At the start of 2003 O’Leary was poised to increase the tempo of Ryanair’s expansion with an opportunistic bid for a dying rival.
Rumours had been circulating for a number of months that Buzz, a low-cost offshoot of Dutch airline KLM, was in deep financial trouble and would be closed or sold by its parent. Gambling that consumers would be prepared to pay a little more for extra comfort, KLM had positioned Buzz well away from Ryanair’s low-cost, no-frills service. The strategy failed to understand the simple dynamics of the new market: price was paramount.
‘Buzz had additional services and better conditions for passengers who wanted to change seats,’ says KLM spokesman Bart Kotser. ‘They had inflight catering. They served both primary and secondary markets whereas Ryanair was only flying from secondary airports. Buzz was seen as the chic low-cost product, versus the non-chic from Ryanair.’ Big mistake.
Buzz had enjoyed some success in the French and Spanish markets, conveying the British middle classes to their holiday homes. But as the low-cost market became more and more crowded, it began to feel the strain. ‘At that time there were so many start-ups that it was very hard,’ says Kotser. ‘The economy, the political situation, made people very reluctant to fly anyway, and in the end it wasn’t possible for Buzz to make money.’
Almost as soon as rumours of Buzz’s impending sale or closure began to circulate, Ryanair was linked with the Dutch airline. The Irish initially remained coy, claiming that while they were indeed talking to Buzz, it was about cooperating on common issues such as passenger compensation. But behind the scenes furious negotiations were taking place.
O’Leary had repeatedly rejected the idea of Ryanair engaging in mergers and acquisitions. His principles, though, were always ready to be sacrificed to pragmatism. He could see the value of Buzz’s slots at Stansted and of its routes into France and Spain. He was not alone. Ryanair was just one of a number of buyers interested in taking over Buzz. According to Kotser, KLM looked at three main factors. ‘One was a social one, how to keep as many people at work as possible. And the second was long-term risk management for those same people. And the third one was we wanted to do it quick and transparent, and so you look at the financial risks that you have there.’
At the end of January, the deal was announced. Ryanair had bought Buzz for just €23.9 million, substantially less than the list price of one Boeing 737. Buzz came with €19 million in cash, so O’Leary was quick to boast that he had effectively acquired it for less than €5 million. On the same day Ryanair placed orders for another twenty-two Boeing aircraft and secured options on a further seventy-eight. ‘Fortune favours the brave,’ he said later. ‘The time to buy is when everyone else is selling and prices are low. I believe this is one of those times.’
Less than a week after Ryanair announced it was buying Buzz, O’Leary announced a survival plan for the airline. Top of the list was the immediate culling of a hundred jobs, reducing Buzz’s workforce from 570 to 470. Buzz’s trade unions were indignant but O’Leary was clear.
If Balpa [the UK pilots’ union] wants to go strike on 1 April, when Ryanair formally takes over, it will not be a question of sacking them, we will close down Buzz. We are not hanging around for long negotiations; it is take it or leave it. It is losing shedloads of money [its losses were running at €1 million a week] and must be turned round. It is tough and unfortunate to lose a hundred jobs, but the alternative was to lose all the jobs.
Airports were in line for a similar message, as O’Leary sought to drastically reduce the number of routes served by Buzz. High-cost airports were first to go while the others were invited to fight it out for a place in the Ryanair network, with price as the key determinant. ‘They had twenty French destinations; we were going to cut that down to about ten,’ says O’Leary. ‘We would have an auction and get cost deals out of them.’
The victorious airports ended up with a better proposition than Buzz, O’Leary argues. ‘Buzz had loads of routes they were flying twice a week and three times a week and we were going to go daily,’ he says. ‘We had bigger aircraft, lower cost base; we knew what we were at.’ As for the airports that lost, they could ‘fuck off’.
The original plan for Buzz would have seen the Dutch airline acting as a subcontractor to Ryanair, with its own UK air operator’s certificate. But as the indignation of Buzz’s Stansted staff became increasingly hard to drown out, O’Leary’s plans began to evolve. By the end of February, the plan to make a hundred of Buzz’s staff redundant had changed. Now, O’Leary decided, two thirds of the airline’s workforce would have to go.
The cuts extended to every area of the airline – 25 per cent of the pilots were out along with up to 80 per cent of cabin crew, 50 per cent of ground operations staff and all of the cargo and sales staff. The remaining 200 staff would be offered new contracts with ‘significant’ increases in pay and productivity allowances. Predictably, the unions screamed. Paul Kenny, who represented Buzz’s administration and ground staff, said it was an ‘absolute outrage’ and accused Ryanair of treating staff with ‘contempt’. Balpa general secretary Jim McAulsan said the takeover was being approached ‘as if it was a fire sale’.
