Conor Hayes, a thirty-five-year-old who had spent the previous five years reviving the fortunes of a food company in Saudi Arabia, knew little about Ryanair when he accepted the post as chief executive in the autumn of 1991. His expertise was and remains instilling financial discipline in troubled companies and nursing them back to health – a company doctor in all but name.
His background fitted Ryanair’s needs. While Ryanair and commercial airlines were an unknown quantity for Hayes, he had experience of the aviation business. His years as an accountant with the Dublin firm Stokes Kennedy Crowley had exposed him to the intricacies of aircraft leasing, first through work for GPA and later for IAS, the aircraft leasing company run by Gerry Connolly, the man who had founded Avair. Ryanair was, from what he could see, a major challenge but an opportunity he could not turn down. It was a welcome route home – he had a young family and was keen to return to Ireland – and the job offered a reintroduction to the Irish business market. Opportunities to return were few in 1991, and he was eager to seize the chance,
When Hayes officially took the reins as chief executive in December 1991 the company remained in a critical condition. It could claim a market share in excess of 20 per cent on the Dublin–London routes following British Airways’ withdrawal from the market the previous year, but it was still losing money.
The Irish government’s embrace of the two-airlines policy two years earlier had given Ryanair crucial breathing space and had helped reduce its losses, but the airline remained vulnerable. The modest profit in 1991 had been generated not by the core business of flying people but from the sale of a shareholding in a small hotel business; at the operating level the airline was still losing money and Tony Ryan was increasingly worried that despite the remedial work of the McGoldrick regime his airline remained doomed. He had kept it afloat two years earlier because he had hoped and believed that the removal of Aer Lingus from the Stansted route would give his airline an opportunity to carve out a profitable route network, yet the hoped-for profits had yet to materialize. If Ryanair could not be made to stand on its own feet, he would be forced to make further cash injections. He had, friends say, reached the end of the line. There would be no more money for Ryanair; if it could not survive on its own, he would admit defeat and retreat, selling the airline if he could find a buyer, closing it if he could not.
‘Hayes was brought in, and O’Leary given a more prominent role, so that there was clear distance between the Ryan family and any potential disaster. Hayes’s appointment has to be seen as a damage limitation exercise for the family rather than a vote of confidence in the company,’ says one former manager.
Ryan had already been badly bruised by the losses the family had incurred during its ill-fated venture into London European Airways. Cathal Ryan, his eldest son, had been appointed executive chairman of LEA and was closely associated with its failure. Declan had stepped up to the mark to run Ryanair after McGoldrick’s departure and Ryan was not prepared to see the main company fail under direct family stewardship. If it had to close, it would not be with a Ryan at the helm.
Hayes’s immediate priority was to find out what was happening, and to do that he had to put in place accurate and timely financial reporting systems. Despite Michael O’Leary’s presence at the company for more than three years, the detailed financial information compiled for senior management and the board was months out of date. This had to change and quickly if the company had a hope of survival.
O’Leary’s early firefighting had highlighted the financial chaos at the company, but he had not radically altered its course. He had brought greater discipline to contract negotiations, had lowered costs and eliminated waste, but he was still being diverted into family business in his role as Ryan’s personal assistant and had not come to grips with the minutiae of the company’s accounts. Hayes brought different and essential skills. Where O’Leary could high-light waste, he could implement a basic accounting system that would deliver the numbers on which they could start to plot a survival plan.
With Hayes on board as chief executive, O’Leary started to devote more of his time to the airline and the two men became a firm double act. For the majority of the staff Hayes was the man in charge, but higher up the management chain it was clear that the company was being run by two men, not one. ‘Part of the time Hayes reported directly to Ryan, and part of the time to O’Leary. It was a strange relationship. O’Leary was both the conduit to Tony Ryan, and reported to Hayes as well. But for all its peculiarities, it worked,’ says a former member of the senior management team.
‘To be fair, it was a partnership,’ says Brian Bell, who advised the company on its marketing and public relations at the time. ‘Conor doesn’t get the credit he deserves for the work he put in. They were good cop–bad cop. Michael was the bad cop and Conor was the good cop…They were very much on the same wavelength about what needed to be done. Both of them were cost cutters, they were accountants looking at how to make the bottom line work for them. They set out with the same aim.’
Hayes had been faced by serious financial difficulties when he had arrived in Saudi Arabia to run Almarai. Its accounts had been chaotic and it was losing money. In five years Hayes had transformed it into profitable order, and he tackled Ryanair with the same attention to detail. He drove through a rigorous internal accounting regime that forced transparency onto Ryanair’s accounts. ‘In a matter of weeks we went from having information that was five months out of date to [information] that was just five days old,’ says a former financial adviser. ‘It was a phenomenal turnaround, and it was not cosmetic. Hayes’s system delivered monthly accounts for every line of the operation, and they were updated weekly. Basic stuff, perhaps, but it had never happened at Ryanair before.’
Meanwhile, O’Leary’s profile in the company grew, as did his reputation for ruthlessness. ‘I saw him fire a financial controller, a young guy, in the office next to where I was waiting for him to come into our meeting,’ says a former colleague. ‘He was screaming and shouting at this guy, how incompetent he was, and he could clear his desk and take himself back to wherever he came from.’
Hayes and O’Leary were men on a mission, and nothing would be allowed to get in their way. For Hayes, Ryanair was his chance to prove to the Irish business world that he was a force to be reckoned with. He did not see it as a long-term post – he signed a two-year contract and had no intention of extending it – but it gave him the opportunity to showcase his talents. If Ryanair had to close, Hayes could demonstrate his ability in an orderly retreat and perhaps find a buyer; and if he could save it, then his ability to turn around financially troubled companies in Ireland would be made. For O’Leary it was just as personal: if he could turn around the airline, then he would make his fortune.
The previous summer O’Leary and Ryan had struck an improbable deal.
‘I kept trying to get out,’ recalls O’Leary. ‘I thought it [Ryanair] was a stupid business, and it was also very high profile. I didn’t want a high profile; I wanted to make lots of money but not be known. That was the way my family would operate, there was no credit for being in the papers.’ Ryan, though, wanted O’Leary to stay with Ryanair. O’Leary had agreed but only on condition that he was paid 25 per cent of any profits the airline made above £2 million.
Ryan has subsequently described it as the best deal he ever negotiated, but O’Leary was just copying his master. ‘I did the deal because it was a copy of what Tony had originally done in GPA. I didn’t need to be a genius; I wasn’t blinded by inspiration,’ he says.
