Michael O'Leary (30 page)

It was a smart tactic. O'Leary wanted to demonstrate that his people could do better without a trade union, and he wanted to show that everyone in the company could benefit from its success. It also fitted neatly with Tony Ryan's early philosophy that every employee should be a stakeholder in the business. Events, though, conspired to dilute its impact. While O'Leary sought positive coverage ahead of the Labour Court report, news that Ryanair had received £23 million in rebates from Aer Rianta since 1994 delivered the opposite.

The scale of the rebates was revealed in an answer to a parliamentary question from Tony Killeen, a Fianna Fáil representative from County Clare. Ryanair's rebate was not too far ahead of the £21 million received by Aer Lingus, but given Ryanair's persistent complaints about Aer Rianta's charges the revelation was damaging for the airline's credibility.

Aer Rianta, which was now on a war footing with Ryanair because of its proposals for a competing terminal at Dublin airport and its incessant criticism of the organization's charges and management competence, was willing to stoke the controversy. A spokesman said Aer Rianta had originally been reluctant to disclose details of the scheme for commercial reasons, but that it ‘suits us in some ways to have the figures out in the open…It annoyed the hell out of us to have Michael O'Leary going on about our high charges when Ryanair was getting rebates on that scale.'

A week after the revelation about the rebate, the Labour Court report was released. It showered criticism on both Ryanair and SIPTU, saying both parties must bear responsibility for the ‘chaos and eventual closure of Dublin Airport‘. It said their ‘intransigence' led to a situation which had brought hardship and inconvenience to 20,000 passengers. Ryanair was criticized for its failure to make a meaningful effort to resolve the dispute, and the report cited the company's refusal to participate in a Labour Court inquiry and its rejection of government invitations to cooperate with an independent inquiry into the dispute before the airport's closure. Ryanair
had gambled that the protest would be short-lived and would collapse if there was no outside intervention, the report concluded. It also urged Ryanair to review its personnel policy to allow at least limited union recognition, and said the company should ‘re-examine and clarify its policy and attitudes' towards the Labour Court and Labour Relations Commission.

The unions, though, came in for even harsher criticism, with the report noting that SIPTU, the main union at the airport, had ‘inexplicably' failed to use its vast knowledge and experience of industrial relations and collective bargaining in the crisis. It said the union had allowed a major disruption to occur over an industrial dispute that involved a relatively small number of Ryanair workers and it criticized the union for ‘creating confusion and uncertainty, deliberately or otherwise, among its members on the reasons and purpose of the strike‘. It had also failed ‘to consult or communicate effectively with its members in Ryanair‘. Damningly, the report found that ‘by its statements, [SIPTU] left itself open to allegations that it had a wider agenda' and that far from being spontaneous, the walk-out at the airport had been ‘instigated and encouraged by SIPTU activists in airport-based companies. Such action cannot be condoned.'

Aer Rianta also felt the lash. The report found a ‘negative attitude' to Aer Rianta's performance on the part of other airport users. ‘In the opinion of airport users Aer Rianta did not have effective arrangements in place to maintain a safe and secure environment for passengers, airport operators and their staff during the weekend of the dispute,' the report noted. ‘Most airport-based companies were especially critical of airport police, who are employees of Aer Rianta and members of SIPTU', for joining the strikers.

O'Leary was uncharacteristically quiet the week the report came out and delegated responsibility for public relations to Cawley. He chose Dublin newspaper the
Sunday Business Post
for his one interview and stuck rigidly to the company's mantra. Ryanair, he said, had no problem with recognizing a union if the majority of staff wanted it, which they did not – a stance that sat uneasily
with the fact that the majority of Ryanair's baggage handlers had, indeed, wanted union representation. O'Leary, however, did not see his workforce as autonomous units; union recognition would require majority approval from all the staff, not majorities from separate groups of workers. He also defended Ryanair's decision not to engage with the Labour Court earlier on in the dispute. Cawley, meanwhile, admitted that the airline had failed to manage the media as effectively as it could have. ‘The biggest flaw in our campaign was on the PR side,' he said. ‘We didn't manage it well – in fact we made a complete mess of it. We never anticipated thirty-nine people could get so much exposure and oxygen.'