Ryanair was unconcerned. ‘The poor old staff were working for a basket case company,’ says Charlie Clifton, who had by then resigned as director of Ryanair’s ground operations.
It’s the classic, ‘Ah, how could you?’ Well, if we didn’t they were all going to be made redundant. So now some of them had an opportunity to work, to sign on the dotted line and say we’re going to work the Ryanair way because Ryanair is successful. And a number of people have and will always find that absolutely too awful a medicine to take. Good luck to them. Nobody’s putting a gun to their head.
Ryanair’s new plan specified the axing of fifteen of Buzz’s twenty-four routes and the reduction of Buzz’s fleet from twelve to eight aircraft. Fares on the remaining routes were to be cut by 50 per cent and seat capacity doubled. The plan, however, hinged on the 200 staff agreeing to sign up to Ryanair’s offer. In early March Ryanair wrote to the chosen few. ‘If we don’t get sufficient acceptances, we would go ahead and close it down, and operate it ourselves by hiring in pilots and cabin crew,’ O’Leary said.
By mid-March, the verdict was in and O’Leary could boast that 90 per cent of the Buzz pilots offered new contracts had signed on the dotted line, along with 50 per cent of the invited cabin crew. There was, however, another issue: Ryanair’s due-diligence trawl of Buzz’s accounts had discovered losses far greater than those expected. O’Leary managed to whittle KLM down to €20.1 million from the previously agreed €23.9 million. He then decided to implement his doomsday plan, and shut Buzz down completely for the duration of April, ahead of a planned relaunch in May.
‘The unions would have played ducks and drakes with us if we were trying desperately to keep it going,’ says O’Leary. ‘We said, “Fuck that, we’re going to shut it for a month.” The unions realized, “Shit, this is serious.” And shutting it down was the master stroke, because then we weren’t dealing with any of the bullshit.’
Despite O’Leary’s tactics, Kotser said KLM had no regrets about the choice it made. ‘Ryanair was the best option,’ says Kotser.
We were aware of redundancy plans. We also were aware that if we had chosen any of the other options the same thing would have happened and even more people would get made redundant. If you decide to withdraw from a market and you cannot make money, then the options are limited of course. In the end, we only would have been happy if Buzz had turned out profitable. Knowing that was not the case we still think it was the best decision from the options we had.
O’Leary, with his new acquisition on board and with new planes arriving by the month for his ever-expanding Ryanair fleet, had taken on a huge challenge. Buzz accelerated Ryanair’s expansion into Europe, increased its dominance at Stansted and made the Irish airline a fixture in the lives of Britain’s growing army of French homeowners, but it was also about to give O’Leary a severe bout of indigestion.
On 1 May 2003 Ryanair relaunched Buzz. Or, more accurately, it relaunched a handful of Buzz routes, staffed by a handful of Buzz staff now kitted out in Ryanair uniforms. The relaunch was without fanfare; former Buzz routes restarted alongside a tranche of new Ryanair services. The result was the most intense two days of Ryanair’s eighteen-year history. On 30 April and 1 May Ryanair launched twenty-one routes from Stansted and a further two from Pisa and Hahn. The flurry of launches was the culmination of Ryanair’s aggressive march through Europe, which had intensified dramatically in previous months.
In February the airline had launched eight new routes; in March, two more and early April had seen a further eight. The frenzy continued throughout the summer, and by the start of June forty-seven new routes had been launched in 2003, almost double the twenty-four inaugurated in the whole of 2002.
‘It was all about the deals on offer from the airports,’ says one executive. ‘O’Leary had no time for demographics or detailed market research. He needed routes for his planes, and he needed money from the airports to keep his costs down. So the airports prepared to offer the best deals got the routes.’
As always, though, there was method in O’Leary’s apparently chaotic approach. His trump card, he believed, was Ryanair’s strength at Stansted. The British capital was a magnet for tourists and businessmen alike, as well as being a vast catchment area for potential airline customers. Routes to and from London, almost no matter where they went to, were certain to attract passengers. Low airfares were still a novelty in continental Europe, and Ryanair was offering people who had never flown before an opportunity to travel and explore at prices too tempting to refuse.