The scale of Ryan’s generosity indicates that he had no concept of how successful Ryanair could become. He believed that it had a future as a niche airline, competing aggressively with Aer Lingus on the Ireland–UK routes and on some continental European routes, but his ambitions did not run to European domination. After years of losses funded from his own pockets, Ryan hoped for stability followed by modest profitability. O’Leary had already shown that he could identify problems, and Ryan had enough faith in his young protégé to believe that he could, if motivated properly, guide the company to health. O’Leary’s original deal – that he would work for free as long as he got a cut of the profits – revealed his hunger for success and money, and Ryan dangled both as an incentive to satisfy both their needs. He wanted a successful airline that no longer drained his personal reserves, and O’Leary wanted money.
O’Leary believed that profits were possible if unlikely, but he had no idea that he could turn Ryanair into a money-making machine. ‘I thought that if I got it right I could make some decent money, but not a fortune,’ he says. ‘I thought in a good year we’d make a couple of million and I’d get 250 grand, and there you go, more money than I could imagine, I’d be rich. But at that stage it was as likely to go bust as it was to make a million quid.’
The deal remained a secret. Hayes was unaware of O’Leary’s cut of future profits when he joined the company, though he knew that there was an understanding between the two men. He assumed that O’Leary was on a profit-share deal, and knew that his relationship with Ryan went far beyond Ryanair, but he did not probe. His responsibility was to turn around an airline, not worry about who would benefit.
For O’Leary, the agreement changed everything. He now had a tangible stake in the airline’s future. He was not, yet, an owner of the business, but the profit share was as good as ownership – better, in fact, while Ryanair remained troubled, because it involved no responsibility for current losses. Ryan’s incentive strategy had an immediate effect and was a powerful motivator. O’Leary had always wanted to be his own boss. When Ryan had first sounded out O’Leary about working for him he had offered him roles at GPA, his aircraft leasing company. O’Leary had consciously turned down those offers and had offered instead to work as his personal assistant, determined to learn the art of business so that he could make a fortune for himself, not for others. It was an unusual role, and a vague title. ‘Personal assistant’ conjures up the image of a valet or batman – a servant who helps his master dress, irons his shirts and perhaps manages his social diary. Ryan, though, used the term for young hungry men who worked for him on his private investments, his eyes and ears on current and future investments while he toured the world for GPA. Now O’Leary had an enormous incentive to make Ryanair work, because he knew that every penny saved, every extra seat sold, was potentially money in his own pocket. He was determined to work harder than ever, and threw himself into the business.
‘I thought his life was very strange,’ said Brian Bell. ‘His whole life seemed to revolve around work. He was always there early in the morning, he was always there late in the evening. I heard stories of him being in on Saturdays reading a book at his desk and helping out the baggage handlers on Sunday. He played football with the staff and he didn’t seem to have any personal life outside it.’
O’Leary did not have all the answers to Ryanair’s problems, and Tony Ryan was well aware of that fact. So in early 1992, just after McGoldrick’s departure, Ryan dispatched O’Leary to America to learn what he could from the master of low-fare airlines, Southwest.
Set up in 1971 as the original low-fare operator, Southwest had just reported after-tax profits of $26.9 million for 1991, a considerable feat when rocketing oil prices were inflicting heavy losses on most airlines. Southwest was a roaring success story, a story which Ryan was keen to repeat on his side of the Atlantic, and so he sent O’Leary to meet Southwest’s hard-drinking founder, Herb Kelleher.
While O’Leary’s recollections of his meeting with Kelleher vary, the central importance of Southwest’s experiences to Ryanair’s evolution remains clear. In December 1998 in an interview with the Financial Times O’Leary placed Southwest at the heart of Ryanair’s success. ‘We went to look at Southwest. It was like the road to Damascus. This was the way to make Ryanair work.’
O’Leary spoke and drank to excess with Kelleher that night, and the two hit it off. ‘I passed out about midnight, and when I woke up again at about 3 a.m. Kelleher was still there, the bastard, pouring himself another bourbon and smoking,’ O’Leary told an audience of Boeing workers in 2004. ‘I thought I’d pick his brains and come away with the Holy Grail. The next day I couldn’t remember a thing.’
Kelleher admired O’Leary’s focus and determination, but Southwest’s secrets did not come tumbling from the great man’s lips. They did not have to. O’Leary had spent two days studying Southwest’s operations from the ground and had begun to understand what it took to make an airline work. He watched the speed of the Southwest turnaround – the amount of time that a plane spent on the ground before being dispatched skyward again with another load of passengers. Where other airlines took an hour and a half, sometimes longer, to turn their planes around, Southwest did it in less than thirty minutes. He studied the check-in, where Southwest passengers were boarded speedily without seat numbers, and he studied the prices the airline charged.
The results, he says, were not ‘rocket science’. Southwest was obsessive about its costs. It reduced its staff training and maintenance costs by flying just one class of plane, the Boeing 737. It made those planes work harder than anyone else’s by keeping them in the air longer and on the ground idle for as short a time as possible, flying more routes and carrying more passengers.
Scores of American airlines had come and gone in the previous decade, victims of overexpansion and poor financial control, but Southwest was a model of controlled expansion. It grew each year, adding more routes and more planes, but it did not rush and it kept a tight grip on costs. Its turnaround times meant that it could fly more routes in a day than other, less efficient airlines, giving it a simple productivity edge that translated into greater profitability. It could achieve much faster turnaround because it chose to fly to smaller airports than its rivals: airports like Love Field in Dallas, Texas, which were uncongested and required only a few minutes taxiing by a plane from its stand to the runway. Unreserved seating meant that passengers could be loaded swiftly from either end of the plane, and the effect was to make airline travel more like bus travel. It was cheap, fast and unencumbered by mystery. O’Leary could see the model was sound. More importantly, he could see that the model was transferable to Europe. There was no magic ingredient, no special American factor that made a Southwest possible in Texas but impossible in Ireland and Europe. The arithmetic could not have been simpler: keep your costs lower than anyone else’s, your planes working harder and your prices low and you could beat any competitor on any route.
Southwest had demonstrated that low fares actually worked. Just as Ryanair’s arrival on the Ireland–UK routes had stimulated rather than cannibalized the air travel market, so Southwest’s experience across its route network had shown that low-cost air travel boosted the overall market. Its success had come from serving new markets, but also from competing on traditional inter-city routes already served by traditional airlines.
O’Leary could see it worked. His challenge was to distil the best of Southwest’s model and then adapt it to the realities of Ryanair. It was the genesis of a revival plan.
