Michael O'Leary loves life, he loves his airline and he loves making money. Not necessarily in that order, but you get the picture. Love him or hate him, in simple business terms this charismatic and acerbic Irishman is probably the most successful airline leader ever, full stop.
His record speaks for itself. Since Ryanair re-launched under new management as Europe's first low fares airline in 1990, copying the Southwest Airlines model, Ryanair has raked in millions: €2.4 billion in net profits in its past 11 financial years to be exact, according to Airline Business records.
Over the years, O'Leary's personality has become as equally associated with Ryanair's values and approach as the legendary Herb Kelleher's have at Southwest. Both have big egos. Both are outspoken. Both have an unwavering focus on costs. But the main difference is that O'Leary makes a virtue out of being unpopular, whereas Kelleher, with his disarming Texan drawl, makes his point with self-effacing humour. In sharp contrast, O'Leary's preferred approach is a full-frontal attack, often laced with a few choice expletives. Not that either approach is any more or less effective; they are just different.
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When it comes to interviews, O'Leary's characteristically blunt approach comes into force. Asked if he would do the traditional sit-down interview with Airline Business, O'Leary questioned: "How much will it cost me?" Our reply: "About an hour of your time." His response: "Too much."
Quite simply, from O'Leary's standpoint, this media outlet does not do enough to sell Ryanair. Even our carrot of 1.7 million weekly visits to our website Flightglobal.com doesn't whet O'Leary's appetite. We fall under the "aerosexual" label. Fair enough. So, in the interests of transparency, this feature is based on an extended interview with O'Leary at a press conference in late October and another interview at Ryanair's half-year results event in November. You won't notice the difference between this feature and any other of our set piece cover stories. In fact, 30 minutes with O'Leary generates enough material and opinions to fill 10 pages of Airline Business.
And just like his press conferences, which are delivered with the speed and intensity of a Kalashnikov machine gun, O'Leary answers virtually every question without hesitation, aimed directly at the target. For example, we ask one of those business-style questions: What makes you angry? His reply: "Political incompetence, corrupt civil servants, corrupt European bureaucrats and passengers on non-refundable tickets, writing in looking for refunds." We were half expecting the answer to be "stupid questions from journalists", but maybe he had better targets that day.
Whether you are a journalist, supplier or competitor, O'Leary is an intimidating figure. Rarely in business do you come across someone prepared to be so overtly direct and aggressive to your face. Many a supplier has been on the receiving end of an O'Leary phone call, demanding how the f**k they can justify such prices. And the cost-bully more often than not gets his way with suppliers buckling under his assault.
While O'Leary may get a kick out of being the bad guy from time to time, he makes no excuses for his laser-like focus on costs. Quite simply this is what makes Ryanair stand out from virtually every other airline worldwide. At its interim results event Ryanair said it had cut its unit costs excluding fuel by 5% for the six months to the end of September. More tellingly, Ryanair figures show that its unit cost gap compared with budget rival easyJet is a staggering €23. Add another €33 and you arrive at the unit cost of Aer Lingus.
Never expect O'Leary or Ryanair to relent one bit on costs. As one former senior Ryanair manager told Airline Business: "Michael would rather get a guaranteed €1 million of cost savings over the chance of potentially gaining €10 million of revenue."
O'Leary's aggressive approach pervades Ryanair. Deputy chief executives Howard Millar and Michael Crawley are definitely not Michael O'Leary clones, but they have become empowered to exhibit plenty of his qualities. And the arrogance that comes with being big and strong, as well as committed to a simple vision of delivering low fares, goes deep into the airline's physche.
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So how important is O'Leary to the Ryanair brand? "I don't think it needs any DNA from me," he says. "But I think I'm important to Ryanair in terms of cost reduction, breaking up the Dublin Airport monopoly, breaking up the BAA monopoly, doing another aircraft deal. Our growth and airport deals are handled by the wider management team. That doesn't need me anymore. I think that at a certain point, once you've got those last big conquests: Dublin, Stansted, aircraft, it's the right time for me to go because Ryanair needs to change from being a cost-aggressive, confrontational airline into being a more corporatey, caring, sharing company by getting rid of the hated chief executive."