The business model remained as simple as before: Ryanair would fly point to point, offering no complicated connecting flights; turnaround times on the ground would be kept to a minimum so that the planes spent as much time as possible in the air; bases would be established in European countries so that planes, pilots and cabin crew could be grouped locally and cheaply; small airports would be used because they wanted the business and were prepared to pay handsomely to get it; ticket sales would be handled directly, with Ryanair.com growing in importance by the day and simultaneously providing an ever-growing profit centre.
The airline’s accelerating expansion made it easier for O’Leary to punish airports who dared challenge his demands for low charges and marketing support. In February Ryanair reduced frequency on the Shannon–Hahn route over a row with the Irish airport about charging levels. O’Leary had originally planned to move the extra capacity to Italy, but the personal intervention of an executive at Kerry airport – only seventy miles from Shannon – swayed his plans in just a matter of hours.
‘I was following the Shannon row and I had heard that the plane was going to Italy,’ says Peter Bellew, a former manager at Kerry airport.
The plane was a Hahn-based plane, so rather than flying Hahn–Shannon they were going to fly from Hahn to Bergamo, and I thought, Jesus, that’s a bit of a dog. A friend of mine operates walking holidays in Kerry and west Cork. And he said to me, ‘What am I going to do, this flight’s gone and that’s where I’m getting all of my customers from.’ So I said to him, ‘We’ll try and see what we can do to get it to Kerry.’
Bellew had dealt with O’Leary before and knew he was not averse to an unconventional approach to business. Bellew recalls:
I started thinking about it on the Monday, and on the Tuesday I knew Michael was speaking at a function in Trinity. So I decided I’d doorstep him. He was walking into the lecture theatre and he saw me outside and he just said, ‘What the eff are you doing here?’ I said, ‘We want your Hahn flight.’ And he said, ‘You can’t have it, the plane is gone to Italy.’ I said, ‘I want it.’ And I actually grabbed him by both arms and I shook him and said, ‘We want it,’ and he said, ‘Well, you have to give me a deal.’ And I said, ‘What deal do you want,’ and he mentioned a figure and I said, ‘We’ll do it.’
Bellew stayed for the rest of the talk, and the details of the deal were hammered out in a car with O’Leary on the way back to Dublin airport.
For Kerry the deal was a coup as the airport only had three destinations – Dublin, London and Zurich. The deal was also a winner for Ryanair, who could now claim that reducing services at Shannon would have almost no impact on passenger numbers as the Hahn passengers would simply fly to Kerry instead. And the move also served to put manners on Shannon by reminding the airport how easily it could be replaced by its privately owned neighbour and rival.
The deal was typical of the airline’s casual attitude to route selection. Ten of the forty-seven routes launched in early 2003 were to last less than a year, but the scale of Ryanair’s expansion meant that they were swiftly replaced by other services. Because Ryanair operated point to point, closing one route had minimal knock-on effects on the rest of the network. ‘There was an element of churning, of course, but the pace of expansion was being dictated by the arrival of new aircraft and the determination to fill them,’ says one executive. ‘We were going to make mistakes, but so many airports wanted our business that the failures could be replaced quickly.’
Coupled with the acquisition of Buzz, the speed of expansion was putting Ryanair under intense pressure to fill seats. The result was tumbling fares and soaring passenger numbers. Between January and March 2003 average fares fell by 6 per cent, while passenger numbers were up by 50 per cent. The trends were matched between April and June, when fares fell by a further 8 per cent while passenger numbers rose by 60 per cent.
The pressure to sell seats demanded a high-profile publicity campaign to generate free publicity, and O’Leary was willing to act the fool if required. The anonymous accountant of the early years had been transformed into a showman. O’Leary did not care how ridiculous he appeared as long as seat sales went up. His personality was a tradeable commodity and he was determined to exploit himself to deliver the maximum profile for his company across Europe. One of his more controversial stunts took place on 13 May 2003, when publicity for the new route launches was essential. That morning O’Leary changed his jeans and check shirt for the military fatigues of a tank commander, climbed on board a Second World War tank and set off for Luton airport, the headquarters of easyJet.
O’Leary’s message was as crude as his tactics and was certain to provoke a hostile response. Terrorist attacks remained the authorities’ greatest fear and the sight of a tank trundling towards an airport was hardly going to meet with widespread approval. Unsurprisingly, police refused to allow O’Leary to enter the airport and for a moment he weakened. Turning to Paul Fitzsimmons, O’Leary suggested pulling out of the stunt. ‘He said, “We can’t do this, it’s gone wrong.” I said, “No, we have to fucking do it,”’ says Fitzsimmons. And so O’Leary, megaphone in hand, berated easyJet from the turret of his tank outside the airport’s perimeter as the theme tune from The A-Team, an old American TVseries, blared from speakers. It worked. O’Leary was rewarded for his poor taste with the newspaper and television exposure he craved and his business needed.
