Four years of university life was enough for O’Leary. The time had come to make some serious money. In his final year at Trinity College he had worked hard for his examinations, the hedonistic lifestyle of the early college years replaced by a more sober work ethic. Life was getting more serious.
‘I wanted to make money because we had financial problems when I was growing up and I remember my father being broke a couple of times,’ O’Leary says. ‘I would have murdered, I would have gone through concrete walls, to make money.’
Quite how he was going to make money, though, was a problem. His time at Clongowes and then Trinity had given O’Leary the quintessential attribute of middle-class boys with a private education behind them: innate self-confidence. Although Ireland in 1983 was in the midst of recession, with double-digit unemployment figures that encouraged tens of thousands of young men and women to emigrate each year, O’Leary believed that a well-paying job would fall into his hands. There were a few choice jobs for Irish graduates – a small number of management consultancy firms hired graduates each year, the accountancy firms took on trainees, and a few Irish companies, like Jefferson Smurfit, the paper company, ran graduate trainee programmes.
‘When I finished college I thought, I’m a fucking genius here, I’ll have my pick of these jobs,’ says O’Leary. But he did not. Far from having his pick, he did not have a single approach until Stokes Kennedy Crowley, a Dublin accountancy firm, threw him a lifeline by offering him the opportunity to train as an accountant. He had no choice, no alternatives to consider. It was accountancy or nothing. In an Ireland where emigration was the norm for college graduates, an opportunity to train as an accountant was one of the most coveted positions for most business students, but O’Leary was unimpressed. The training was tough, low paid and, worst of all in his mind, ‘It was fucking dull.’
His Trinity degree granted him a number of exemptions from accountancy examinations, but he knew nothing about taxation. ‘So they put me into tax and said, “Right, you can do the tax in twelve months. So I did tax, which was actually very fortuitous because in tax you were working on accounts all the time. I was never out counting washers or dipping oil tanks at midnight on New Year’s Eve. It was, “Here’s a set of accounts, how do we get the tax down?”’
O’Leary played the game. He turned up at work each day wearing a suit and tie and resolved to work hard and make a name for himself, racking up fourteen-hour days that could then be charged out to clients. His mentor in the tax department was Gerry McEvoy, a partner and widely respected tax expert who had a clutch of major individual and corporate clients. One of McEvoy’s most important private clients was Tony Ryan, who had left Aer Lingus shortly after O’Leary first went to Clongowes to set up his own aircraft-leasing company, Guinness Peat Aviation.
Ryan had begun life as a train driver’s son in Tipperary, left school at sixteen, then went to work at Aer Lingus. His twenty years at the company saw him work his way through the tiers of bureaucracy to reach the heady heights of middle management. And that was where he would likely have stayed – too much a maverick for the conservative company – if he had not struck out on his own.
In 1975 Ryan risked £5,000 of his own money to start his aircraft-leasing venture. Aer Lingus, Air Canada and Guinness Peat, a merchant bank, kicked in the other £45,000, and shared a 90 per cent shareholding. Operating out of the tax haven of Shannon, the airport on Ireland’s Atlantic coast that was the early gateway to North America, Guinness Peat Aviation bought aircraft and then leased them to airlines. Instead of borrowing millions to buy new planes, airlines could get the planes they needed from GPA and pay monthly, leaving Ryan with the ultimate risk if the industry nosedived. In return, he earned handsome profits by charging the airlines more than it cost him to raise the money to buy the planes in the first place.
The bigger GPA grew, the better the rates it could extract from financial institutions to borrow money and the greater profits it could extract from the airlines that needed its planes. GPA became one of the most profitable finance machines in the world and turned Ryan into a multimillionaire.
O’Leary was fascinated by Ryan’s success and instinctively drawn to him. Stories of how the two men came to work with each other are as numerous as they are apocryphal. One version has O’Leary sneaking into McEvoy’s office on a Sunday and flicking through his contacts book until he found Ryan’s home number. O’Leary, so the story goes, then called Ryan and told him how he could save him even more money. Another says that Ryan had spotted O’Leary when he was still at school with his son Declan, and had kept his eye on him ever since.