Hayes had a plan too but it was a more basic one. He had recognized quickly that Ryanair needed more paying passengers. The previous Easter Ryanair had run a successful seat sale – promotional prices on the Dublin–Luton route had been cut from £49.99 to £34.99 and tickets sold fast – but the promotion was seen as a once-off initiative to boost seat sales ahead of the traditionally busier summer season. Hayes thought it was worth trying again, but met resistance within the company. ‘Everyone said he was mad and pleaded with him not to cut fares,’ said one former executive. ‘The only person who backed him unequivocally was O’Leary.’
O’Leary’s exposure to Kelleher had convinced him that low fares were an essential part of the formula that Ryanair would have to adopt if it were to claw its way to profitability, and Hayes, desperate to drive passenger volumes higher, was determined to gamble. Consciously Hayes borrowed his lowest fare – £29 each way – from Southwest Airlines’ by now famous $29 fare from Dallas to Houston and then set higher fares at ten-pound gaps, with fewer restrictions applying as the price rose, and launched it as a ‘Happy Days’ promotion in early February 1992.
It was an instant success. Later that month he doubled Ryanair’s Dublin–Stansted services from twelve to twenty-four flights daily to cope with the increased demand and a week later he announced plans to launch a new service between Stansted and Shannon in April. The low fares were held for a second month, and then a third.
Ryanair, almost by accident, had become a genuine low-fare airline, and low prices, matched by even lower costs, were now being recognized as its most potent weapons. It was a discovery born of desperation rather than planning. O’Leary had yet to formulate his Southwest-lookalike model and Hayes was chasing volume not a strategy, but it worked. Ryanair could not compete with other airlines on service, but it could compete aggressively on two levels: price and the frequency of its flights. The key to success would come through implementing the flipside of a low-fare structure – Ryanair would make money on low fares and high frequency only if its costs were low and its productivity high. And so Hayes and O’Leary started to dovetail effectively. While O’Leary concentrated on driving down costs, Hayes worked on price and frequency. By May 1992 Hayes felt confident enough to tell Reuters that while the profit for the previous financial year might be small, ‘this year our profit will be measured in millions…I can’t prove that [we have the lowest costs in Europe],’ he said, ‘but I know I can sell a twenty-nine-punt flight to London at a profit even if it’s a small one.’ Hayes said that his competitors would need to charge seventy punts to make a profit.
Hayes’s low fares had already had a dramatic impact on Ryanair’s Dublin–London market share, which had leapt from an average 15 per cent on the route in 1991 to a remarkable 26 per cent by April 1992, the third month of the low-fare initiative. ‘My target is that in eighteen months we will have stabilized at 25 per cent of the London–Dublin corridor,’ he said. Unlike rival airlines, which advertised cheap fares but had few available, Ryanair was actually delivering its lowest fare to the majority of its passengers. By the end of the year more than 50 per cent of all seat sales were at the lowest available fare, decisive evidence that price was hugely significant in stimulating demand even on mature routes.
The success of low fares was also forcing Hayes and O’Leary to look closely at Ryanair’s fleet of aircraft, which in 1992 was a modest collection of eight leased BAC One-Eleven jets and three propellor-powered ATR 42s. A larger fleet was vital if the airline was to grow by launching more routes and increasing the number of flights on its existing routes, and McGoldrick had placed orders for new Airbus A320s and ATRs.
Hayes, however, cancelled the orders and decided to wait. Acquiring new planes is always a gamble – on the one hand, they give airlines the firepower to expand, but they also bring a heavy financial burden and put the company under intense pressure to sell the newly acquired seats. The gamble only pays off when an airline’s acquisition plans are perfectly in tune with its route expansion plans. Hayes was still uncertain about the airline’s direction and did not want to end up with the wrong mix of large and small aircraft. ‘What we’ve got to do is put this business on a viable footing, then we’ll see what fleet we need,’ he said.
The accountant in Hayes was never far from the surface. While he was keen to lower fares and increase the number of flights on offer, he was equally determined that no individual flight should lose money. His solution horrified airline traditionalists. Hayes insisted that no flight should be allowed to take off until it had been given clearance to go by Bernard Berger, the man in charge of flight operations. He was instructed by Hayes to run the financial slide rule over every flight. If the total revenue from the seats sold on the flight added up to more than the costs of running the flight, Berger let the plane fly. If it fell short, then the flight was cancelled and combined with the next flight.
Twice in the early weeks of the new regime flight managers ignored the order and let planes take off without clearing the numbers with Berger. On each occasion the person responsible was fired. After that, the rule was implemented with religious fervour. ‘Flight consolidation was commonplace, but it was only possible because we had such frequency, particularly on the Stan-sted service. You could cancel the 18.30 and push everyone on to the 19.30 – so no one lost out hugely,’ says one former employee.
It was ruthless but very effective. Passenger numbers climbed on the back of low fares, leaping from 650,000 in 1991 to 850,000 in 1992, and while more people flew, O’Leary worked tirelessly to ensure that the costs of flying them were kept low. By working the planes harder, making more trips, achieving faster turnaround times at the airports and by restricting service costs – planes were cleaned by the cabin crew not by contract cleaners, while toilets were emptied after a number of flights rather than after each one – O’Leary chipped away at the cost base and kept productivity high.
The formula worked, and the cash started to accumulate. It was too early to relax, but for the first time since the airline had been founded it was trading profitably and management knew exactly what was happening within the company they ran.
‘It was still a small company, but it was run very personally by Michael and Conor: they ran it like a sweetshop, not an airline. Everything was at their fingertips; they knew everyone and they knew the cost of everything. It was micromanagement in action,’ says a former colleague.
It was also management by instinct rather than by design; there was still no grand plan of how Ryanair could be transformed into a consistently profitable airline. O’Leary had been down the road to Damascus, as he described it, but it was one thing understanding how Southwest managed to operate successfully and quite another to impose that structure on Ryanair overnight. Hayes and O’Leary were making progress through trial and error, both convinced that low fares and low costs were the only way forward. Their instincts were sound, but they were still a long way short of delivering a business plan that could pave the way for the airline’s expansion. Hayes was conscious of airline deregulation, but still not sure what impact it would have on the European market and was trying to balance the needs of strategic planning with the day-to-day pressures to reduce costs and seek out profit. It was a daily grind.
The two men were hunting for profit centres, prepared to chase American tourists flying to Stansted with American Airlines, dabbling in the charter holidays market, offering connecting flights to European cities through a marketing tie-up with Air UK and even contemplating franchised route operations for the bigger European carriers. ‘With deregulation of the industry there’s going to be amalgamation and the big operators cannot fly the thinner routes profitably,’ Hayes said in an interview. ‘It will be in our best interest to find those routes and do the appropriate deals with people.’
