the quiet life where he could accumulate money without attention. He was, after all, publicity shy, as the Irish Times had said. Ryanair, too, did not need media attention in Ireland. It had already achieved a market presence; its planes were full and its name was known. At a press conference in February O’Leary showed how little of what was to come had been planned when he said, ‘You’re probably wondering why we’re suddenly talking to everybody for the first time in ten years. When this is finished we’ll probably disappear for another ten years.’
Some chance. The flotation would change his world, forcing O’Leary onto a global stage to sell the company. The game was just beginning, and he was to be the central player. Instead of disappearing to his private world of cattle and country, O’Leary was about to become the Duracell bunny of European aviation.
The prospect of flotation had concentrated O’Leary’s mind even further on cost reduction. Investors would want to see profits, and they would want to see evidence that the Ryanair model was continuing to evolve. O’Leary decided it was time to tackle one of his biggest and most irritating costs: the commission paid to travel agents on every Ryanair ticket they sold.
For the moment O’Leary was interested only in shaving the commission from 9 to 7.5 per cent, but it was a radical move at the time and the Irish Travel Agents’ Association, which represented 340 agents across the country, was not going to give up its money without a struggle. Within days of O’Leary’s decision to cut their commissions, there were mutterings in the trade about a boycott of Ryanair, but this was not O’Leary’s only move against the travel agents. In January 1997 he had also set up Ryanair Direct, a telemarketing operation which he hoped would cut the travel agent out of the loop completely. Helped by a £2.5 million government grant, Ryanair Direct hoped to handle five million customers by the end of its first year in operation, and each ticket it sold would be free of agent commission.
Telemarketing was not a new idea, nor was O’Leary the airline innovator. The British low-fare airline easyJet had blazed the trail by painting its reservations number on the side of its aircraft and had been determined from the outset to control its own bookings. O’Leary, naturally cautious, watched and waited. Only when he was convinced that it would work did he follow easyJet’s lead.
Ireland’s travel agents were not happy. In March Ryanair opened negotiations with the ITAA but the talks broke down without agreement. ‘There was no headway made in those talks, none whatsoever,’ recalls P. J. Brennan, who was head of the ITAA at the time. ‘I still think it was an exercise that we had to go through. It would have been very remiss of us to sit back and do absolutely zilch.’
In public the row quickly turned nasty. At the end of March Ryanair angered agents by faxing advertisements for Ryanair Direct to their offices and rumours flew around the industry that Ryanair was harassing and intimidating individual travel agents. Brennan, though, remembers little acrimony at subsequent meetings. ‘We didn’t go in with pitchforks or anything like that, and they didn’t arrive with them either, he says. ‘We weren’t being told what we wanted to hear, but there was no hitting the desk or anything.’ O’Leary was central to all discussions. ‘There would have been five or six Ryanair people there, but I can’t remember who else was there because Michael was such a focal point,’ recalls Brennan. ‘He would have done 99.99 per cent of the talking.’
With no compromise on the table, ITAA’s members voted on 4 April to refuse to handle sales of Ryanair tickets when the new commission rates were imposed by the airline. A week later their planned confrontation was sabotaged by Ireland’s Competition Authority. Prompted by O’Leary, it wrote to ITAA and said that a boycott of Ryanair would be anti-competitive, and the organizers would face immediate court action.
The Competition Authority was not bluffing. It followed up its letter with a raid on the association’s headquarters, and demanded personal assurances from ITAA’s leaders that they would not seek to damage Ryanair’s business. Pat Massey, a member of the Competition Authority at the time, says that authority staff found enough evidence during the raid to justify court action against the travel agents. ‘The raid started at nine or ten in the morning, and lasted until four or five,’ he says. ‘ITAA seemed surprised to see us.’
The Competition Authority decided to proceed against ITAA, but it was settled on the steps of the court. ‘All a court could have done was force the ITAA to give an undertaking not to continue any anti-competitive behaviour/boycott, and the ITAA gave that undertaking to CA the morning of the court case,’ Massey recalls.