O’Leary, however, says that he ‘wasn’t friends with the Ryans in school. Cathal was two years ahead of me and Declan was two years behind.’ In boarding-school terms, the two-year gaps were vast. ‘I knew them in school, but I wasn’t particularly friendly with them. I didn’t go to their house or anything. The relationship with the Ryans started with Tony not through the boys.’
O’Leary says he made direct contact with Ryan while working for SKC. ‘I called him up one weekend and said I think you can save some more tax by doing XYZ,’ he says. They first met in 1984 when McEvoy brought O’Leary on a working visit to Ryan’s home in Tipperary. Ryan was disappointed when O’Leary failed to reappear the following year, asked McEvoy what had happened to the restless young man, and was told that he had gone out on his own. Ryan liked hiring bright young men to work with him – Denis O’Brien, who would become a multimillionaire many years later by launching and selling a mobile phone company, cut his teeth at Ryan’s side – and O’Leary’s hunger and sharpness had impressed him. He made a mental note to pursue him.
Taxation was never going to hold O’Leary’s attention for long. Partnership – the Holy Grail for accountancy trainees – held no interest for him, and he had scant respect for the men who ran SKC. ‘They had some brilliant partners,’ he says, ‘but some of them were wankers, the greatest fucking gobshites.’ O’Leary was in a hurry to make money. He was making a living at SKC, but no more than that. It was going to take at least another two years to pass all his exams and become a manager, and even then the rewards were not what he had in mind. ‘I wanted it faster. I wanted to make a hundred grand, which seemed like, Jaysus, with a hundred grand the wolf wouldn’t be at the door,’ he says.
Eighteen months after joining SKC O’Leary walked out the door for the last time in the summer of 1985. Armed with a university degree and a grounding in tax law, he was determined to make his own mark and to make his own money.
While O’Leary pondered his next move, Tony Ryan was preparing for his greatest gamble. In June 1980 Ryan had drawn up his first proposal for a new airline, provisionally called Irelandia, but it had failed to get off the ground. Having made his fortune at GPA from airlines’ inefficiencies, Ryan was confident that he could do better.
The prologue of Ryan’s first proposal document noted that ‘it is remarkable that Ireland is the least developed aviation nation in Europe’. Ryan also attacked Aer Lingus, the national carrier, for being Dublin-centred, claiming that ‘token service is given in other cities’. Irelandia on the other hand planned to base its operations out of Shannon, home to Ryan’s GPA.
In his proposal, which was pitched both at investors and at the government, which would have to grant his airline a licence to fly, Ryan argued that Ireland needed a second airline to force Aer Lingus to rationalize its own cost base, so that it would be ready to compete in what Ryan saw as the emerging low-fares market.
Ryan was ahead of the game. His experience in the airline industry and his knowledge of the US market had given him a glimpse of the future that others in Ireland and Europe could not see. He believed it was inevitable that Europe would follow the American lead and reduce the number of regulations that made flying such an exclusive and expensive business. It would take longer because Europe was a collection of independent states each with its own national airline, but he believed it would happen. Already, competition had spread beyond America’s borders and into the transatlantic market, where Freddie Laker’s Skytrain had slashed prices.
Ryan’s original proposal claimed that Ireland and Portugal were the only two European countries which were home to just one airline flying international routes. In France, Air France competed with eight other airlines; in the UK British Airways had nine significant competitors and in Scandinavia SAS was fighting it out against five other airlines. In Ireland there was Aer Lingus.
Ryan argued that the Irish aviation market would soon have room for Aer Lingus and another airline half its size. And if that was not allowed to happen, then the new market would simply be served by foreign carriers, who would establish new routes between their home countries and Ireland once regulations were eased.