The strategy, what there was of it, was to scrabble together a profitable business from the chaos that had gone before. Nothing was ruled out as Hayes and O’Leary fought to make money in a market which was highly competitive on the domestic front and increasingly imperilled internationally by rising oil prices and war in the Middle East.
‘You’ve got to remember that from Michael’s and Conor’s point of view, and from the company’s point of view, this was backs against the wall stuff,’ says one former manager. ‘It was their way or no way and they were dead, dead right. Some people from the previous era just didn’t get it. But forget the stuff about developing a low-cost model, because it wasn’t even close to that back then. This wasn’t about low cost, this was about survival.’
For O’Leary, the battle for survival was wearing him down. Despite the profit-share deal he had struck with Ryan, he was growing restless and frustrated. ‘I was trying to get out,’ he says. ‘I wanted out all the time.’
O’Leary had been persuaded to stay at Ryanair by the prospect, however slim, of making his personal fortune if the airline could be turned around, but ‘a year or two in Ryanair, there was no action’. Instead of making money, O’Leary was cutting costs. It was, he says, ‘a pain in the arse. My role in Ryanair from 1988 to 1991 was stopping it from losing money – it wasn’t looking to make Tony [and, by extension, himself] money.’
On paper his deal with Ryan had seemed good but 25 per cent of nothing was not what O’Leary wanted. His time, he felt, would be more profitably rewarded by chasing his 5 per cent share of the profits that could come from using Ryan’s millions to invest in more exciting businesses. ‘I had had four years of this place on the brink of bankruptcy; we had gotten it back to making a small profit, and I had had enough,’ O’Leary says. A small profit was not what O’Leary had in mind. He was chasing bigger dreams, and Ryan was on the verge of floating GP A on the stock market, selling shares to institutions that would generate hundreds of millions of dollars for him to play with. The choice was a simple one: stay at Ryanair and work like crazy to turn a modest profit or help Ryan spend his fortune. In O’Leary’s eyes his job at Ryanair had been completed. The airline had stopped haemorrhaging cash and was no longer a drain on Ryan.
And so he stepped away from Ryanair in the first half of 1992, devoting most of his energies to his role as Ryan’s personal adviser. Hayes was left to fly solo, and he relished the challenge. By the summer of 1992 Ryanair was finally heading towards genuine trading profits for the full year. Hayes’s ‘Happy Days’ fares had worked, stimulating a sharp increase in demand, and costs had been brought down to levels that made it possible for the airline to make money on fares which would have bled its rivals.
Tony Ryan should have been able to breathe a sigh of relief. The money pit had been filled in. It might be many years before he saw a decent return on his eight years of investment, but at least there would be a return. By then, though, Ryan had a far bigger worry on his hands than the fate of Ryanair. The airline’s losses had always been an irritant, but profit had not been his prime motivation when he established Ryanair. Ryan had wanted a business for his sons and he had the essential wealth to make it happen. But that summer the wealth generator of the previous fifteen years fell apart spectacularly and Ryan did not even see it coming.
It should have been the best summer of his life. At the start of the year GPA was the largest buyer of new aircraft in the world, and had advance orders for more than 400 planes, worth more than $20 billion. It leased aircraft to more than forty airlines and its profits, which had hit $280 million in 1991, were forecast to rise to $380 million by 1995. GPA’s board was packed with business and political luminaries of the time, and the company’s shares changed hands at fancy prices in private deals. GPA executives were renowned for their swagger and hard work, travelling an average 140,000 miles a year to secure leasing deals for their aircraft, spending more than 170 days away from home on average and earning exceptional money for their troubles. It was a gruelling lifestyle, and one that O’Leary had rejected, despite the rewards, because he did not want to be trapped into life as a company executive. Just as he had shunned the opportunity to work his way through the ranks at SKC, so he shied away from becoming just another executive in a large corporation. He wanted to make money, but he wanted to make it on his own terms.
Now GPA was preparing for a stock market flotation that would value the company at more than $2 billion and would make Ryan’s shareholding worth more than $200 million. On the day the company was due to float, Ryan was going to pocket an extra $38 million as a fixed success fee, and would still enjoy a heady dividend stream from his shareholding. The flotation was also going to be a significant boon to GPA’s founding shareholders Aer Lingus and Air Canada, who both stood to make huge profits, and to many senior managers who had acquired shares in the company over the years.
GPA’s shares were to be sold in an ambitious global exercise, with investment banks finding homes for shares in Tokyo, London and New York as well as the other main European and Far Eastern financial centres. During the final six weeks leading up to flotation day on 7 June ripples of discontent were felt across the markets. There were mutterings that the share sale was being priced too high – GPA hoped to achieve $22 a share, but the market was indicating that it would only pay $16 to $18. And although GPA had survived the traumas of the Gulf War – indeed Ryan was keen to float that year precisely because GPA’s resilience during a period of crisis demonstrated how robust his company had become – investors fretted about the financial security of some of GPA’s major clients. The problem could have been dealt with in the market’s time-honoured fashion – by reducing the price at which the shares were to be sold – but Ryan refused to budge.
O’Leary watched the drama unfold but was powerless to intervene. Ryan did not employ O’Leary to tell him how to run GPA or how to negotiate with investment banks. Those close to the negotiations in the run-up to the flotation give different accounts about O’Leary’s input. Some maintain that he, like Ryan, was exceptionally bullish about GPA’s share price and shared the arrogance that persuaded Ryan to stick to his guns. Others claim that O’Leary was horrified by GPA’s hubris and could not understand why Ryan would not just float the company at any old price and let it find its own level in the market.
GPA’s astonishing profit performance had been based in large part on Ryan’s ability to outsmart the markets. He and his managers had accurately predicted the patterns of aircraft demand and had converted those predictions into massive orders for new aircraft when others were too timid to take the plunge. When demand for air travel met Ryan’s predictions, he had the planes that the airlines needed. GPA’s executives believed that they were invincible, masters of their universe, and would brook no outside interference. Their self-belief was their undoing.
O’Leary says he will ‘never forget the rows over the share price. Goldman Sachs advised a price cut and Tony and the rest of them went berserk.’
Although GPA was only trying to raise $850 million in fresh capital, it had planned to borrow a further $3 billion on the back of its new liquidity – money urgently required to meet its forward aircraft purchase commitments. The complexity of the share offer, which involved securing commitments to buy shares from institutions on three continents, made a difficult situation worse, but in the end it came down to price.
‘I’d have sold the shares at any price just to get the thing away,’ says O’Leary. ‘Tony was going to collect a bonus on flotation of more than $30 million and I told him to forget about the price and just take the money, but he wouldn’t.’
