WHEN Michael O’Leary first walked into Ryanair’s Dublin offices in 1988, it
was, he says, “like you’d arrived at the pearly gates”.
Although the airline had lost ever-increasing amounts of money since its
launch three years earlier, its HQ screamed success. O’Leary recalls a
“gorgeous blonde chick at every desk”, plush carpets, beautiful furnishings,
and then the pièce de résistance: the chief executive’s office, dominated by
a “huge big massive table” so large it could not be carried up the stairs;
the windows had to be removed to get it in and the floor strengthened to
support it.
Instead of a sense of crisis, there was a buzz of expectation. “The place was
a shambles and yet it was still amazingly sexy,” O’Leary says.
The young Ryanair was living up to airline tradition. It may have been the
dynamic newcomer, the upstart that would challenge the Aer Lingus–British
Airways duopoly over the Irish Sea, but it was mounting that challenge with
style.
When it launched new routes, it did so with commemorative crystal glasses and
gold-plated letter openers engraved with the name of the route and the date
of the first flight were ordered by the hundreds. Champagne flowed at the
launch parties as the new airline wooed the media.
It was an exciting, glamorous and chaotic place to work, a shaft of light in
an Ireland in the depths of economic gloom. It was also a company full of
young people. Eugene O’Neill, the chief executive, dressed sharply, courted
the newspapers and projected the image of a new generation of Irish business
leaders.
Ebullient youth was replacing the stodgy corporate grey hairs, but it was not
making any money. In its first year of
operations Ryanair lost Ir£4m followed by Ir£5.5m in 1986 and a further Ir£7m
in 1987. The more passengers it carried, the more money it lost. “The place
was in a mess. There was no cost control. They were trying to be a me-too
airline like everyone else and not really succeeding,” O’Leary says.
His role was to find out what was happening, and ensure that further money did
not flow into a black hole. It was a heavy responsibility for a 27-year-old
with no experience of the industry, a man who had failed to stay the course
in his chosen accountancy profession and whose only commercial success had
been to turn a profit on a few corner shops.
At first, he could see no hope for Ryanair. “No-one had a handle on the
finances, and money was leaking out all over the place. All Ryanair was
doing was cutting 20% off the fares charged by Aer Lingus and British
Air-ways and losing loads of money.” It took him less than a month to
conclude that Ryanair could not be turned round and that it would continue
to be a drain on the wealth of Tony Ryan, its founder. He had but one
solution: close it down.
Ryan’s son, Declan, agreed and he and O’Leary met Ryan to give him their
conclusions. He disagreed, refused to close the airline that carried his
name and told them to sort it out.
Ryan’s stubbornness was not grounded in blind faith alone. His company,
Guinness Peat Aviation (GPA), made its money by leasing aircraft to airlines
and Ryan knew how poorly they were run. “He made millions from their
incompetence,” says O’Leary, “and he thought he could do it better than
them.”
The trouble was, O’Leary adds, Ryan may have thought he understood the
industry but in truth he knew “f***-all” about running an airline. O’Leary
knew even less, but he was to prove a better student than Ryan. FOUR years
of university life had been enough for O’Leary. In his final year at Trinity
College Dublin 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 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.”
His time at Clongowes Jesuit college and then Trinity had given O’Leary the
quintessential attribute of a private education: confidence. Although
Ireland in 1983 was in the midst of recession, with double-digit
unemployment, he believed a well-paying job would fall into his hands.
“When I finished college I thought, I’m a genius, I’ll have my pick of jobs,”
says O’Leary. But he did not have a single approach until Stokes Kennedy
Crowley (SKC), a Dublin accountancy firm, offered to train him. He had no
choice: it was accountancy or nothing. The training was tough, low paid and,
worst of all, dull.
His mentor in the tax department was Gerry McEvoy, a partner who had a clutch
of major individual and corporate clients. One of the most important was
Ryan, who had left Aer Lingus to set up GPA. O’Leary was fascinated by
Ryan’s success.
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. O’Leary, however, 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.”
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 young
man, and was told he had gone out on his own.
Ryan liked hiring bright young men – Denis O’Brien, who would become a
multi-millionaire many years later by launching and selling a mobile-phone
company, cut his teeth at Ryan’s side.