‘The main objectives of a new airline are to profitably make low fares available to the public and prevent further foreign airlines dominating the market,’ he said in his proposal. Ryan knew his plan would not be easy, and to underline his determination he quoted Machiavelli, the Italian master of politics. ‘It must be considered that there is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For the reformer has enemies in all those who profit by the old order.’
Ryan, though, believed he was up to the challenge. He had planned his airline’s growth in four phases. Initially, Irelandia would offer flights from Shannon to New York, Boston and London. The second phase would see Irelandia using Shannon as a gateway to Europe, launching flights which would originate in New York or Boston, stop off in Shannon and continue on to European destinations. For phase three Ryan planned to increase the number of US destinations, and phase four would involve the creation of Middle and Far East services, ‘perhaps with a weekly extension into Australia’.
The fares proposed – £160 return for a transatlantic flight, and £40 for a return flight to London – were just a fraction of what other carriers were charging in 1980, but Ryan’s plans were not immune to inflation; when a second draft of the Irelandia proposal was drawn up in August fares for the London route had risen to £50 return and New York had risen to £198 return.
‘Irelandia would address itself to the demand of today’s air traveller for cheap, no-frills, efficient travel,’ Ryan wrote in a second proposal document in August 1980. ‘It would compete aggressively with the foreign airlines which will otherwise dominate this aspect of Irish air travel and which cannot be successfully opposed at present.’
The keystone of Irelandia’s operation will be low overheads, efficient operation and forceful marketing. The airline will be dedicated to the further development of Irish tourism and to the well-being of the southwest region…
Irelandia will respond to the deregulation philosophy currently implicit in American aviation policy and now gaining ground in Europe. Deregulation is a word that appears offensive to most national airlines; nevertheless, in the long term deregulation combined with competition is the only method by which the travelling public will enjoy low fares.
In his August proposal Ryan identified six ‘hurdles’: the procurement of government support and the necessary regulatory permissions; the assembly of talented staff and the formal establishment of the airline; the raising of the necessary finance; the building up of a network of supply services headquartered in Shannon; the inauguration of an aggressive marketing campaign; and the resistance that would inevitably be prompted by Irelandia’s challenge to the status quo.
Ryan was right to be cautious. Even though the first phase of his plan was relatively modest, launching a new airline in the 1980s was a complicated, expensive and highly political operation. Ryan knew that getting a licence to operate routes between Ireland and the UK would be an uphill battle, and yet he also knew that winning the licence would be the least difficult part.
‘The number of casualties in the airline business is enormous,’ says Liam Lonergan, one of Ryan’s early collaborators in the airline that became Ryanair.
There are very very few survivors and there are very few success stories. And the success stories tend to be people who had a considerable amount of money before they started. There are many airlines, innumerable airlines, big, small, medium, who have all just bitten the dust, some of them in rather quick time unfortunately. Never to be heard of again. And they have cost investors a great deal of money. It’s a seriously quick way to lose money. It’s like a black hole. It is something any sensible business person, if they knew the full commercial extent of running an airline, would run a mile from. Unless they’ve got more money than sense.
Ryan had the money and he thought he had the sense. His shareholding in GPA earned him millions each year in tax-free dividends and he was prepared to use that money to invest in other, riskier projects. ‘Tony is not the sort of guy who salts away money for a rainy day. He is so confident, so arrogant some might say, that he never believes there will be a rainy day,’ says one former colleague.
The road Ryan was preparing to take had been travelled over the previous seven years by Avair, an early competitor for Aer Lingus. Gerry Connolly, a young entrepreneur, launched Avair in 1978. Connolly’s airline started life as a charter operator, but soon branched out into operating scheduled services within Ireland. Aer Lingus, which had failed to develop an internal network because it believed that it could not operate one profitably, was prepared to tolerate the existence of Avair, which did not threaten the national carrier as long as it stuck to routes within Ireland and could actually help it by ferrying passengers into Dublin for onward flights to the UK, Europe and North America.