On the day that GPA’s shares were meant to start trading on the world’s stock markets, the sale was cancelled. Ryan’s refusal to lower the sale price had had a ripple effect across the markets, and potential buyers – particularly in the US and London – simply refused to pay the asking price. If the shares had been listed on the stock market, the overhang of unsold shares would have caused the price to collapse, leaving those who had actually agreed to buy shares with substantial losses. Ryan had no option: he had to cancel and watch his world implode.
The unravelling of the flotation proved disastrous for a company that relied heavily on its ability to borrow vast sums of money from the money markets. Deprived of the ability to raise fresh borrowing on the back of the flotation proceeds, GPA was left in a deep hole. Worse, the pummelling of its reputation had made its creditor banks circle nervously. In a business that depended on the ability to borrow money cheaply and in vast amounts, confidence was everything. That June, as the share flotation crashed, confidence evaporated and banks started to look more closely at the company’s creditworthiness.
Maurice Foley, Ryan’s right-hand man, left the company weeks later and predators started to sniff blood. Before long the inevitable happened: robbed of its power to borrow the money it needed, with its commitments to buy planes unmeetable and with the aviation market still in Gulf War turmoil, GPA was taken over by GE Capital, the financing arm of the giant American conglomerate General Electric, in a deal that left Ryan lamenting that he had been ‘raped’ by Jack ‘Neutron’ Welsh, GE’s aggressive chief executive.
‘GPA collapsed because Tony and the boys couldn’t help themselves fighting over the share price,’ says O’Leary. ‘And, looking back, they had called everybody’s bluff for about ten years. This was the one time they were outside of their own business, and they were dealing with the bankers in London.’
Ryan was not a man to hide his sense of betrayal. He believed, and still does, that GPA’s flotation was destroyed by the vicious rivalry that existed between American and Japanese investment banks, which shared responsibility for selling the company to international investors. ‘People say I’m arrogant and sure I am. But you should see those arrogant sons of bitches on Wall Street,’ he said in an interview two years later.
Ryan was retained by GE to see through the takeover, but it was scant consolation. His empire had gone and the vultures were on his back. Like many other GPA executives and directors, Ryan had borrowed money to acquire extra shares in GPA, believing that the flotation price would exceed the price they paid and leave them with easy profits. Now the shares were close to worthless. Without the sale proceeds and the bank loans that would have followed, GPA was a company saddled by liabilities and future obligations to buy planes with money that it did not have. Instead of sitting on a pile of shares worth hundreds of millions of dollars, Ryan owed Merrill Lynch, the US investment bank, $35 million. If Merrill Lynch collected all its money, Ryan would be a broken man.
‘You’d think that a man who enjoyed such wealth for so long would have put something away for a rainy day,’ says one former acquaintance, ‘but Tony is not the sort of man who salts away money in case he fails. He never expects to fail or contemplates disaster.’ Ryan had gone from vast riches to relative rags and Ryanair, the airline he funded but which he always maintained was his sons’ company and not his, became his most valuable asset. It was time for it to perform.
With GPA in tatters, Ryanair regained its place at the forefront of O’Leary’s attention. He would help Ryan steer his way through the GPA aftermath, but there was no longer any immediate prospect of making his fortune by investing the Ryan millions. They had vanished and Ryan now owed rather than owned millions. If O’Leary was to make his mark, it was Ryanair or nothing. So he returned full time to the airline, determined to make it work.
With the ruthlessness that would become his trademark, he could see that GPA’s weakness represented an important opportunity for Ryanair. The airline wanted to cut out three of Ryanair’s loss-making routes – from Galway, Kerry and Waterford – and get rid of the three turboprop planes that served them. All three were leased from GPA, and O’Leary knew that there would never be a better moment to get out of the contracts – whose terms were never favourable to Ryanair – as cheaply as possible.
O’Leary and Hayes took enormous pleasure from what they did. While GPA’s executives were still reeling from the flotation disaster and fighting fires on all fronts, Ryanair announced that it was handing back the planes. GPA refused to accept them, arguing that the airline had to honour its contract, but Hayes and O’Leary refused to budge. ‘They said they’d fly the planes to Shannon, park them on the runway and then call a press conference and announce to the media that GPA was trying to destroy Ryanair,’ says a former employee.
GPA backed down, the planes were returned and Ryanair agreed a break payment of just £5 million, £10 million less than the penalties that should have been incurred under the terms of the contract. Hayes then organized a meeting with Maire Geoghegan Quinn, the minister for transport, whose constituency included Galway airport, to tell her of Ryanair’s decision to cease flying to Galway, Kerry and Waterford. On 1 August the airline announced that the services would cease on 1 September. In a statement the company’s board described the withdrawal as ‘regrettable’, but ‘an inevitable consequence of both the continuing recession in the United Kingdom, which has had such an adverse impact on traffic numbers, and the worldwide recession in the aviation industry’. It described the routes as ‘economically unviable’ and said it would redouble its efforts to increase services to Cork, Knock and Shannon, where passenger numbers had already climbed by 55 per cent in the first six months of the year. All three were in the same geographical areas as the airports being dropped, with Knock and Shannon relatively close to Galway, and Cork not far from either Waterford or Kerry – which in turn was close to Shannon. It was a route rationalization that made commercial sense: passenger numbers were strong at the three airports being retained, and the existing traffic on the other routes could be diverted to them.
The media missed the significance of the route cull, interpreting the withdrawals as a signal that Ryanair was in terminal decline. In fact, they arose from a hard-nosed strategy focused on profitable routes that was actually proving to be the airline’s salvation.
Seamus Brennan’s controversial two-airline policy had given Ryanair the breathing space to build a profitable business by removing head-to-head competition with Aer Lingus on its key routes to London’s Stansted and Luton airports – a compromise that had also protected Aer Lingus’s routes to Gatwick and Heathrow. It was, however, a deal with a deadline: Brennan had agreed a two-year moratorium, not an indefinite one. The power of government to intervene in the airline business was also in steady decline, because the staged liberalization of Europe’s aviation market was already under way and would reach a new milestone the following year.
Flight International, an aviation trade magazine, reported, ‘Speculation that Irish operator Ryanair is in trouble has re-emerged following the announcement that it is to shut down its London service to three regional Irish airports…Until now, Ryanair has had the stated aim of becoming Ireland’s leading carrier to regional airports…This leaves the airline largely dependent on the Dublin–Stansted route at a time when Aer Lingus is preparing to fly into Stansted from next year.’
It was a threat that Hayes and O’Leary were already moving to close off.
The crisis in the airline industry did not halt Europe’s slow progress towards deregulation and by the time the next tranche of liberalization came into effect in 1993 the industry was showing early signs of recovery. Fifteen years after US deregulation, the concept of low-fare airlines had also finally made its way across the Atlantic.