O’Leary was in a hurry to make money. “I wanted to make a hundred grand. With
a hundred grand the wolf wouldn’t be at the door,” he says.
In the summer of 1985, 18 months after joining SKC, O’Leary left. “Those days
there were only two ways of making money: retail or drink,” he says. “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
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,” he says.
The loan came with a penal rate of interest. “My ass was grass if I didn’t pay
back this 25-grand overdraft in 18 months. And at the time the annual rate
of interest on personal overdrafts was 28%. One of the advantages of that
was that annual inflation was probably running not far behind 28%,” he says
with typical exaggeration.
O’Leary set about his business with the energy that would come to define him.
He was confident enough to turn down an opportunity to join Ryan soon after
he 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 it was huge, just
like SKC. I didn’t want to swap one big company for another.”
The Walkinstown shop was soon followed by more corner shops. “There was
another one near the Submarine Bar in Crum-lin. 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’d open at seven in the
morning, and close at eleven at night. Treble the turnover, treble your
money.”
O’Leary learnt 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, stacking shelves,
serving customers and micromanaging every aspect of the businesses. And then
he learnt 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 dodgy trader from Only Fools and Horses]
than Dev in Coronation Street. I was going round in this van that had no
back seat in it, going up and down to Musgraves [wholesal-ers] getting all
the cash-and-carry stuff. It wasn’t very glorious.”
During his first Christmas, O’Leary demonstrated his propensity to exploit.
“We had a turnover 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. I had this
theory 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 lunchtime on Christmas Day we had been cleaned out. Of everything. They
bought cigarettes by the 200s. I had tripled the price of batteries and I
still sold them out.
“We took in about £14,000 in the day, 14 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 14
grand, hoping I wasn’t going to be mugged going to the car.”
O’Leary had tasted success and his instincts had been proved right: he had the
talent to succeed on his own, and did not need to work for a large
corporation to make his way. And he had come to a conclusion: cost reduction
is the key to profitability.
Most of all O’Leary discovered that he loved working, adored making money and
was good at it. He would make whatever sacrifices were necessary to feed his
obsession. His appetite whetted, O’Leary was ready for his next challenge.
MEANWHILE Ryan was launching his assault on the Irish aviation market. After
being awarded an operating licence in early 1985, Ryan and his partners
assembled a small team to launch the airline.
O’Neill, a young former merchant banker who had worked as Ryan’s personal
assistant, headed the team, which first operated from a small prefabricated
building at Waterford airport. The inaugural route would be from Waterford
to Gatwick. That route was never going to make their fortune. Waterford in
1985 was a small coastal town known for its crystal glass.
In July the new Ryanair took to the skies, a 15-seat propeller aircraft
operating one return trip a day between the two airports. If Ryan managed to
sell every seat on the plane every day of the week he would carry no more
than 10,000 passengers a year – a tiny fraction of the overall market
between Ireland and the UK.
The initial response was encouraging: within weeks Ryanair had achieved load
factors of 50% – an impressive way of saying that an average of seven
people flew on each leg of the route. Ryan was encouraged enough to double
the daily frequency to two return flights and add a Sunday operation as well.
Ryan’s target from the beginning was the Dublin–London market.
That, he knew, would be the real battleground with Aer Lingus. Direct
competition on flights to Heathrow was out of the question – even
getting landing slots was beyond the means of a small start-up airline –
so Ryan and O’Neill had to find an airport. Their choice was Luton, a small
and underutilised airport north of London.
In December 1985, just five months after the first flights from Waterford,
Ryan applied for and received a licence to fly Dublin-Luton. Ryanair’s first
flight there was delayed for 42 minutes, but at 8.42 on 31 May, 1986, FR201
taxied to the runway and took to the skies. It was a quiet start to a
revolution that would change the fundamentals of air travel.
The service quickly proved popular, and within weeks it was hitting its
passenger targets. The response was so positive that the airline introduced
extra flights. Its planes were small and slow, its destination airport was a
long way out of London, but Ryanair tickets were cheap and, just as
important, easy to get hold of – a new phenomenon for travellers.