In 1983 that tolerance came to an abrupt end when Connolly was granted licences by the Irish government to operate a number of routes from Ireland into British regional airports. For the first time Avair posed a threat to Aer Lingus, and its response was swift, brutal and very effective. Using the taxpayers’ money that funded the national airline, it launched a predatory attack on Avair, opening new internal routes and slashing prices until the inevitable happened: in February 1984, less than six months after it went into direct competition with the state’s airline, Avair was bankrupt. Aer Lingus had thrown down the gauntlet to all aspiring airline entrepreneurs in Ireland: if they tried to steal its market it would squash them.
Jim Mitchell, the government minister who had granted Avair its licence to expand, told the Dáil that he had refused to give the private airline a cash injection of £400,000 to save it from bankruptcy.
‘Apart from the very difficult financial position of the exchequer,’ Mitchell said, ‘it would be totally contrary to established policy to subsidize a private airline.’ He had no apparent difficulty, however, in subsidizing a state-owned airline so that it could use the state’s money to undermine government policy.
Avair’s collapse paved the way for Ryan to get his licence, but the risk could not have been more obvious: if his fledgling airline attempted to muscle in on Aer Lingus’s market, it would concentrate its fire on him until he was broken. Worse, he knew that while the current government might be prepared to grant him a licence, Avair’s demise had demonstrated that it was not prepared to stand up to Aer Lingus. It was a truly bizarre situation. Government policy was to encourage new competition in the airline market, albeit at a low level, yet the government’s own airline was allowed to use public money to thwart that policy.
Avair was the most public victim of Aer Lingus’s defiance, but Aer Arann, a small private airline that had been created in 1970 to fly passengers from Ireland’s outlying islands off its Atlantic coast to the mainland, had also suffered at its hands. The airline had stumbled through the 1970s, losing money but surviving, operating charter flights, scheduled services and, during 1976 and 1977, allowing Captain Charles Blair, a former US Air Force pilot and husband of Maureen O’Hara, the Hollywood film star, to operate a forty-two-seat flying boat from Lough Derg, in County Tipperary. Blair’s plane, the Southern Cross, flew under the Aer Arann licence and took tourists to the south and west coasts of the country for a flat £15 fare. By 1978 Aer Arann could offer a charter service to 32 airports across Ireland as well as destinations in the UK and Europe. It was hardly a threat to the national airline, but by 1982 Aer Arann, still in deep financial difficulty, had decided to expand and started a service from Galway to Dublin.
Once Aer Lingus attacked Avair by launching services and cutting prices across Ireland, it was inevitable that Aer Arann would be forced to retrench. In 1984 it withdrew back to its narrow routes, abandoned its expansion plans and focused instead on flying to the islands. Remarkably perhaps the airline never went under and has been able to resuscitate its ambitions in recent years. It now operates flights from a number of Irish airports to destinations across Ireland, the UK and one continental European destination.
Tony Ryan, his GPA millions burning a hole in his pocket, was prepared to take the fight to Aer Lingus at a time when Avair’s experience would have discouraged most aspiring airline entrepreneurs. Along with Lonergan and another early collaborator Christy Ryan, a namesake but not a relation, Ryan would have the field to himself.
The airline would bear Tony Ryan’s name and swallow his cash, but it would be owned by a trust of which he would not be a beneficiary. It was an arrangement that allowed him to honour his contract with GPA, which prevented him from owning an airline. Ryanair was, he said, for his children. Declan was working in the airline industry in the United States at the time, while Cathal had trained as a pilot. Both were appointed directors. Shane, the youngest son, was still at school when the airline launched, but he would too become a beneficiary of the trust that owned the company.
No matter the ownership structure, the new airline was very much Tony Ryan’s baby, and he was determined it would be successful. His determination to launch a new carrier came, in large part, from his knowledge of what deregulation had already achieved in the US air transport market. Ryan’s GPA leased planes to American operators, and Ryan excelled at predicting future growth patterns for the industry. He believed that deregulation in Europe would inevitably follow deregulation in the US, and he wanted to be one of the first to take advantage of the new regime. In the early 1980s Europe’s aviation market was dominated by legacy carriers – state-owned airlines heavily subsidized by state coffers. State support had allowed these airlines to wallow in their own inefficiencies, and competition was nearly non-existent.