In September 1998 Ryanair suffered a setback in another of its long-running battles. This one dated back to December 1994, when the airline had taken a case to the European Court of First Instance, challenging parts of the Irish state's £175 million aid package for Aer Lingus, which had been sanctioned by the European Commission the previous year.

Under the terms of the agreement, payments of £50 million in both 1994 and 1995 were contingent on Aer Lingus achieving cost reductions of £50 million. Aer Lingus fell short of this target by £7.6 million, but the commission accepted that Aer Lingus could have the £100 million because ‘substantial progress' had been made. Ryanair disagreed, claiming that since the conditions had not been met the aid should not have been paid. Ryanair also argued that the commission's decision to overlook the fact that Aer Lingus flights from Dublin to UK provincial cities were run at a loss meant that the aid was in breach of EEC rules.

For O'Leary it was just another front in his battle with Aer Lingus. In 1993 he and Conor Hayes, then Ryanair's chief executive, had opposed Aer Lingus's plans to set up their own low-cost airline, Aer Lingus Express, claiming that the proposed carrier would represent illegally subsidized competition and could ‘ultimately lead to the demise of Ryanair, albeit at enormous cost to Aer Lingus‘. The plan was eventually shelved by Aer Lingus. In 1995 Ryanair complained about Aer Lingus's plan to introduce
new planes on their Dublin–London routes, asserting that the number of seats on the planes would break the terms of the 1993 state aid agreement. His legal challenges were guerrilla tactics, designed to distract Aer Lingus from the serious business of competition, and launched because he knew that the bureaucratic mindset at the state-owned airline would devote money and management time to refuting the allegations – far more time than he would spend on making them. His actions were not frivolous – he always had a point to make, however narrow – but they were vexatious.

In September 1998 the European Court of Justice eventually ruled that while Aer Lingus had been in breach of the conditions set out, the commission was entitled to exercise a degree of ‘discretion' on the matter. Regarding the loss-making routes to the UK, the court said that while the government was obliged to ensure that such routes were not subsidized, that did not mean that a group like Aer Lingus could never operate a route at a loss. Aer Lingus could keep its money and its routes, but O'Leary still claimed vindication because the commission had upheld his argument that taxpayers' money should not be used to subsidize loss-making routes. The court, though, ruled that Ryanair should pay all the costs of the action.

For Ryanair the setback was minimal. It had made record profits of £39.8 million for the year ending 31 March 1998, on a turnover of £182.6 million. The airline had also just announced pre-tax profits of £9.2 million for March–June 1998, up almost 20 per cent on pre-tax profits for the same quarter of 1997. Aer Lingus, in contrast, was still struggling, with its operating profits wiped out by the losses it had incurred selling a subsidiary and its heavily unionized workforce denying it the flexibility to adapt to the escalating challenges posed by Ryanair and other low-fare operators. Once again the state airline was lurching towards crisis, while O'Leary drove Ryanair to a new level.

Yet another series of battles arose from the EU's plan to end the sale of duty-free goods between member states, which was set to come into force in 1998. Stansted airport feared an immediate fall in its retail revenues and decided to repair its finances by hiking
landing charges by 15 per cent. O'Leary was having none of it. On 23 September he announced that Ryanair would halt its expansion from Stansted if BAA, Stansted's owner, forged ahead with the proposed increase in charges. ‘If BAA goes ahead with this, we will not start any more new services through Stansted,' he said. ‘We will go to an airport that is more growth orientated.'

At the time eleven of Ryanair's twenty-four routes were from Stansted, and the airport had been the focus of much of its European growth, with recent route launches to new Italian and French destinations. But O'Leary said future growth could easily be from another British airport such as Luton or Birmingham, or from an airport on the continent. The threat to Stansted was deadly serious, says Tim Jeans. ‘At the time, and to this day, there was capacity at Luton,' he says. ‘We wouldn't have pulled out of Stansted but we could certainly have driven future expansion from Luton.'