O’Leary had been handed a simple victory by the Competition Authority, which had carried out its raid on the ITAA offices following an anonymous complaint. ‘I have no proof or information as to who [the complaint] came from, but it wouldn’t surprise me if it came from Ryanair,’ says Brennan.
Two weeks later, at an extraordinary general meeting of its members, ITAA said it would pursue legal action against the airline, but this never materialized. The agents had been defeated with barely a shot fired. Ryanair cut its commission on i May and travel agents were forced to comply. Some retaliated by introducing legal surcharges on Ryanair sales, but they could not refuse to sell the tickets.
‘It’s a matter of conjecture really as to whether there was a boycott or not,’ says Brennan. ‘I suppose travel agents acted individually in the sense that they felt that their business was threatened and when people feel that their back is against the wall and their business is threatened, you know, people do things off their own bat, and maybe sometimes they’re not the right things.’
Soon they had all come back into line. Ryanair was a popular airline with passengers and a source of revenue, even at a reduced rate of commission. The agents could not afford to boycott it.
For O’Leary it was a gratifying coup. He had made a relatively painless assault on his cost base, had seen off an industry boycott, and at the same time had established his own direct sales operation. It was also a popular victory with consumers and with potential investors. By defeating the ITAA O’Leary had made it possible for airfares to fall further, and he had also demonstrated to investors that Ryanair was serious about cost cutting and not afraid to fight its corner.
Ryanair’s use of small, out-of-town airports was a crucial element in keeping costs down, but there was no guarantee that passengers would want to fly to them. So while Ryanair might be landing in Beauvais, its passengers needed to believe they were flying to Paris.
O’Leary and Jeans had travelled this road before. Prestwick, a long way south of Glasgow, was still Glasgow as far as IATA regulations were concerned, just as Stansted, in Essex, was a London airport. For the new destinations, all Jeans had to manage was a simple sleight of hand.
‘We had to make sure that they were designated by IATA as Paris and Brussels and that they were included in the three-letter city codes,’ recalls Jeans. ‘At the time the airlines operating to those airports had to vote on them being included in the city designation. So the airlines operating to Beauvais had a vote – and so we had the only vote. We were the lone rangers in Charleroi too.’
Beauvais was Paris and Charleroi was Brussels because Ryanair said so, and IATA’s own regulations – which allowed the airlines serving the airport to decide on what it should be designated – made the claim easy to ratify and impossible to refute. ‘Our competitors were then ready and able to take us to advertising standards and things like that and say you’re not flying to Paris you’re flying to Beauvais. But we were manifestly flying to a designated Paris airport,’ says Jeans. And that was the key: despite the protestations of its rivals, Ryanair could legitimately market its flights as London to Paris.
On 1 May 1997 Ryanair launched into Europe, offering cheap fares to Paris and Brussels from Dublin. Only when passengers landed did they discover they were in fact more than an hour’s drive by coach from the city centres, but few grumbled. The price was right, the airports were uncluttered, and the journey time into town was little worse than they had come to expect from the main airports.
The first phase of European expansion was under way.
Weeks after the successful launch of the routes to Paris and Brussels, Eugene O’Neill re-emerged. Ryanair’s second managing director, he had been fired by Ryan in 1988, shortly after O’Leary had arrived to sort out the troubled airline’s finances. He had launched a number of court actions against Ryanair and the Ryan family, claiming he had been unfairly dismissed and had been conspired against. The last of the cases was settled in 1995, with O’Neill receiving a payment of £83,000 from Ryanair, on top of an earlier settlement of £735,000 for his shareholding in the company.
Now Ryanair looked set to float, O’Neill was back for more money. In mid-May he claimed that when he accepted the 1995 payment he ‘was not of sound mind and was incapable of understanding the provisions, the nature and effect of the said settlement or of properly giving his assent thereto’. O’Neill also wrote to the Securities and Exchange Commission in New York, repeating his allegations, which included wrongful termination, breach of contract and the oppression of a minor shareholder. Ryanair responded by issuing a statement claiming that O’Neill had a history of proceedings against the company and other parties ‘and these have been long since resolved and settled’. O’Neill would be seen off, but Ryanair was facing another obstacle, which was not going to be quite so easy to get around.