Dan Air, a British-registered company, became the first genuinely low-fare European airline to live, and die. Originally a charter airline, Dan Air had transformed itself into a low-fare and relatively low-cost scheduled carrier, but it could not achieve profitability. It fell to earth in September 1992 and was subsumed by British Airways the following month.
As the Financial Times’s Lex column wrote in September 1992,
There is a clear lesson in the plight of Dan Air for would-be liberalisers of Europe’s aviation industry. Here, after all, was a relatively low cost airline which ought to have been a model beneficiary of the open skies policy pursued by Brussels in recent years. Instead its parent company, Davies & Newman, now finds itself in apparently life and death talks…The reason is largely the dire economic climate and delayed hopes for economic recovery. But Dan Air’s failure to gather momentum as a scheduled carrier highlights the difficulty of breaking into markets dominated by the big national flag carriers.
The reality was that the national carriers still held a massive advantage over aspirant airlines: they controlled the landing slots at the major airports. As the FT explained, ‘BA’s hold over slots at Heathrow has provided it with an inestimable advantage in developing its European network.’
The 1993 deregulation package brought with it the concept of a European rather than national airline – this was ‘open skies’ within the European Union, allowing any airline registered in a member country to operate without restriction in all other member countries of the union. For Ryanair this was the package that at long last made it possible for the airline to build on its ambitions. Price controls – which required airlines to have their fares approved by their governments – had disappeared, and airlines were now free to charge what they wanted rather than seek government approval for their fares. Airlines could also fly to and from anywhere in Europe. Ryanair had avoided price control of its fares by operating services where none had previously existed – like its early Dublin–Luton route. This had given it access to the London market, but because Luton was technically not a London airport, there had been no price constraint.
But despite the freedom that the previous waves of deregulation had brought, the basic make-up of the aviation market in 1993 was not significantly different to what it had been in 1990 or even 1985. By 1993 there were twenty-two independent airline operators in Europe, but Greece, Finland, the Netherlands, Luxembourg and Spain all had no competition for their flag carriers. Competition was advancing more rapidly in some areas – there were five jet airlines in both the UK and France, and two in Ireland. The real catalyst for change in the market was the 1993 reform, which at last spurred developments in the European aviation market.
In 1993 four large airlines (using jets with seventy seats or more) entered the market, but seven large airlines exited. Between 1994 and 1997 thirty-three large airlines entered the market and a further eleven smaller-scale operations upgraded to larger aircraft. But twenty-four airlines ceased operations. It was a sign of the new order: competition would bring change and opportunity.
The roller-coaster ride had begun.
Tony Ryan’s life had been turned upside down by GPA’s collapse in the summer of 1992, but for Michael O’Leary and Conor Hayes life was getting better and better. Hayes’s price cutting and O’Leary’s cost cutting had taken Ryanair to the promised land of real profitability by the end of 1992. For the first time in its short history the airline would be able to announce genuine trading profits, rather than a surplus cobbled together by selling assets.
Ryanair announced a trading profit for 1992 of £850,000. The real profits were substantially higher – almost £3.5 million – but Hayes and O’Leary, prompted by Ryan, decided to conceal the extent of the airline’s remarkable recovery. ‘They just plucked a number from thin air that year,’ says one former colleague, ‘and I remember one of them saying that 850,000 sounded good because it was exactly the number of passengers we’d carried.’
Their coyness was unusual, but GPA’s collapse had altered Ryan’s priorities. Merrill Lynch, to which he owed $35 million, was pressing hard for a settlement of his debts and he was determined to hand over as little as possible.
According to those close to the negotiations, Merrill decided to deal directly with Ryan rather than allow the two main Irish banks – Bank of Ireland and AIB (Allied Irish Bank), its syndicate partners on the loan – to lead the talks. Ryan played a cunning game. Even though Ryanair was legally outside his direct control, he offered a large stake in the airline to Merrill Lynch in exchange for a writeoff of his debts. But the bank was not prepared to take shares in a company which appeared to have no prospects of success.
‘Merrill wanted some cash, not a share of a loss-making airline,’ says one of Ryan’s associates. The airline industry, though limping out of the recession of the early 1990s, was still in trouble and Ryanair had a history of losses. Had Merrill’s bankers looked closely at the company’s accounts for 1992, which were published in early 1993, they might have noticed that the underlying cash position for the year was far better than the headline profits indicated – Hayes had thrown money at depreciation charges to keep the profits down – but they were not interested.
The negotiations between Ryan and Merrill Lynch would drag on for another year, but while Ryanair’s real level of profitability may have been concealed from the bank, it was uppermost in O’Leary’s mind. He knew that his profit-sharing deal with Ryan would start delivering dividends very soon. He was just thirty-two years old, and was about to make his first serious money. He knew that his life was changing and he could afford to indulge himself.
In May that year Patsy Farrell decided to sell Gigginstown House, just outside Mullingar. The asking price for the house and 200 acres was £580,000. Gigginstown, an unpretentious Georgian mansion built in the 1850s for the Busby family and designed by John Skipton-Mulvany, needed renovation, but its setting was what O’Leary coveted. Robert Ganly, the auctioneer who handled the sale, described the house as being ‘grand and honest’ and remembers it as a typical Irish country house – ‘It needed work,’ he says, ‘like most country houses of the time.’
O’Leary had always wanted his own home in Mullingar, where his parents had lived since he was a small boy, and Gigginstown was too good an opportunity to miss. Within a month of the house being put on the market, O’Leary had made his move. He negotiated briefly, knocked a few thousand off the asking price and struck a deal. ‘I don’t remember him being particularly aggressive or particularly difficult. It all went relatively smoothly,’ Ganly says.
O’Leary says that when he bought Gigginstown
I was probably to the pin of my collar to pay for it. I grew up on a farm and I’d always known that if I ever had the money I wanted to have my own house, my own farm. Then I got lucky and got more money and I wanted a grander house.
The house itself isn’t massive. People go on about this magnificent mansion. It is a very nice family home – it is not one of these big palatial mansions, nor was it built to be. It was built as a sort of a weekend house for someone in Dublin, but on a grand scale. I wouldn’t want my kids rattling around in a ginormous fucking mansion. My house isn’t small but it feels fairly compact. If you have kids and the kids are growing up and bringing friends back, you don’t want them to think they are arriving in Buckingham Palace.
It was to prove a bargain buy – over the next twelve years house prices in Ireland rose tenfold as the economy went into a period of double-digit growth – but in 1993 large country houses were slow to sell and relatively inexpensive to buy.