O'Leary has been talking about going on and off for over a decade. It will of course eventually happen, but he seems to love it too much to go lightly. He jokes with us about the possibility: "I think there will be great joy. I think there will be dancing in the street at the idea of O'Leary leaving Ryanair. It will be a nicer, warmer, caring airline with me gone. I think half our passengers would like to see me dead and buried, actually, and eventually they'll get what they want. Frankly, I couldn't care less as long as they fly with us."
But personalities can be important. Kelleher at Southwest, Richard Branson at Virgin and Stelios at easyJet became synonymous with the small guy taking on the big boys. And their publicity stunts win free advertising and hundreds of column inches. O'Leary, who has a willingness to do almost anything for a photo opportunity, has journalists hanging off his every word, waiting for a rabid quote, a frank observation or outlandish idea, such as the now infamous talking point of charging passengers to use onboard toilets. If all publicity is good publicity, that one was a gem.
O'Leary's public profile has helped Ryanair gain massive brand recognition. "If I go in two years time, we'll be up at 80 million passengers a year. We're already huge in most European markets. We're now the largest airline in Spain, bigger than Iberia, we're the largest airline in Italy, bigger than Alitalia, we're the largest airline in the UK, bigger than BA or easyJet. We're now so big that we no longer need to be running around, shouting, screaming and doing all the PR antics that I get on with. We already have a huge customer base and strong customer loyalty. You then want to be a more loved, caring, attentive [airline]."
When O'Leary talks like this, you could be forgiven for thinking he's teasing. Ryanair's long-standing attitude is that it doesn't care about being liked, so long as passengers like the low fares and keep coming back. "That's just my personality defect and flaw," admits an uncharacteristically humble O'Leary. "If you look at Tesco, [UK-based supermarket chain], it built itself up as a cheap and cheerful, 'cut the bottom off the box and off you go and take it' company during its first 20 years. Then it morphed into something more service-orientated, more caring. Their service is still based on being low-priced, but with service feel. We don't play on service, despite the fact that our service is phenomenal." But then he reverts to form, quipping: "I think Southwest should have taken Herb out and shot him about 10 years ago. They got too locked into this loving passengers and all that kind of nonsense, instead of being tough on costs and tough on passengers."
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But, when asked about his mistakes, O'Leary appears to regret his approach to customers. "I don't think I've done a very good job on the whole customer image, the customer proposition of Ryanair. Actually the service is phenomenal in terms of fares and our performance on punctuality, lost bags and cancellations. If you look at easyJet, they've done a better job on their image than I have with Ryanair. EasyJet charges much higher fares, it has a deplorable punctuality record, frequent cancellations and frequent lost bags. Yet in any customer sentiment survey easyJet always ranks higher than Ryanair despite the fact that Ryanair carries about 50% more passengers. So I think in terms of customer perception, we haven't done very well, whereas in the customer decision area - in terms of who's buying the tickets and flying with you - we beat them hands down." O'Leary thinks Ryanair would be a different kind of carrier if it had not taken this route: "I think our fares would be slightly higher now, so the good thing about my failure is that it resulted in much lower air fares for consumers."
It may take a few years, but a more caring Ryanair could be in the air as it either stops growing altogether, or more likely slows its rate of growth. "One way or another we're going to change come 2012. That is probably the time you want to change the image of Ryanair. It is very easy to change the image of Ryanair. Just take me out of it." In terms of an O'Leary successor, Crawley and Millar are the obvious candiates, but O'Leary says: "It's not me [who makes the decision], it's a matter for the board of directors. There are some good internal candidates and we would also trawl externally as well."
He jokes about the qualities that person would need: "All the qualities that I don't have: sensitivity, passenger care, environmentally sensitive, all that kind of good warm crap. They'd need to make up for 20 years of my mis-management in the areas that I don't manage well. I'm very good at running an airline which has very low costs, is very punctual and delivers what it says on the tin, but I don't have the skill set to make us warm and loved." But does O'Leary want to learn these attributes and be Mr Popular: "I don't think so, I just don't give a rats."