Every company preparing for stock market flotation or an initial public offering (IPO) must produce a prospectus, outlining its key statistics, past performance, any risks to its business and its future objectives. The problem for Ryanair was that its prospectus painted a picture of a company which was very different from the one the media and its own staff had expected.
Ever since its launch Ryanair had played the underdog, the undernourished upstart sticking it to the giants Aer Lingus and British Airways, but the prospectus told a different tale. Ryanair was in rude financial health, and had been for the previous three years.
Annual passenger numbers were up to three million for the year ended 31 March 1997. The average load factor stood at 72 per cent, well above the industry average, and the yield per average seat mile (ASM) was £0. 113, compared with ASM operating costs of £0. 110, which meant that Ryanair was making money on every passenger. It also had impressive ancillary revenue – £7.3 million from inflight sales of drinks and duty-free for the twelve months to March 1997. That year also saw a significant contribution from a new moneyspinner – the airline’s deal with the Europcar rental agency brought in more than £2 million. The airline was also dedicated to pursuing other revenue streams. ‘Ryanair offers a variety of ancillary, revenue-generating services in conjunction with its core transportation service,’ the prospectus noted, ‘including on-board duty-free and beverage sales, charter flights, cargo services, travel reservation services, advertising, travel insurance and car rentals.’
Ryanair now had thirteen aircraft, all of them Boeing 737–200s with an average age of fifteen years, and was scheduled to acquire six second-hand aircraft of the same type at the end of 1997. The airline’s flight network had grown to more than a hundred scheduled short-haul flights, serving eight airports in England, three in Ireland, one in Scotland and one in Wales. But dry descriptions of revenue streams and routes paled beside two eye-popping figures. The first was Ryanair’s profitability before tax, which had reached £23.6 million in the fifteen months to March 1996 and £26.09 million in 1997. And the prospectus also revealed the bonus payments to O’Leary: £8.9 million in 1995/96 and £9.75 million in 1996/97.
Ryanair’s financial advisers were prepared for a backlash once the information in the IPO prospectus became public knowledge; indeed the document itself admitted, ‘A variety of factors, including but not limited to, the Company’s recent profitability and disclosure of the level of executive director bonuses, may make it more difficult to maintain its current base salary levels and current employee compensation arrangements.’ But the reaction was much more hostile than expected.
As soon as details of O’Leary’s remuneration package became public, the Irish and UK media whipped itself into a state of frenzy. On 11 May a headline in the Sunday Tribune asked, ‘What does this man do? Walk on water?’ The trade unions, which had been shunned by O’Leary and were not represented at the company, were equally unimpressed and keen to make a point. ‘If Mr O’Leary’s latest annual bonus of £10 million was shared between the 700 staff instead, they would have got about £14,000 each,’ said Paul O’Sullivan, an official with SIPTU, Ireland’s largest trade union, which represented workers at Aer Lingus and Aer Rianta, and which wanted to gain access to Ryanair. ‘Ryanair has pleaded the poor mouth, but the fat cats at the top creamed off the money that could have been used to pay the workforce a decent wage. Bad conditions don’t apply to pay alone. Regarding staff, Ryanair operates like a revolving door. There is little or no job security and a climate of fear operates,’ he maintained.
The union’s opportunism was hardly surprising. ‘SIPTU jumped on it straight away,’ says one senior manager.
Their typical line at the time was that these poor underpaid guys have been worked to the bone and are badly paid, and this guy gets an absolutely immoral amount of money out of the company at the same time. It almost made out that they were working the salt mines in Silesia. But at the end of the day Michael was essentially the guy who took a company that was bankrupt and turned it into a profitable entity, and he had a share in that, so it wasn’t a salary for him really.