A week later O'Leary showed no such restraint when he threatened a total withdrawal from Dublin airport – Ryanair's biggest base, with five planes and fourteen routes – if charges there were not reduced. He made the threat after Ryanair's AGM, describing Dublin as the most expensive of the twenty-five airports used by the airline. As with Stansted, the row was created by Dublin's reaction to the impending cessation of duty-free sales. Where the UK airport wanted to raise landing charges, Dublin wanted to end its rebate scheme, which rewarded airlines for reaching pre-agreed growth targets by reducing landing charges.

‘Our total payments [to Dublin airport] amounted to about £8 million this year,' O'Leary said. ‘If those rebates go, those will rise to about £15 million every year.' He said that Ryanair was looking at a number of solutions to the problem at Dublin airport, including building its own terminal, and that the airline was ‘indifferent' to whether a deal was done at Dublin or not, pointing out that the future was in European growth, which could just as easily be managed from the UK.

‘If it [a deal at Dublin airport] is not done by Christmas, we will be gone,' O'Leary said. ‘The government has to make up its mind what it wants to do.' It was a wild threat – Ryanair would expand
elsewhere, but it would not pull out of a large and profitable market because its growth potential was being curtailed.

Aer Rianta was publicly unconcerned about O'Leary's threat – which was made less potent by Richard Branson, head of Virgin Express, who said he would be happy to fill any gap left by Ryanair at Dublin. ‘If Ryanair pulls out over landing charges we'll take over,' Branson toldjournalists. ‘I've no wish to undermine Ryanair or put them in a negative position, but if they really did pull out we'll step in. It's a very competitive market today.' In the event, Ryanair did not withdraw a single route from the airport, but Dublin did not get a new route from Ryanair for another three years.

O'Leary meanwhile stepped up the pressure on Stansted by announcing a ten-year deal with Prestwick in early October. O'Leary could now argue that he had a second viable base from which to drive growth in flights from the UK to continental Europe. But when Go announced that it was planning a major expansion from Stansted in early September, Ryanair's attitude towards the airport changed. Go claimed to be hiring up to 200 staffand said it was in talks with several new European destinations. Far from suspending growth from Stansted, all of the seven new routes launched by Ryanair the following year were either to or from the airport, and the dispute about landing charges was fudged.

For O'Leary, part of the beauty of low-cost travel was that it generated huge volumes of travelling passengers. While they were on his planes they represented a captive audience, sitting in their seats for an hour or more with nothing to do and with plenty of money to spend. The psychology of the early travellers – one that has receded as low fares become the norm across Europe – was that the money they had saved by flying Ryanair could be spent on other things: hotels, hired cars, restaurants, gifts. O'Leary wanted to get his hands on as much of that spare cash as he could, maximizing his revenues from every passenger.

In the 1996 fiscal year ancillary revenue had contributed 17.2 per cent of total revenue, but by 1997 it had fallen back to 11.8 per
cent, partly as a result of Ryanair's abandonment of cargo and charter flights. However, in October 1998 Ryanair embarked on a new stream of ancillary revenue – a tie-in with car rental company Hertz.

Hertz approached Ryanair about the possibility of a deal, and Michael Cawley and Tim Jeans were dispatched to see what could be done. ‘Other airlines were already doing it, so our deal was not particularly special, other than the fact that our commission rates were probably higher. And we felt that because we were still the young mavericks, it was nice to have the imprimatur of somebody like Hertz,' says Jeans.

The initial deal between Ryanair and Hertz involved Hertz offering preferential fly-drive rates to Ryanair passengers and paying the airline a percentage of the sale price. ‘The great thing was that the secondary airports created a vast market for car hire,' says Jeans. ‘Because how were people going to get from Carcassonne to wherever? It became part of the Ryanair folklore that if you were hiring a car you had to sit at the front of the flight and leave your wife and children struggling with the baggage so you could be first in the queue at the car hire desk, otherwise if you were at the back of the queue you'd be waiting well in excess of an hour.'