However, O’Leary recognized that it was going to take more than stunts to fill Ryanair’s ever-expanding fleet. In early June, announcing the full-year results for 2002/03, O’Leary spelled out the evolving picture to investors. The airline would go through a period of ‘abnormal’ traffic growth in the 2003/04 financial year, he said, with passenger numbers growing by 50 per cent to twenty-four million, and fares would be between 10 to 15 per cent lower in 2003/04 than in the previous year.
Investors were spooked, prompting an 8 per cent fall in the share price on 3 June. But later that day the share price rallied and closed just 2.2 per cent below its opening price. The damage, however, had been done. The pace of Ryanair’s expansion was unsettling investors. Their mood was not improved when a few days later O’Leary announced that the cost of acquiring Buzz was actually €46.7 million, and not the €20.1 million he had previously claimed. The extra was for ‘excess lease and acquisition costs’, O’Leary told an investor roadshow on 7 June. ‘I think it is cheeky,’ one analyst told the Irish Times.
Investor unease had also been stoked by a critical report on Ryanair by Andrew Lobbenberg, an airline analyst with ABN-Amro, who published his views on the company under the provocative title ‘The Emperor Has No Clothes’. He advised his clients to sell Ryanair shares because he believed the company would not be able to sustain the levels of profit growth its share price implied. Lobbenberg was not arguing that Ryanair was a busted flush – he admired its business model and management – but he believed that the share price had been overinflated by expectations which the company would be unable to meet. O’Leary responded furiously to Lobbenberg’s assessment, demanding and receiving an opportunity to address ABN-Amro’s stockbrokers directly so that he could rebut his analysis, but O’Leary’s irritation did not sway the analyst’s views. The market, for once, had to balance contrasting views of Ryanair’s future, and the new air of uncertainty ensured that any difficulties would be amplified.
O’Leary, however, was not going to change course. He wanted to stamp his mark on the major European markets, establish the Ryanair brand and use his low cost base to frighten competitors away from his routes. Relentless expansion had its risks, but he saw no alternative. The planes arriving from Boeing had to be put to use, and changing perceptions of the low-cost airline market meant that a host of potential competitors were lining up to get their slice of the new market. Ryanair’s expansion was an aggressive land grab before competitors could establish their own presence. Expansion would, in the short term at least, damage yields and profits, but he had no time for a more measured approach. He told investors that rapid expansion was indeed choking yields, but then said that Ryanair was negotiating with forty new airports and nine potential new bases, and aiming to carry 30 million passengers within three years.
While championing competition in the market as a whole, O’Leary had no desire to engage in direct competition on specific routes. He wanted dominance of individual routes and airports so that he could maximize his bargaining and pricing power. But, unlike traditional capitalists, his objective was not to achieve dominance so that he could later increase his prices. He remained fervently committed to lowering prices as the only sure stimulant of new demand, and his objective was to increase the scale of his operation and the size of his passenger pool.
The new challenge was to exploit the opportunities that his expanding passenger base gave the company. Getting more money from every passenger was critical to future profit growth, but he was not going to go down the traditional path of simply raising prices. He sought painless extraction, not straightforward extortion, and his tool of choice was the Ryanair.com website.
O’Leary was determined not to fall into the same trap as the early Ryanair, which had failed to turn rising passenger numbers into increasing profits. The key was the amount of money that could be extracted from each passenger for services and products other than the airline ticket. In 2003 Ryanair planned to carry 24 million passengers – a captive market who would book their flights directly with Ryanair and then sit for between one and two hours on its aircraft. The task of maximizing ancillary revenue fell to Conal Henry, who was hired as commercial director at the start of 2003. As one Ryanair manager remembers,
When Henry walked in [ancillary revenue] was seen as a big opportunity but it was felt that we probably weren’t delivering on it, even though the market probably felt that we were. The feeling inside was that we could make more out of this. [Ryanair’s executives] aren’t consumer marketing people. They’re not sitting there going, ‘Well, that customer proposition doesn’t match with our customer base and our brand.’ They’re much more traders than marketeers.