Inside Ryanair the news about O’Leary’s pay also sparked outrage, but he seemed oblivious to the resentment when he joined some management colleagues for lunch in the staff canteen a week after the information about his bonuses had been published. ‘A group of us were having lunch and just having a chat about different things,’ says one former executive, ‘and Michael says, “Hey, did you see the newspapers there, did you see your man Schumacher, he earns ten fucking million a year.” And he was saying, “It’s fucking crazy, ten million dollars. For driving a car around a racetrack. Mad.” And all of us looked at each other. Here was a guy who had just earned seventeen million pounds, which was about thirty million dollars at the time, in three years, and he was saying he couldn’t believe what Schumacher earned.’
Privately, O’Leary was bothered by the revelations. ‘It was a big concern for Michael. He was very private about his wealth and he never would have come across as a wealthy guy in 1996,’ says one former colleague.
O’Leary did not flash his cash. He had plans for Gigginstown and was prepared to dabble in cattle and horses, but ostentatious displays of wealth were not his style. In business he was no different. O’Leary was happy to earn bonuses, but he despised corporate excess. The company was run as leanly as he could manage, and he was not going to allow his standards to slip when he and his executives, accompanied by their Wall Street bankers, went on the road to sell the company. When he set off on the two-and-a-half-week investors’ roadshow in early May O’Leary insisted that he and his team stay in modest hotels and travel on commercial flights and not a private jet.
‘Michael did not just suggest that everyone flew on a commercial flight, it was a requirement,’ says one of those involved in the flotation. ‘Companies preparing for a flotation would typically use a private jet. So if there is not a flight from Boston to Milwaukee at 8 p.m. on a Monday you don’t have to worry about it, because the jet is waiting. It costs an extra $55,000 to $70,000 but it’s worth it because you get to see an extra twenty-five investors.’
O’Leary was having none of it. ‘Everyone stayed in dirt-cheap hotels. Michael said, “We’re not staying in the fancy Morgan Stanley Four Seasons,” so they stayed in some pretty grim places. It wasn’t as bad as sharing rooms, but it was close. And part of Michael’s big focus was that when Ryanair pilots travel and when Ryanair people travel they stay in dirt-cheap hotels and they fly economy class. So, he said, we are flying economy and we are not staying in fancy hotels.’
O’Leary was focused on the company’s image. He wanted to portray a lean, hungry company that knew how to cut costs and deliver low fares. There was no room for hubris or self-indulgence. ‘There was very little fun on the roadshow. No mad dancing, no strippers, no heavy drinking. Michael’s reputation as a workaholic travelled with him. He was working unbelievably hard,’ says a colleague. O’Leary had to live that image so that his executives and his bankers understood the message. And he wanted the Ryan-air staff to know that the management lived as frugally as they were forced to.
O’Leary was also determined to ensure that ordinary Ryanair staff would share in the proceeds of the flotation, and in May the company revealed details of the share options scheme for its 1,000 employees. A total of four million shares would be handed out. ‘The staff grant was not atypical, but in Ireland it would be more typical not to have done it than to have done it,’ says a source close to the company. ‘O’Leary was pushing for it, and the board was too; they wanted to make sure the employees were happy.’
But the share allocations did not win favour with all of Ryanair’s employees. ‘The senior management, the guys just behind the executive team, were very unhappy,’ says one management source. They had seen what O’Leary had earned from the company in the previous three years, and they wanted a larger slice of the business for themselves.
While the Irish obsessed over O’Leary’s money, American investors were unconcerned. ‘It wasn’t hard to defend in the US at all,’ says one source close to the float. ‘It’s like the anecdote where an Irish guy and an American guy walk down the street and they see this guy’s huge house up on the hill. The American guy goes, “Some day I’m going to get that house,” and the Irish guy goes, “Some day I’m going to get that fucker.”’