So if O'Leary does decide to finally relinquish the mantle at Ryanair what will he do? "Everyone keeps asking if there's a plan. The plan is to keep lowering Ryanair's costs for the next two or three years to make Ryanair more successful. Post Ryanair, I've no idea. I don't get time to think what I might do after Ryanair, nor do I want to think about it yet.
"But I think you have to have a plan all the time to replace yourself. The problem for companies with chief execs like me, who get a lot of PR, is that they start believing their own bullshit. They start to think they're irreplaceable, that they have a unique, god-given vision for the future. There are lots of things I do very well, but there are a lots of things that I do that are done very badly." With a smile, he adds: "I'm lucky because I'm rich, so I don't have to worry about where the next job is coming from." This, of course, is true. Over the years, O'Leary has cashed in millions of euros from his shares in Ryanair and he still owns a 4.5% stake worth millions at current stock values.
One of the big questions for O'Leary is whether he would start another airline, particularly one of the long-haul low-cost variety - an idea he began floating a couple of years ago. "I would consider it. I wouldn't rule anything out, I wouldn't rule anything in," he says. The idea would be to fly from Europe to the US, using secondary airports to keep costs low, but there are hurdles, and the potential venture would not be bolted on to Ryanair itself. "The transatlantic plan is never going to happen as Ryanair, but it can't happen until we secure a fleet of long-haul aircraft. At the moment short-haul aircraft values and order books have collapsed but long-haul aircraft values and order books have remained very strong because of the delivery problems with the 787 and the A380. I just don't see there being a fleet deal for long-haul aircraft for a three- to four-year period. Ryanair will never go transatlantic, but is there an opportunity to do a transatlantic low fares airline as something not Ryanair, but linked to Ryanair? Yes, but only when you can get a fleet of aircraft."
Long-haul operations could come via another route if Ryanair finally succeeds in taking over Aer Lingus. It made an audacious swoop to take over the Irish flag carrier when it was part-privatised in September 2006, much to the consternation and surprise of the government and unions. Ryanair has built up a 29.82% stake in Aer Lingus, making it the largest single shareholder in the carrier. The Irish government still owns 28.29%.
Despite his best efforts, O'Leary's hostile takeover campaign has been successfully repelled so far. But he is convinced it is only a matter of time before ailing Aer Lingus falls into Ryanair's hands. He expects to be approached to take on Aer Lingus within 18 months to two years. "If you look at Aer Lingus, they will be down to net cash of something below €300 million by the end of this year [2009]," he says. The carrier recently announced a further radical down-sizing and redundancy programme to try and stem its losses. In the first six months of 2009 its revenues fell by 12% to €555 million and operating losses widened to €93 million.
O'Leary believes Aer Lingus has little option but to be turned over to Ryanair. "They are owned by the government, the trade unions and Ryanair. The Irish government has no money, the trade unions have no money and Ryanair has lots of money. In fact, Ryanair stated it had cash of €2.5 billion in November. "We could rescue Aer Lingus, continues O'Leary. "We are also the only ones with any vision for the future of Aer Lingus; how to turn it around and make it profitable and viable. I have said repeatedly we are highly unlikely to make a third bid. I think the only way I could foresee another is if the company asked us to take on Aer Lingus."
O'Leary has a vision of what will happen already mapped out: "I think what we're likely to see is that if Aer Lingus runs out of money they'll need a rights issue to generate some money. We would take up our rights, whereas I think the Irish government and the unions wouldn't, so we'd finish up the majority shareholder in Aer Lingus. I don't see any other way of it being done."
O'Leary is clear that even if Ryanair succeeds in acquiring Aer Lingus, it will not automatically become its long-haul vehicle. "No. Aer Lingus is a small, Mickey Mouse, Irish airline. The plan we have for a transatlantic airline is a 50- or 60-aircraft fleet, based in Spain, Italy, Germany, Scandinavia, the UK and maybe Ireland, flying to 12 or 15 destinations in the USA. It is a much bigger thing. People say 'you just want Aer Lingus'. All Aer Lingus has is rights to fly from Dublin to about three points in the States. It's Mickey Mouse."