Henry was determined to transform the website so that the products offered were of a higher quality and a better fit for Ryanair. He was up against the company’s ingrained obsession with short-term profit. ‘Sean Coyle [Henry’s predecessor] had basically just said yes to anybody who would write him a cheque,’ says a Ryanair manager. In the spring of 2002 Ryanair had started selling Bank of Scotland mortgages on the website because ‘a friend of one of the senior guys in Ryanair bent his ear at a dinner party one night’.
The mortgages were marketed through a link to the website of a Dublin-based broker, Richardson Insurance. Ryanair and Richardson Insurance pledged to pay the property valuation charges for any customer who organized a mortgage through the new system. Unlike Richard Branson’s Virgin, however, O’Leary was not stretching his brand with company money; the Ryanair website was available to partners who could market their products if they were prepared to pay for the privilege. It was a cash stream not a financial risk, and it required no management time other than the negotiation of the deals.
Henry wanted to change the way Ryanair sold additional services to its customers. When Henry started, 15 per cent of passengers who booked with Ryanair Direct booked a car or a hotel or bought travel insurance, but on Ryanair.com it was less than 2 per cent, despite the fact they were the same products. A senior Ryanair manager says,
The reason was because in the call centre they were selling it as part of the same booking process. On the website you had to go off onto a different website, pull out your credit card a second time and complete a second transaction. People just didn’t bother and the product wasn’t so compelling as to drive you to it. What Henry wanted to do was like Expedia. If you booked a flight to Venice in May, he wanted to show you within that booking the price of a hotel for three days in Venice, [and you would just] tick to buy.
Henry’s proposal would have involved root and branch changes to Ryanair’s online booking system – a gamble that O’Leary was not prepared to take. ‘Michael was very wary to change it,’ says a Ryanair executive. ‘If you think about the Ryanair model it hasn’t really changed that much since 1995. Michael doesn’t know what bits of it actually work and what bits don’t so he’s very wary to change any of it.’
With radical change ruled out, Henry turned his attention to the deals Ryanair had struck with Need a Hotel for hotel rooms and with Hertz for car hire – with links to both companies’ websites carried prominently on Ryanair.com. There was clearly a problem with both. Despite climbing passenger numbers, the number of hotel rooms being booked on Ryanair.com was falling and Henry was determined to find out why. ‘Every week Henry would go in [to the website] and show the hotel prices on Ryanair.com and the hotel prices on easyJet and the others,’ says one of Henry’s colleagues. ‘And we were always out on price. And the reason we were always out on price was that we had nailed [Need a Hotel] for so much margin that they had to keep their prices up.’
Henry arranged a meeting with Andrew Collins, financial director of Need a Hotel, and told him that he had to get his prices lower. ‘He said he couldn’t afford to. Then he said, “Conal, give me a chance to get my prices down and I’ll make you more money,”’ says a manager who attended the meeting.
The previous deal had been based on a complex formula whereby Ryanair got a different percentage of Need a Hotel’s earnings depending on how many rooms were sold, with the percentage rising as higher targets were hit. Ryanair’s success had made the formula unworkable: its percentage take was so high that it was no longer worthwhile for Need a Hotel to sell the rooms. The two men set about creating a simpler deal, which was signed off in spring 2003.
Henry’s position was simple: he was interested in the cash. He didn’t care about the percentage structure, just how much cash he could make for Ryanair. Henry proposed a deal that guaranteed Ryanair the same minimum cash from Collins’s company, with additional payments triggered by passenger growth. Released from the straitjacket of the earlier deal, Collins could afford to drop his prices and fill his rooms. Suddenly Ryanair was making more money and the customer proposition was cheaper.
While negotiating with Collins, Henry was simultaneously trying to hammer out a new deal with Hertz, which was also hampered by a similarly restrictive deal struck when Ryanair’s growth was more modest. The deal with Hertz was that the more cars Ryanair shifted to its passengers, the higher the payment Hertz had to make. For the first 10,000 cars rented, the percentage was set at around 20 per cent of revenue, rising to 30 per cent for the next 20,000 cars, and then, at what both sides first thought was an unachievable target, Ryanair’s share would rise to 50 per cent.
Like Need a Hotel, Hertz was now actively avoiding new business from Ryanair because it made no financial sense. ‘So you had a situation in Charleroi where Avis were renting more cars than Hertz despite the fact the only airline in Charleroi was Ryanair, and our deal was with Hertz,’ says a Ryanair executive. ‘They pulled back their availability because it wasn’t worth their while, but Avis were making loads of money because they weren’t paying us commission.’