The Americans were also more receptive to O’Leary’s disregard for business norms, and did not seem to mind that he did not wear a suit and peppered his conversation with swear words, though it did give Morgan Stanley some cause for concern. Senior executives discussed at length whether it was acceptable for the Ryanair CEO to use the F–word so frequently, but in the end the bankers decided not to coach O’Leary on his language. ‘The decision in the end was that O’Leary runs a very successful business, so we’re going to coach him in terms of what works and what doesn’t work on the selling of a business,’ said a Morgan Stanley executive. ‘But he is very charismatic and extremely dedicated to driving the growth. So we didn’t really try to convince him not to be Michael O’Leary.’
‘O’Leary’s behaviour was very full on,’ remarked one source in the US.
O’Leary didn’t wear a suit, which was very unusual at the time. He met with over a hundred institutions and several hundred people. I’m sure there were a couple of people who were put off by it, who were certainly surprised, including investment bankers, salespeople, investors. But people didn’t really complain about him. If he had only done five-minute presentations maybe. But after thirty, forty-five minutes, you realized that he was extremely focused, extremely bright, and that the business was very fast-growing. And he happens to swear a lot, but it’s part of the culture.
Investors try to focus on business results, not table manners.
They had a lot to focus on. Ryanair’s prospectus was crammed with detail, yet for the American investors who were critical to the success or failure of the flotation there was a simple message.
‘In the early 1990s the new management team, including the current Chief Executive and the then executive directors, commenced the restructuring of Ryanair’s operations to become a low-fares no-frills airline based on the operating model pioneered by Southwest Airlines in the US.’ Ryanair, Morgan Stanley and O’Leary were saying, is the European Southwest: a low-cost airline which will deliver unrivalled and unbroken profit growth for many years to come.
Southwest had developed a strong following in the US investment community. ‘Southwest was doing well as a company, so it was very good as a comparable stock,’ said one of Ryanair’s financial advisers. ‘A big part of the pitch was what Southwest has done in the US we are going to do in Europe.’
For a company which had barely dipped its toes in the European market and had faced collapse five years earlier, this was, to say the least, an ambitious claim. For some, the Southwest analogy was nothing more than a stunt; cynics said it was a wild claim which sounded good – was easy to justify on the surface but of little substance because Ryanair was such an unproven carrier.
O’Leary disagrees strongly. ‘Ah shit no,’ he says, offended at the suggestion. ‘Southwest was a big guiding thing for me. Before I heard about Southwest I had seen two airlines in Ireland, Ryanair and Aer Lingus, both of which were blindingly incompetent. They had complicated check-in, business class this, travel agent that, all the rest of that crap, and were turning planes round in an hour. Then you went to Southwest, banging aircraft out after fifteen minutes. They were phenomenal, passengers loved it.’
The prospectus did not hold back on the risks facing the business. ‘Ryanair is very vulnerable to a change in demand in the Ireland to UK market,’ it noted, ‘39.9 per cent of passengers carried in 1997 were Dublin–London (46.2 per cent in 1996).’ The size of the airline, which had ‘smaller/fewer aircraft than some potential or actual competitors’, was a risk, as was the fact that future growth depended on the ability to acquire additional aircraft. The prospectus also said that Ryanair’s ageing fleet (average age fifteen years) could leave the airline vulnerable if new regulations or standards on aircraft maintenance were introduced. Investors were advised to be cautious about Ryanair’s ability to expand – ‘there is no assurance that Ryanair’s low-fares, no-frills service will be accepted on new routes’ – and even if the model worked, then Ryanair’s ability to manage growth became a risk, as did airport access and charges, and competition.
The airline’s dependence on Michael O’Leary and other senior managers was also highlighted as a concern. ‘Ryanair’s success depends to a significant extent upon the efforts and abilities of its senior management team…and key financial, commercial, operating and maintenance personnel,’ the prospectus noted. ‘Ryanair’s success also depends on the ability of its executive officers and other members of senior management, none of whom has any prior experience of managing public companies, to operate and manage effectively, both independently and as a group.’