Gigginstown was to become his oasis, a private retreat from the self-imposed frenzy that Ryanair had become, but not yet. For his first few years as Gigginstown’s owner O’Leary continued to spend most of his working week in Dublin, visiting his estate at weekends. He had plans for the house and for the land, but first he wanted to bank some ‘serious cash’.
While O’Leary was completing his purchase, Hayes was preparing his exit. On 23 June 1993 Hayes formally tendered his resignation as chief executive, though he would continue in office until the end of the year.
His departure was not a surprise: he had been contracted to do a specific job with a specific time limit. By the time he left Hayes would have completed two years at Ryanair and could take much of the credit for transforming the airline’s fortunes. His determination to impose rigorous and timely financial reporting had made it possible for him and O’Leary to fully understand the company’s problems for the first time, and his desperation to drive up passenger numbers had seen him experiment with, and then embrace, low price and high frequency as his twin weapons. By the end of his second year Ryanair was carrying close to one million passengers a year.
Hayes had pruned out underperforming routes, had been prepared to take tough political decisions like withdrawing from small regional airports, and had insisted that every Ryanair flight that left the ground covered its costs. Most importantly of all, he had imposed financial transparency on a company that had never had it before.
There was little debate about his successor. Michael O’Leary had returned to Ryanair after his sabbatical working for Tony Ryan and was now committed to making his mark at the company. He had been appointed chief financial officer on his return, could see that the company had turned a significant corner and had a 25 per cent stake in its future profits. He also knew that there were no other options. For the moment Ryan was a broken man, consumed by bitterness at the demise of GPA and robbed, as he saw it, of the millions that were his right. Ryan would recover spectacularly from his fall from grace, but it would be on the wings of Ryanair. Ryan’s eldest children Cathal and Declan had tasted high office already and were happy to leave the airline’s leadership to O’Leary. He knew the company better than anyone, had played a key role in its recovery and was ready and willing to take charge. Hayes’s low-fare strategy, though born of desperation rather than strategic cunning, had set the airline on its way and, just as importantly, it meshed with the business philosophy which O’Leary had learned from Herb Kelleher’s Southwest. The basket case had become a viable proposition, and O’Leary was perfectly positioned to take advantage and build the business. The liberalization of the markets gave him the opportunity to expand, and the work done by Hayes and himself had given him a stable company.
Hayes’s final months at Ryanair were not idle; he became embroiled in a major political battle with the European Commission, the Irish government and Aer Lingus.
Ryanair’s success in winning market share by cutting prices was only just beginning to translate into profits, but through its loss-making years it had managed to wreak havoc at Aer Lingus. Already buffeted by the international aviation recession, Aer Lingus received a further hammer blow in the summer of 1992 as a major shareholder in GPA. Instead of banking heady profits from the flotation, it now had to write off its investment and swallow the losses. It would have been painful in a good year, but by now Aer Lingus was bleeding cash on its operations.
The state-owned airline’s instant solution to its crisis was typical of a company used to monopoly and unsuited to the challenges posed by competition. Bernie Cahill, Aer Lingus’s chairman, decided he should get rid of the competition by buying out Ryanair, and was also preparing a survival plan for Aer Lingus that would require the Irish government to pour in £175 million to repair its balance sheet. Without the cash injection Aer Lingus would be bankrupt, and if it could not kill off Ryanair, it would be unable to return to profit on the Ireland–UK routes.
In May, a month before Hayes tendered his resignation, Cahill approached Tony Ryan about a possible deal. He was, he said, prepared to offer £20 million for Ryanair – a price which he thought would tempt Ryan to cut his losses. O’Leary and Hayes were delegated to deal with Cahill, a decision that riled the Aer Lingus chairman as he believed he should be dealing with the main player.
Accounts of the meeting between the three have taken on the mystique of an urban legend, with Hayes and O’Leary cast as young mischief-makers determined to wind Cahill up with no intention of ever selling. In the legend, Hayes and O’Leary pushed Cahill all the way, forcing him to edge up his offer and yet, each time he raised it, they came back looking for more. Finally, they demanded £29 million, saying that Ryan would not settle for a penny less. And then Cahill realized what was happening: the figure had been chosen not because it was Ryanair’s real price, but because it echoed the £29 fares that Ryanair was using to lure passengers onto its planes. Cahill had been played for a fool and was furious, the story goes.
O’Leary, however, remembers it differently. He says the negotiations were serious and based on Ryanair’s profits the previous year. Cahill, he says, was told the company was his for £20 million. ‘There was no 29.99, this was a serious discussion.’
It was not, however, a discussion between equals. Cahill, a veteran of the Irish business scene, had to deal with Hayes and O’Leary, and according to some who knew him he took an instant dislike to the ‘young upstarts’. ‘After meeting Cahill a couple of times, it came back to us that he thought we were just a pair of young pups. Who did we think we were telling him what he had to pay?’
A former Aer Lingus executive agrees with O’Leary. ‘We heard that Bernie was high-handed. A deal was on the table, but it just did not happen.’
The proposed deal fell apart. ‘When you try to do these sorts of deals, they either gather momentum or they fade away,’ says O’Leary. ‘It could have happened very quickly,’ he says, acknowledging that Ryanair was genuine about the sale. Neither he nor Hayes, however, was convinced that Cahill was serious, and they refused to allow Aer Lingus access to Ryanair’s accounts, because they feared that Cahill might simply be after information about the company. Those close to Ryan say that he might have sold, but for the first time since he had founded the company it was beginning to make serious profits and he knew that Cahill wanted to shut it down and destroy his legacy rather than invest and build it.
Months later, on 5 October, news of the takeover talks finally broke in the media. The Irish Times carried a front-page report headlined ‘Ryanair rejects £20 million bid by Aer Lingus’. According to the report, ‘A valuation of £20 million is understood not to have been acceptable to Ryanair and it then refused Aer Lingus access to its books because it believed the national carrier was only on an information-gathering exercise,’ a version of events that mirrored the fears of O’Leary and Hayes.
Cahill was apoplectic about the leak. He was about to go public with Aer Lingus’s survival plan and did not want his efforts to save the airline sidetracked by speculation about buying Ryanair, especially since the mooted deal had been dead in the water for almost four months. Two days later, after intense pressure from Cahill, the Irish Times retracted its story and published a correction: ‘The Irish Times accepts that no bid was made or rejected.’
The story was true, but it was inconvenient. The Irish Times, which prides itself on being Ireland’s paper of record, buckled under pressure and published a retraction that it knew was false. ‘Aer Lingus was furious about the story,’ recalls Jackie Gallagher, its author. ‘It maintained that while there had been discussions, there had never been an actual bid. That is why the correction was specific to the headline – if there had been a formal bid the paper could have stood its ground, but at the time there were a lot of connections between the paper and the airline and so the correction was published.’