A new deal was essential. Ryanair needed the profit growth and Hertz needed the incentive to make its cars attractive to Ryanair’s customers. ‘We were all looking at each other saying, “This is fucking mad,”’ says one of the team. ‘Ryanair’s ancillary revenue per passenger was going down because the number of cars rented was going down. So we flipped it the other way round. We said to Hertz, the more cars you ship the lower margin we’ll take – provided you guarantee a minimum income per passenger, which is the income per passenger generated today. So the way for Hertz to make money is to ship loads of cars. And that’s what they did.’
This time Henry’s proposals met with O’Leary’s approval. ‘Once he could see he was guaranteed to make at least as much as he made on his own original deal he said, “Fine, do whatever you want, boys.” He was very happy,’ says one of the negotiators. A new five-year deal was signed in the summer.
With the core hotel and car-hire contracts tied up, Henry turned his attentions to the other products on Ryanair’s website. The previous years had seen a steady stream of products advertised. Some worked, some failed, and there was no overall strategy, just a suck it and see approach to what was a still new and unproven system.
‘O’Leary understands the airline product really well, but get him outside of airlines and he doesn’t see a good product from a bad product,’ says one airline analyst.
Ryanair is much more interested in the deals that they make than the value they bring to their customers. And they want nice big fat slabs of cash. So rather than seeing the long term, like here’s how we can get 70 per cent of our customer base into this franchise, they see the money. It devalued the quality of the real estate. Henry’s role was to bring order to the chaos, and to bring fewer, better links to the Ryanair website. He did a good job.
Slowly, Henry began to pick off the underperformers. As he cut, he created new revenue streams. His first innovation was Ryanair affinity credit cards, which offered a free flight for every ten booked on the card within a ten-year period. The agreement with MBNA, the credit card provider, proved a template for future deals. Ryanair was paid up front for access to its customers, with more cash to come after certain thresholds were reached. All it had to provide in return was free flights, which were already part of its marketing strategy.
The cards were launched at a press conference in mid-February 2003, with O’Leary and Fitzsimmons lining out for Ryanair. ‘I remember there was a gold card and a regular card,’ says Fitzsimmons. ‘MBNA came around to us all to make sure we had them and gave us stupid limits, scary limits. They gave me €100,000. I could have bought a house. We had to have the cards at the press call, not to be caught out if someone said, “And do you have one?” O’Leary was given a gold one that just said “Ryanair” on it. And he said, “Fuck, get me a regular one with the fucking plane on it.”’
The cards were an immediate success. ‘It was the fastest-growing affinity card in the UK and Ireland,’ says Fitzsimmons. ‘It grew like a weed.’ Within eighteen months O’Leary would be able to report that ancillary revenues were shooting ahead, rising by 35 per cent in 2003 to contribute just under £150 million in revenue – a figure that would have been even higher had it not been for the weakness of sterling, which accounted for two thirds of the revenue generated.
Ryanair’s European land grab was the dominant feature of 2003, but it did not mean that O’Leary’s traditional enemies in Ireland could rest easy. His home country’s significance to Ryanair’s immediate expansion plans was small, but O’Leary never lost sight of the future. Ireland had the potential to be a dynamic growth market for Ryanair if O’Leary could strike the right deals. The country’s dramatic economic growth had stalled around the turn of the century but was swiftly regaining momentum and there was a burgeoning market of newly affluent Irish consumers ready to board flights, if they were available.
The targets of O’Leary’s domestic venom remained constant: Aer Rianta, the state-owned airport operator, and Aer Lingus, the state airline. Aer Rianta caused him the most frustration because he believed that its inability to grasp the dynamics of low-cost travel was preventing him from building a bigger presence on his home turf. Aer Lingus was a different matter. The airline was a competitor, and for the moment an ineffective one. Its high costs and heavily unionized workforce meant that it struggled to respond to competitive threats. Its passengers were there to be taken, if only O’Leary could get better access to Ireland’s airports.
For the moment O’Leary contented himself with sporadic mischievous attacks on the national airline, accusing it of ripping off its customers and then watching with amusement as the row played out in the media, all the time generating publicity for Ryanair on its chosen battleground of price. He did not always win. To O’Leary’s consternation, Aer Lingus won an award that year as the best-value airline on routes between the UK and Ireland. ‘Only a bunch of complete idiots could possibly vote Aer Lingus as best-value airline,’ said Paul Fitzsimmons, his spokesman. ‘Aer Lingus’s fares are four times higher than Ryanair’s. If this is what passes for best value among the top thousand chief executives in the survey, then maybe they’re still drinking too much free champagne on Aer Lingus’s overpriced flights.’