Aer Lingus and British Airways had no interest in increasing the size of the market on routes between Ireland and Britain; all they wanted was to extract the highest possible price from every passenger. Competition between the two was irrelevant, because at the end of each year the two airlines simply divided the revenues from the routes between themselves. There was no incentive for either airline to win business, because the spoils would be split.
Change had long been in the hands of the politicians, but there was an initial reluctance to embrace reform because they feared that competition would destroy the market rather than prove a catalyst for growth, a view encouraged by Europe’s legacy carriers, which exerted exponential influence on their own departments of transport.
Aer Lingus, which knew it would feel the direct brunt of any new competition, had lobbied intensely against it, arguing that it would bring about its destruction and, by extension, that of Ireland’s tourist industry. The airline insisted that the market would be cannibalized, not stimulated, by competition: that no more passengers would fly, but that the existing pool of passengers would just be divided up between more players at lower prices, causing every operator to lose money. While the airline was confident that it could squeeze out local competitors on the Dublin to Britain routes – Avair’s speedy collapse into bankruptcy had convinced Aer Lingus’s executives that they knew how to kill local upstarts – what it feared most of all was a transatlantic raid on its lucrative routes to the United States.
Aer Lingus’s policy, and the policy of Ireland’s department of transport, was unremittingly hostile to increased competition on the transatlantic market. The airline argued that competitors would simply cherry-pick the most profitable summer months, leaving the state airline to bear the burden and costs of an all-year service. It was determined to fight tooth and nail to protect its position: local competitors could be crushed by classic predatory pricing, and international carpetbaggers would be fought through the courts, through the Dáil and by a rule that forced transatlantic flights to stop at Shannon airport on their way to Dublin.
Irish consumers, who owned the airline, were never high on the Aer Lingus list of priorities. Its responsibilities were to its workers, who were heavily unionized, and not to its customers. The sheer size of the airline – it employed nearly 10,000 people in 1984 – gave it significant political power, but its near-monopoly status did not guarantee that it made profits.
Its patchy financial performance was used to demonstrate not that the airline was poorly run, but that the market could not sustain competition. Indeed the poverty of Aer Lingus’s performance actually had government approval. Jim Mitchell, the minister responsible for Aer Lingus, told the Dáil in 1984 that ‘for the first time since 1979/80 Aer Lingus have returned to profitability. The company are hopeful of making a net profit of £3 million in the year ending 31 March 1984 after taking into account an exchequer cost alleviation payment of £4 million to help the airline during a period of particular difficulty on the North Atlantic.’
In other words, Aer Lingus would make a profit of £3 million after receiving a cash injection of £4 million. It was, however, an improvement, as Mitchell explained. ‘Compared with net losses of £13.6 million in 1980/81, £9.2 million in 1981/82 and £2.5 million in 1982/83 [the latter figure took account of an exchequer “cost alleviation payment” of £5 million], the company’s expected results for 1983/84 represent a significant improvement, particularly against the background of the very difficult trading conditions which continue to prevail.’ The government and Aer Lingus might have been fooling themselves, but the reality of the airline’s poor performance was difficult to hide. Because, apart from the cost alleviation payments the Irish government had also pumped in £15 million in 1983 and was about to pump in another £15 million in 1984.
Aer Lingus had embarked on an expansion strategy that had seen it invest in a host of non-airline businesses, like hotels, recruitment, travel agencies, robotics and maintenance. Its senior management team, headed by David Kennedy, then CEO, believed that the cyclical airline industry was simply too risky and that the company needed to diversify to safeguard its earnings. It was a credible strategy for the time, but it meant, says one former senior executive, ‘that the core airline business was starved of investment and the better managers were moving into the newer businesses, because that’s where the profit was. The fleet was getting older and that was becoming a major problem.’