The travelling public and initially the Irish media embraced the new company
with an enthusiasm that unnerved its detrac-tors. “Our customers were
extremely forgiving because they genuinely wanted Ryanair to succeed,” says
Charlie Clifton, who worked his way up through the ranks at Ryanair. “They
could see that we were trying to break the monopoly and that we were a bunch
of kids as well. People were pretty forgiving.
“We were so customer-focused in the very early days that if a flight was
delayed, stewards would be sent up to the boarding gate to talk to
passengers, apologise profusely and buy them a cup of tea or coffee. It was
very touchy-feely. And, erm, pretty hopeless. It was unsustainable.”
The profit Ryan had envisaged for Ryanair remained similarly elusive, and by
mid1987 his airline had racked up losses of more than £2m. The money itself
wasn’t a problem for Ryan – in 1987 alone his dividend from GPA
had been in excess of £5m – but he became increasingly frustrated
with Ryanair’s swelling losses despite its rising passenger numbers, and
with its failure to provide a serious challenge to Aer Lingus beyond the
Irish Sea.
O’Leary, too, was getting restless. In the previous two years he had made
about £200,000 from the newsagents but his interest was waning. “I was
bored,” he says. “I wasn’t overly concerned about the future. I just wanted
to make a lot of money by the timeI was 30.” He had no grand plan, just a
hunger for cash.
The shops were sold, and O’Leary invested his money and energy in property
deals. “I bought some property, was making some nice money.” But he also
decided to see whether Ryan was still prepared to offer him a job – on
O’Leary’s terms.
O’Leary wanted to learn at the feet of a master, and money gave him the
freedom to try his luck. He decided to offer his services to Ryan for free,
asking only fora 5% cut of any money that he made for Ryan in a year. Ryan
didn’t hesitate. O’Leary was hired as a personal assistant with a bizarre
array of duties, ranging from the menial to responsibility for overseeing
Ryan’s private investments.
“I just wanted to see how somebody at that level operated,” he says. “Ryan was
working at an international level; I had been working at a newsagent in
Walkinstown. He was the guy who started with nothing and was going all the
way across the world. I thought, if I can’t learn off this guy in a year or
two . . .”
O’Leary’s learning curve was steep. Ryan’s style was abrasive: he did not
suffer fools, ruled his company aggressively and regularly savaged his
senior executives at their weekly meetings. He demanded excellence, worked
obsessively long hours and was at the peak of his considerable powers. A
consummate salesman and negotiator, Ryan also understood the dynamics of the
airline industry. His ability to predict the industry’s fortunes and to plan
for future trends before they were apparent had made GPA astonishingly
profitable.
Under Ryan’s dominance, GPA was a battleground, with little room for the
fainthearted. Each week started with an 8am meeting at Kilboy, Ryan’s farm
in County Tipperary. The meetings were infamous for their bad temper. The
cellar in Kilboy was the nerve centre of the operation. Filled with
electronic equipment, it resembled Nasa mission control, where Ryan could
track the planes that he had leased and the movements of his GPA executives
throughout the world.
While GPA prospered, however, Ryanair continued to struggle. “I was trying to
get involved in private investments,” says O’Leary, “like the farm at Kilboy
and Ryan’s property investments. He had a huge dividend income from GPA, and
I had to advise on what to do with the money.”
Ryan had originally planned to base his new assistant at Kilboy, but that plan
was abandoned because of Ryan’s growing frustration with the financial
problems at Ryanair. “By the time I started there was a crisis at Ryanair,”
says O’Leary, “and I was sent in.”
The crisis stemmed from O’Neill’s dash for growth. He had decided to forge
ahead with the airline’s expansion into regional British airports, even
though this would put him on a collision course with Aer Lingus. The Irish
government was happy to approve Ryanair’s expansion into the UK, but still
refused to let it challenge Aer Lingus on the lucrative routes to
continental Europe. O’Leary could see that O’Neill’s expansion strategy was
putting the airline on course to self-destruct. “They were opening routes
left, right and centre. The route network was nuts,” he says.