These were minor squabbles, but they demonstrated that no fight was too small for O’Leary, and they set the tone for the larger battles that still had to be fought. The main areas of disagreement between O’Leary and Aer Rianta – and by extension with the Irish government – were the continued failure to develop a second, independently operated terminal at Dublin airport; the expense of Aer Rianta’s expansion at Cork airport, which O’Leary argued was a waste of money that would have to be paid for by the travelling public; and the break-up of Aer Rianta, which had been proposed by Seamus Brennan, the minister for transport.
Despite years of campaigning a second terminal in Dublin appeared as remote as ever and in mid-May O’Leary launched yet another assault: ‘It’s time for the government to put the interests of the 16 million passengers – who have to use the third-rate Dublin airport facilities – above the sectional interests of those trade union leaders who seek to protect the Aer Rianta monopoly. It’s time for the taoiseach to stop talking about the problem and deal with it. Irish tourism is in a serious crisis. We need more action, not dithering, and we need it now.’ To illustrate his point, O’Leary dispatched a hearse and coffin to Aer Rianta’s annual results meeting – his way of showing that the authority was killing Irish tourism.
Brennan was sympathetic but seemed powerless to help. Aer Rianta, under Noel Hanlon, its combative chairman, wanted to press ahead with extensions to its existing terminal – dismissed by O’Leary as a ‘gold-plated’ waste of taxpayers’ money. The trade unions backed Hanlon. Allowing Ryanair to control a new terminal would be like giving a blood bank to a vampire, said Joe O’Toole, a trade union leader. ‘Let him [O’Leary] continue flying airplanes, he does a good job there, keep at it. I don’t want to give him the airports. I do not, frankly, trust Mr O’Leary on the issue of Aer Rianta. It’s just as simple as that.’
In the face of trade union condemnation and Hanlon’s accusations, O’Leary took his battle to the people with a television advertisement that called for public support. In the advertisement O’Leary spoke about increasing competition at Dublin airport, and then gave out the telephone number of the taoiseach’s office so that viewers could call and demand action. State-owned RTE refused to air the advertisement, arguing that it contravened the broadcasting code. TV3, a new independent station, broadcast the advertisement in early July, but was then advised to pull it by the Broadcasting Commission of Ireland.
Cork airport, too, was becoming a battleground between Ryan-air and Aer Rianta. Once again charges, competence and efficiency were at the heart of O’Leary’s complaints – with his objective, as always, to reduce his own costs. Aer Rianta had proposed a €140 million overhaul for the airport, a figure that prompted howls of outrage from Ryanair.
Fitzsimmons was quick to raise his chief executive’s concerns in the letters page of the Irish Times.‘The latest madcap scheme to squander money is plainly insane,’ he wrote.
The planned extension to Cork Airport, which currently has passenger traffic of 1.9 million a year, will allow growth to a new capacity of 3 million passengers a year at a proposed cost to the taxpayer of €140 million. To put this ludicrous plan in perspective, Ryanair began flying to Frankfurt Hahn airport in 1998, taking that airport’s traffic from zero then to 2.5 million passengers this year. Fraport, one of the largest airport operators in Europe, only yesterday opened a new terminal extension to its Frankfurt Hahn airport, increasing its capacity to four million passengers a year, at a cost of €11 million. Yet Aer Rianta is proposing to spend twelve times as much, for one million fewer passengers.
John O’Connor, director of Cork airport, replied with his own letter to the newspaper.
Perhaps Mr Fitzsimmons is unaware that the development plans for Cork Airport were formulated in consultation with airlines and their representatives and that their combined views significantly influenced the ultimate plan. We had proposed a less ambitious expansion at Cork but the airline users vehemently objected and demanded a new building rather than the planned extension to the existing building.
O’Connor went on to detail where the €140 million would be spent at Cork – €70 million on the new terminal and €70 million on a road network and car parks – and listed the various facilities which would be built at Cork which were superior to those constructed at Hahn. He also included a jibe certain to provoke O’Leary. ‘At a time when it has emerged that Ryanair is paying substantially more for Buzz than it disclosed two months ago, the airline continues to play fast and loose with statistics to suit its own political purposes.’