In reality, Aer Lingus’s airline business was a sitting duck, waiting to be shot by a competitor, but that competitor would need deep pockets to survive the initial maelstrom that its arrival would inevitably provoke, and would need strong political support within the Irish government if it was going to get the breathing space to survive. As the scale of the airline’s difficulties began to penetrate the minds of Ireland’s public representatives, political support for a more open market began to grow. To tip the balance, a crisis was needed.
No sooner had Aer Lingus seen off Avair in 1984 than it was embroiled in another turf war, this time across the Atlantic. Competition on the London–New York route had become intense in the late 1970s and early 1980s, and the still tightly regulated Ireland–US market was not immune to the pressure.
The Irish government controlled the price that airlines could charge on the routes from the US to Ireland and it also controlled the number of charter seats that could be sold in a given year at lower prices. That ought to have been enough to ensure that Aer Lingus was protected from competition and ought to have ensured that Aer Lingus made money, but the Irish government could not control what was happening in other countries, especially in Britain and the US.
Sir Freddie Laker, the British entrepreneur who had operated cheap charter flights to the US from London’s Gatwick airport in the 1970s, had finally won permission to launch his cut-price Skytrain service from London to New York in 1977. Laker offered fares of less than GB£100 each way, making transatlantic travel possible for people who had never thought they would be able to fly. Laker was a people’s hero, knighted in 1978 by the Queen, but his dream was undone by a combination of forces. Skytrain used McDonnell Douglas DC10s and public confidence in the plane was shattered by a series of fatal crashes which caused all DC10s to be grounded worldwide in 1979. Laker lost millions, but limped on until 1982 when his banks finally pulled the plug.
His legacy went far deeper than a five-year low-fares adventure. Laker had caught the public’s imagination and made it possible for ordinary people to fly. He had changed the mindset: air travel did not have to be prohibitively expensive and competition could expand, not destroy, a market. The next year People Express launched a cut-price service from Newark to London. There were only a few flights each week, but the fare was a staggeringly low $79 each way, or about GB£100 for a return flight. Aer Lingus’s cheapest fare that year was £399 return, or more than $600.
Neither Skytrain nor People Express were direct competitors with Aer Lingus, but they showed the travelling public that cheap flights were possible and created a hunger for discounts that the Irish airline refused to cater to. But if Aer Lingus would not discount, the travel agents would. They earned large commissions – up to 15 per cent on transatlantic ticket sales – and had plenty of room to cut prices if they were prepared to slash their own profits. And so the first price war started in the Irish airline business in 1983, under the noses of Aer Lingus and in direct defiance of government policy.
Neither government nor airline was amused. In April 1983 the Irish government took the unusual step of intervening in the market to prevent Liam Lonergan, the managing director of Club Travel, selling a return ticket with TransAmerica to America for £299 against the government-approved rate of £399.
‘We were [discounting] for about two years before [Aer Lingus and the government] got uptight about it. They made the usual noise – they threatened TransAmerica and said, “No, you can’t do this.” And that didn’t work and they threatened us and said, “No, you can’t do this.” And we said, it’s within the law – there’s nothing in the legislation which says we have to sell at a certain price. They said, “We believe there is.”’
Two months later the government took action against a travel agent who was prepared to discount Aer Lingus fares to London and Europe. In August the government moved again to stop Lonergan offering a £19 discount on an Aer Lingus flight to New York while in February 1984 it clamped down on an agent who was prepared to sell a full-price British Airways ticket but without forcing the customer to spend a Saturday night in the UK. In total, the government investigated nine infringements of its rules in seven months and, according to Ted Nealon, a junior minister with responsibility for transport, ‘Satisfactory assurances were obtained from the airlines involved that steps were being taken to ensure that further infringements of the terms of the minister’s approval would not take place.’ Trouble was, the airlines might agree, but the travel agents did not.