Two weeks later the reason for Cahill’s anger became abundantly clear when Aer Lingus announced that 1992/93 had been the airline’s worst year ever. ‘The period since my last report was the most traumatic in the 57-year history of Aer Lingus,’ he said in the group’s annual report. Annual losses were an eye-watering £109.7 million while the airline’s debts were £540 million. Cahill attributed the company’s dire performance to ‘the impact of worldwide recession which rocked the airline industry, the impact of the failed GPA flotation, the high cost base and the declining average yield per passenger’.
The GPA debacle had forced a write-off of £43.9 million. Restructuring charges were just short of £100 million and the airline had just ten days left to finalize negotiations with its trade unions to save £50 million a year. If it failed to meet the deadline, it would not qualify for state aid, which had been tied to Aer Lingus’s ability to reform itself.
Carefully, Cahill avoided mentioning the impact that Ryanair’s aggressive pricing had had on the national airline’s performance. Far better to blame international crises than look closer to home. Cahill could avoid talking about Ryanair, but the industry knew where Aer Lingus was being hurt. In November Tony Brazil, the outgoing president of the Irish Travel Agents’ Association, said that Aer Lingus was losing ten pounds on every passenger on the Dublin–London route because of Ryanair competition. It was being forced to charge fares that it could not afford. ‘This blood-letting must end as surely to God the two parties can see where it is all leading.’
Hayes and O’Leary decided, after much discussion, not to oppose Aer Lingus’s request for state aid, but Hayes was given the task of ensuring that the money came with strict conditions about how and where it could be used. Rescuing a state-owned airline was one thing, but using state money to prey on Ryanair was quite another.
Hayes spent the last months of his tenure as chief executive compiling Ryanair’s dossier on the matter for the European Commission. He was determined that Aer Lingus should not be allowed to use taxpayers’ money to subsidize its existing routes. The state aid was, Ryanair argued, permissible if it gave Aer Lingus a last, one-off chance to reform itself, but not if it was used to further distort competition and imperil Ryanair.
This was a genuine fear not mere posturing. Under Cahill’s survival plan Aer Lingus was planning to launch its own low-fare subsidiary, to be called Aer Lingus Express. This, Cahill hoped, could compete with Ryanair on price, leaving the main Aer Lingus company to compete on service.
‘We believe that this specific proposal [to launch Aer Lingus Express], which envisages the misuse of a State subsidy to add capacity on our route network, is incompatible with the EC’s transport competition and state aid rules,’ Hayes said in the submission. He wanted a requirement that Aer Lingus should be forced to operate all routes profitably from the following year and not from 1996, as was proposed in the Cahill plan. Hayes also asked the commission not to approve any EC aid for Aer Lingus flights from Ireland’s regional airports – a subsidy which could be applied to commercially unsound routes that would otherwise not be flown by an airline but which the government deemed essential public services. He pointed out that Ryanair had initiated such services but had been forced to withdraw from them because of Aer Lingus’s predatory pricing – a direct reference to its decision to withdraw from Galway, Kerry and Waterford airports.
It was a war that Hayes could not expect to win outright, but he chalked up battle victories nevertheless. The Aer Lingus rescue plan was hemmed with conditions that Ryanair had proposed and which O’Leary could police in future years to ensure that the private airline, which had only just managed to make decent profits, would not be squashed by state subsidies. ‘Aer Lingus’s strategy will, if unchecked, lead ultimately to the demise of Ryan-air, albeit at enormous cost to Aer Lingus, since Ryanair simply does not have the resources to continuously fight subsidized competition,’ Hayes said.
While Cahill’s excuses for the national airline’s difficulties were centred on international crises not under his control, his solution was single-minded. Aer Lingus’s new strategy was to have low fares when competing with Ryanair on routes to London and higher fares and yields on other routes to the UK where the airlines did not compete. Aer Lingus hoped to charge premium fares to London’s Heathrow and cut its prices on flights to airports that Ryanair did serve.
Hayes and O’Leary were also prepared to show the Irish government and the EC that Aer Lingus’s rescue would not be victimless. In a pre-emptive strike they announced forty redundancies on 29 October, saying Ryanair ‘must now take all necessary measures to prepare for the inevitable increase in subsidized competition from Aer Lingus when they receive (as we expect they will) the £175 million of state aid from the Irish taxpayer’.
Aer Lingus tried to strike back, with Executive President John Griffin writing to the Irish Times to claim, ‘Contrary to the notion that the national airline is another subsidized semi-state company, the public record shows that the Aer Lingus Group produced net profits of £120 million between 1986–92, after payment of interest, taxes and dividends to government.’ He neatly ignored the massive subsidies which had flowed into Aer Lingus over the previous years, and the fact that all those profits had been lost subsequently, but then the truth was rather more painful.
Griffin then attacked the validity of the low-cost, low-fare phenomenon:
The public record shows once again that the very low pricing policy established by this new private company [Ryanair], now publicly acclaimed, was not a basis on which to build a viable new airline. In 1989, only four years after starting up, it had to appeal to the government for assistance. Aer Lingus was effectively made to bail it out by having to surrender three routes to Ryanair, on a monopoly basis – all in the name of competition!
Incidentally, apart from its monopoly on the Stansted route, Ryanair also enjoys subsidies there, which are not available to Aer Lingus at Heathrow, underlining the precarious economics of the airline business in this country at the moment.
Griffin’s defence of Aer Lingus and its need for state aid was understandable, if tendentious. Ryanair had been saved from likely collapse by the government’s adoption of a two-airline strategy in 1989, but it had not received taxpayers’ money. Its ‘subsidies’ at Stansted were actually negotiated reductions in charges, granted because the airport’s owners were anxious for business. Griffin also ignored the fact that Ryanair had survived despite the best predatory efforts of the state airline, which had used state money in a determined attempt to send Ryanair the way of Avair, its bankrupt predecessor. He was reflecting the exasperation felt by the traditional airlines, which had grown accustomed to a world devoid of competition.
Griffin and his colleagues still believed that state-owned airlines were members of a gentlemen’s club. They did not compete aggressively, they could charge what they liked and they could turn to their governments for cash whenever cyclical crises blew a hole in their bottom lines. Airlines, in their view, were not just commercial operators; they were an extension of government policy, providing an essential public service (in Ireland’s case air travel between an island nation and the rest of the world) as well as being a substantial employer.
Aer Lingus would get its government aid this time, but it would prove to be the last handout. From now on the company would have to stand or fall on its ability to compete, and O’Leary was just about to up the ante.