The scale of the chaos became clearer once O’Leary started trawling through
the paperwork. A Ryanair board meeting in July 1988 was told that the
airline was on course to make profits of about £1m, but O’Leary quickly
shattered that illusion. “It was completely estimated,” he says.
The airline did not have a proper system for collecting money that it was owed
and was saddled with bad debts – unpaid bills from travel agents and
customers that had to be written off. It took little more than a cursory
glance to realise that instead of making profits it was going to lose
between £5m and £10m.
“There was a massive hole [in the Ryanair accounts],’ O’Leary says. “The numbers
were rubbish . . . the bottom line was that if Ryan didn’t give us a million
by the next Friday we couldn’t pay the wages. There was no cash in the
company, and that was the problem.
“We actually came to a point one night where we bounced a cheque to Aer Rianta
for £24,000. They said if the cheque didn’t go through on Friday they were
going to put a yoke on the front of the plane [and seize it]. We had to call
Tony and tell him we needed 25 grand or Aer Rianta were going to shut us
down. Something had to give.”
O’Neill, though, appeared oblivious to the source of the crisis and the
severity of the situation. “Eugene said this is all the fault of Aer
Lingus,” says O’Leary. “He said if you allow me to sue Aer Lingus for
anticompetitive [practices] in Brussels we will get £300m in compensation
and Aer Lingus will be ordered off the routes and all will be well.”
The Ryanair board’s response was blunt: he was told that Ryanair depended on
the Irish government for its route licences and could not sue the
state-owned carrier. The board had begun to recognise, too, that the
problems went deeper than the crippling battle with Aer Lingus. O’Neill’s
time was up, and he was acrimoniously fired. WITH O’Neill out, O’Leary
became a more powerful force in the company. His style was in sharp contrast
to O’Neill’s flam-boyance. O’Leary worked from a modest office at Ryanair’s
Dub-lin city headquarters and was rarely seen at the airport. Most of the
airline’s staff had no reason to know he existed. O’Leary’s role was to
report to his master, not to the board or other executives. His brief was to
watch over Ryan’s personal investments, and Ryanair was the biggest and most
expensive of them all.
Throughout 1989 the real devastation of the previous year became apparent as
O’Leary worked his way through the accounts. In March 1989 the Financial
Times reported that Ryanair’s losses for 1988 were expected to be in the
region of £2.5m; in September that estimate had risen to £6m, and when the
results were finally announced in October 1989 the figure was £7.34m.
O’Leary, working behind the scenes, also felt the pressure. Despite his
attention to the financial details, he had failed to shed light on the
airline’s core difficulties. His master’s investment remained a basket case,
and O’Leary was expected to come up with solutions fast.
Until those losses were staunched, O’Leary would have little time to devote to
what he really wanted to do: use Ryan’s money to make more money.
O’Leary likes to claim that a “cursory” look at Ryanair’s accounts was all
that he needed to understand the depth of the airline’s problems, but it
took the best part of two years for him to help steer the airline towards
stability and eventual profitability.
“The accounts were hopeless,” says one former director, “The management
accounts were five or six months out of date. No-one knew, or could possibly
know, what was happening because the information was just not available.”
While O’Leary tried to unravel the mess, P J McGoldrick, the new managing
director, focused on sorting out the operational chaos. In the summer of
1990 O’Leary and Ryan struck an improbable deal. “I kept trying to get out,”
recalls O’Leary. “I thought it was a stupid business, and it was very high
profile. I didn’t want a high profile; I wanted to make lots of money but
not be known.” Ryan, though, wanted O’Leary to stay. O’Leary agreed but only
on condition that he was paid 25% of any profits the airline made above £2m.
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 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.
But at that stage it was as likely to go bust as it was to make a million
quid.”
The deal remained a secret. For O’Leary, it 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.
O’Leary had always wanted to be his own boss. When Ryan had first sounded him
out, he had offered roles at GPA. O’Leary had turned down those offers and
volunteered instead to work as Ryan’s 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 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. 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.
© Alan Ruddock 2007 Extracted from Michael O’Leary: A Life in Full Flight, to
be published by Penguin on July 27 at £14.99. Copies can be ordered for
£12.99 incl p&p from The Sunday Times BooksFirst on 0870 165 8585