Nealon and his colleagues were outraged by the defiance and sought an injunction in the High Court to stamp out the illegal discounting. The government won the action, but then lost on appeal in the Supreme Court, which decided that the government was within its rights to regulate the airlines but that it did not have the power to tell travel agents how to run their businesses.
So Nealon, encouraged by Aer Lingus, introduced legislation to fine and imprison travel agents who broke the rules. He argued that a free-for-all could ‘lead to considerable instability in the market place, with discounting and other malpractices emerging on a scale that would undermine approved tariff structures and could have serious financial implications for airlines generally and for Aer Lingus in particular. In the long term, such a situation would only serve to put at risk the range of air services which Ireland enjoys, a development which would not be welcomed by either business or tourism.’
His argument was a perfect summary of Aer Lingus’s views on competition: it would cannibalize, not stimulate, the market and must be stopped.
Nealon’s proposal to fine travel agents up to £100,000 and imprison them for up to three years met a ferocious response from Des O’Malley, a senior Irish politician who was soon to break from Fianna Fáil to launch the Progressive Democrats, a party that would embrace economic liberalism. The government, he said, was
making a laughing stock of this country. [It is] the only government that I know of in the Western world at present who are bringing emergency legislation into their own parliament to push up air fares as much as possible. This is happening a week or two after the signature of an important bilateral agreement between the British government and the Dutch government which has been widely welcomed in both countries and has had the effect of reducing the return fare between London and Amsterdam to GB£49. But instead of increasing access to the country, making it cheaper for people to come here, we are introducing legislation which will ensure that our already extraordinarily high fares will be higher. We must be the only country in the world that puts people in jail for charging too little and for not making the maximum profit.
Although O’Malley was still unusual among politicians in taking a stand for liberalization, the debate had given voice to the campaign for lower fares and allowed economists, such as Trinity College’s Sean Barrett, to highlight the enormous price discrepancies that existed between Ireland and the United States. In a newspaper article in 1984 Barrett pointed out the cost per mile of an airfare between London and Dublin was 39 cents, while the cost of a similar journey in the US, from New York to Buffalo, was just 12 cents a mile. On the west coast of America, where low-fare airlines were more prevalent, the costs fell lower still, with San Francisco to Los Angeles costing just 8 cents a mile.
‘Barrett was probably the only public voice of any kind of stature making any comment on the nonsense that existed in the 80s,’ says Liam Lonergan. ‘There was a general acceptance at the time that Aer Lingus was always right, it wasn’t Aer Lingus’s fault…There was no recognition of [Ireland’s needs] at all. If they had any recognition of Ireland being an island they would have deregulated airfares twenty years before that. There should never have been regulated airfares out of Ireland. The government had no concept whatsoever of how to encourage tourism, how to get people onto the island, or how to get them off the island.’
Lonergan’s views were far from mainstream at the time. The government and Aer Lingus believed that Ireland being an island meant that it was essential to protect air services, because if carriers were allowed to compete they would collapse and Ireland would be left without an air link. The only sure way of keeping the market stable, they argued, was through state control. They did not trust the market and deemed air travel too important to be left to the fickle interests of investors.
Few apart from Barrett, O’Malley, Ryan and his collaborators embraced the idea that competition would create a more vibrant market and that tourism – one of the country’s most important industries – would blossom rather than wither as a result. But slowly the evidence from America, where fares continued to fall and the numbers flying to climb, from a small number of competitive routes in Europe such as London-Amsterdam, and from the success of the transatlantic discounters in stimulating market demand, prompted the Irish government to dip a toe in the dangerous waters of deregulation.
Its first experiment – allowing Avair to fly to Britain – failed because Aer Lingus ensured that it failed. Without a change in government policy, a change that would see a government minister face down Aer Lingus’s protestations and prevent predatory attacks on a newcomer, Avair’s successors would also fail.
Pressure for change was also building fast outside Ireland and the catalyst for action had come from the courts. Just as the Irish government had introduced legislation in 1984 to outlaw discounting by travel agents, so too the French had moved to bring discounters to court. After the case, which the French government lost, the European Court of Justice was invited to determine whether aviation should be included within the European Community’s strict rules on cartels and free competition.