O’Leary’s concerns had been dismissed, and the airport’s expansion plans would continue, though the cost would rise to more than €170 million. It was an extraordinary sum for a small airport to spend, particularly since the proposed increase in passenger numbers was so small, but Aer Rianta was not in the habit of building cheaply. O’Leary believed that the airlines would be stuck with the costs because Cork would be forced to raise landing charges to cover its debts, and he knew what Ryanair’s response would be: if prices rose, services would be cut.
O’Leary’s spats with Aer Lingus and Aer Rianta delivered plenty of publicity but few policy breakthroughs. Yet change, however incremental, was on the way. On 10 July Brennan formally announced that Aer Rianta would be broken up into three separate airport companies – one each for Dublin, Shannon and Cork.
Noel Hanlon, Aer Rianta’s chairman, had made his feelings on a potential break-up clear in an interview with the Sunday Tribune on 22 June. ‘Shannon will not survive,’ he said. ‘Cork is also facing a difficult situation in the short term, because it needs investment, but long term it should be self-sufficient.’ O’Leary, however, was pleased. ‘The break-up of the Aer Rianta monopoly and competing terminals at Dublin will allow Ryanair to introduce over twenty new low-fare routes to Europe,’ Fitzsimmons wrote in a letter to the Irish Times.‘We will deliver up to five million new visitors for Ireland, and this will in time create over 5,000 newjobs in Irish tourism.’
His optimism was premature. While the end of the airport monopoly was now government policy, it would take months to effect the change. Under the new arrangements the three airports would remain under state ownership, but they would be free to compete with each other for new routes and free to set their own charges. Brennan also had to grapple with the borrowings attached to Shannon and Cork airports. He could not encumber new companies with massive debts but nor could he saddle Dublin with a disproportionate share of the liabilities. Critically, too, the changes did not guarantee the Holy Grail of a new terminal in Dublin independent of the new Dublin Airport Authority. That remained embroiled in politics and no closer to resolution. All the break-up guaranteed was that there would be competition between the airports – competition that would give O’Leary the opportunity to play one off against the other, but not the seismic shift in Irish airport policy he felt he needed to take Ryanair’s operations to another level.
While O’Leary fought his political battles in Ireland and expanded swiftly across Europe, he was also preparing for the first legal fight that seriously threatened to stall his progress. By the summer of 2003 the case filed against Ryanair by the Air France subsidiary Brit Air, charging that the marketing support offered to it by Strasbourg airport constituted illegal state aid, was ready for court.
Ryanair protested its innocence. The deal was a simple volume proposition, the company said. Ryanair carried 20,000 passengers a month compared to Brit Air’s 2,000, so they received the marketing subsidies their efforts deserved. However, in mid-June the verdict was returned: the court ruled that the deal had indeed involved illegal subsidies.
Ryanair and Strasbourg immediately began to prepare their legal replies, with O’Leary also embarking on a two-pronged public relations offensive, appealing to French politicians and asking the French public to protest at this attack on their right to low fares.
When the appeal came to court in Nancy in late September, Ryanair opted for a typical way of garnering public support. ‘We offered free flights to anyone who turned up to support us on the appeal,’ recalls Paul Fitzsimmons. ‘We were mobbed. There must have been 3,000 people waiting there. We got out of the car and they were all cheering and clapping. We were handing out all these vouchers and they were [chanting], “Justice, this is for the people.” It was hilarious. You couldn’t but hear it in the court.’
Ryanair had used the tactic successfully in Germany in previous legal spats with Lufthansa, but Strasbourg airport Director Alain Rusell felt it wouldn’t do the airline any favours in France. ‘It went down very badly with the French administration,’ he says. ‘We advised them that they shouldn’t do things like that. But sometimes he [O’Leary] is impossible to control.’ The publicity surrounding the case and O’Leary’s tactics ensured that it would be watched closely, but would count for nothing when the verdict was delivered. The appeals court found against Ryanair and Strasbourg.
Before the case Ryanair had made it clear that it would no longer fly to Strasbourg if the case was lost, a position which the airport understood.
We had signed an agreement and the terms of that agreement included sharing marketing costs. If the tribunal forbade us from doing that it is normal that we would face the consequences. We tried to come up with a different contract, but it would have risked another appeal. We have kept good relations with the airline, we have always had good relations with them. And if tomorrow we could find a way that would let us get them back here, we’d do it.
With Strasbourg off its route map, Ryanair had to find another airport to fill its shoes. The solution was just across the border in Germany, where Baden Baden airport was ready and waiting. Brit Air would still face the heat of Ryanair’s competition, Ryanair would still have its route, and the only losers would be Strasbourg.