The risks did not deter investors. They understood the Southwest story – a tale of unbroken profit from a Texas airline which had helped prompt deregulation and profited hugely in its aftermath by keeping its fares low, its costs lower and its customers happy – and they wanted to be a part of the European revolution that Ryanair promised to deliver.
Despite five years of progressive deregulation, the European market had not caught fire like the US had after 1978. Aviation expert Dr Markus Franke says that by 1997, ‘In theory every carrier in Europe, or in EC Europe at least, could…fly within every other country. But nobody was really doing that.’ Between 1992 and 1997 the number of international routes within Europe rose by 13 per cent – notable but hardly seismic – and the amount of competition on those routes had increased only moderately as well. Progress had also been unspectacular on domestic routes. Investors understood the potential if the sleeping giant could be woken, and the scene was set for Ryanair to expand. All it needed was the money the flotation would provide to buy more planes, and the belief that the business model that had proved so successful on the Ireland to Britain routes could be exported to Europe.
The roadshow was a success. ‘The management did a great job selling the story,’ says one of the bankers involved in the flotation. ‘O’Leary and his deputies [Michael Cawley and Howard Millar] are very good salesmen.’
While the senior executives sold the company, back in Dublin the flotation remained an abstract concept to most of the staff until very close to the event.
‘There wasn’t a huge build-up to it. Michael was very much business as usual. Keep the show on the road, and let us, the financial people, look after making sure the flotation goes successfully, and everybody else make sure that the company runs smoothly. For the staff it was, like, we’re gonna float, there’s an American guy who’s bought 20 per cent. That’s great. What does floating mean?’ says Ryanair veteran Charlie Clifton.
Most of the staff got either 2,500 share options or £2,500 in cash. ‘It floated at £1.97 so the shares were a better bet, but the cash looked better to those who knew nothing about the markets,’ says Clifton. ‘It took a lot of explaining to some staff members, and a lot of people said no, I don’t trust that stuff. Give me two and a half grand in cash, thank you.’
Two weeks before the flotation O’Leary promoted Clifton to Ryanair’s senior management team. ‘I didn’t even know what it meant,’ says Clifton. ‘Michael said, “Good news, we’re going to make you a director. By the way we’ll be floating; by the way you’re getting this many shares.” I was clueless about it. It was only later that the penny dropped. He had his reasons for promoting me though. It was, like, here’s Conor [McCarthy], one I’ve poached from Aer Lingus. And here’s Charlie, one I’ve grown myself’.
The share options also gave Ryanair something which had previously been sorely lacking in the airline – stability at the top. With the options, senior managers were tied in for three years. ‘The good news is you get X number of shares, the bad news is you’ve gotta stay three years before you get them,’ says Clifton.
‘Nobody knew the upside potential,’ says Tim Jeans. ‘I bought quite a lot of shares as well as the share options because I knew we had a good company. Because of what had happened with GPA the shares were priced to go,’ he says. And up they went. Ryanair floated at 2 p.m. Irish time on 26 June. ‘It was a landmark day,’ says Jeans. ‘There was a massive TVon the first floor, with a link-up to Wall Street. There was a graph on the TV. The shares started at 1.95 and the graph started off at the bottom left hand of the screen. By the end of the day it was at the top right. There were lots of very happy people, people who could buy their first car or put a deposit down on their house.’
‘We all watched the flotation on TVat work,’ says Clifton, ‘and there was a big party. It was hugely successful on the first day. It was a great day, it was fantastic. And I remember asking Michael what does it mean, and he said it’s like paying off your mortgage. He was floating around, delighted.’
The following day newspapers reported that the offering was more than eighteen times oversubscribed at the initial level of 195 pence. The price immediately soared to 250 pence, and was trading at 315 pence in after-hours trading, valuing the company at £380 million, and O’Leary’s share at almost £70 million.
O’Leary’s pragmatism was on show the following week. ‘It had been the most successful flotation in Ireland,’ says Jeans. ‘And then at the management meeting the following Monday it was not mentioned once. Life moved on; we’d done the float and that was that. Nothing changed, except that we had all these millions on the balance sheet.’