To the dismay of the national airlines and the governments that owned them the court ruled that aviation should be subjected to the general ban on price fixing laid down under article 85 of the original Treaty of Rome. This increased pressure on Europe’s senior politicians to finalize a new aviation policy. The days of bilateral agreements – where two governments carved up the airline routes between their countries and controlled both prices and capacity – were numbered.
Jim Mitchell, the senior minister responsible for Irish transport policy, had seen and heard enough. He had been converted to the benefits of aviation competition, but while he wanted competition he did not want another Avair fiasco on his hands. He had to ensure that the next licence he granted went to a company that had the funds and the leadership to mount a credible challenge to the Aer Lingus monopoly. Mitchell’s strategy was not to undermine Aer Lingus, but to introduce a modicum of competition on regional routes between Ireland and the UK. Tony Ryan, a respected multimillionaire and recognized entrepreneur, fitted the bill, and so in May 1985 Ryan’s Irelandia project, renamed Ryanair, became Ireland’s second airline, with a licence to fly between a small airport in Waterford and London Gatwick.
Tony Ryan had his licence and was preparing for his first flights that summer but Michael O’Leary was oblivious to the dramas in the aviation industry. He had just one thing on his mind: money. He had for the moment rejected the corporate world, turning his back on accountancy and the slow path to wealth that it offered. His experiences at SKC had convinced him that the only way to make his way in the world was on his own.
‘Those days there were only two ways of making money: retail or drink,’ says O’Leary. ‘I didn’t have the money to buy a pub, so I bought a newsagent. You could buy up old newsagents and do them up, extend the hours, bang up the turnover.’ He found what he was looking for at Kestril Corner in Walkinstown, a tough working-class suburb of Dublin, and then went looking for the finance to secure the deal.
‘The first person I looked up to in my business life was the bank manager of AIB in Walkinstown, who gave me a £25,000 overdraft to buy the shop. Boy did I look up to him,’ says O’Leary.
The loan came with a penal rate of interest. ‘My ass was grass if I didn’t pay back this twenty-five grand overdraft in eighteen months,’ he says. ‘And at the time the annual rate of interest on personal overdrafts was 28 per cent…One of the advantages of that was that annual inflation was probably running not far behind 28 per cent,’ he says with typical exaggeration.
With borrowed money and an acquired work ethic, O’Leary set about his business with the energy that would come to define him, motivated as much by fear of failure as determination to succeed.
He was confident enough and determined enough to turn down an opportunity to join Tony Ryan soon after he had acquired the newsagent. ‘After I’d left SKC, Ryan approached me and wanted me to work for him, but at that stage I’d already bought the newsagent. Anyway I didn’t want to work for GPA because GPA was huge, just like SKC. I didn’t want to swap one big company for another big company.’
The Walkinstown shop was just the first step, soon to be followed by more corner shops. ‘There was another one near the Submarine Bar in Crumlin. It has now been developed as a shopping centre and there was a third one which I had a stake in, out in Terenure,’ he says. ‘The main one was Kestril Corner.’
His business philosophy was straightforward. ‘I bought mom and pop outfits,’ he says. ‘I’d open at seven in the morning, and close at eleven at night. Treble the turnover, treble your money.’ With the shops, O’Leary learned the basic rules of running a business. ‘A newsagent is a great business in that it’s very small scale,’ he says. ‘So you learn day one that my costs are this, my sales are that and what’s in the middle is my profit. So you are driving down costs, increasing sales and increasing your margins.’
Hard work was essential. O’Leary worked relentlessly long hours, opening and closing his shops, stacking shelves, serving customers and micromanaging every aspect of the businesses. And then he learned how to delegate. ‘I ran the first one myself. At the end of the first year I put in a manager. Then I bought the second one, and put a manager into it as well,’ he says.
‘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.