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If Aer Lingus comes under Ryanair's wing, it will create a group with just shy of €5 billion in annual revenues, giving it an instant growth burst. After growing at stellar double-digit rates over the past decade, Ryanair has always said this will inevitably slow to 5-6% a year beyond 2010 as it gets larger. And another factor could come into play: whether Ryanair is successful in negotiating another cheap 100-strong aircraft order with Boeing.
O'Leary would like a repeat of the fantastic discount he got when buying 100 737-800s in 2002. But this time around, with a bulging order backlog, Boeing appears less inclined to slash prices. "If we are unsuccessful in our negotiations with Boeing and Airbus and we decide to stop wasting any more time on aircraft orders or discussion, then what we have said is: Fine, we're not going to grow any more. We'll stop growing from 2012 onwards and we will run the business to maximise cash and profits for shareholders for a year or two. Most of our cash goes towards us buying new aircraft. If we stopped expanding for a year or two, we would see a big cash build up and in fairness that should be distributed to shareholders, who have been very loyal to us over the years. If I had a choice, I would have another aircraft order with either Boeing or Airbus and we would keep growing, keep spending the cash on further capex."
The prospect of O'Leary stalling Ryanair's growth seems unthinkable. In a tactic aimed at pressuring Boeing, O'Leary went public in November over his frustrations at securing a deal at a price and with conditions he wants. "The improvement on the deal we are looking for is tiny, very small. The problem is not that what we, or Boeing, are looking for is unreasonable. The difficulty has been getting someone to make a decision at Boeing. I would be optimistic, but not confident." At the end of December, the talks broke up without a deal. Ryanair said it had reached agreement with Boeing on prices, but not on incorporating other terms and conditions from its existing deal into this new order. O'Leary said it had made clear to Boeing that it will not order aircraft if the package was "inferior" to its current one.
The possibility of an Airbus deal looks remote. The two did get close to agreeing a major order in 2002, but Ryanair chose Boeing's better offer after a close fought battle which Airbus briefly thought it had won. If Ryanair acquired Aer Lingus, that would make it an Airbus customer by default. For now, O'Leary notes that "they don't take us seriously as an Airbus customer".
O'Leary's instinct, of course, is to continue growing. The carrier is on track to carry nearly 60 million passengers this year and this coul double by 2016. "We really are growing very rapidly in some of the big markets," he says. "All of the big flag carriers are cutting capacity and this is where the growth will be. That is putting enormous pressure on airports around Europe [to find new capacity]. You can see the declines all over Europe.
"There are a lot of growth opportunities out there, and that's still not even going into eastern Europe," which O'Leary says he would have expected Ryanair to have done by now. "If anything we have a surplus of growth opportunities, far more than we can handle. If you look at Spain, we have four bases, but we could easily have ten bases in Spain."
Aside from a hiatus in 2008, Ryanair has managed to sustain its double-digit profit margins alongside its strong growth. The carrier is frank about its mistake in 2008 when its fuel hedging policy cost it millions. "We lost on it compared with where we would have been if we hedged, but by losing on that we gained this year because we were unhedged when oil prices were falling. You only gain on hedging in a rising market, but if you're hedged in a falling market - which most of the airlines have been in the last months - you lose. It's not possible to beat the market for oil, but what we try to do is that if we see some kind of cost certainty out there into the future [we take it]. For example, at the moment, we said that if it goes below $70 per barrel, next year we'll hedge. If it goes above that, we won't hedge. We'll take our chances."
O'Leary is anticipating that profits for the current financial year will double to "somewhere in the low range between €200 million and €300 million". Some analysts claim that Ryanair has in the past sold aircraft for significant gains to boost its results, but O'Leary says: "In the current year there are no aircraft sales and yet we've announced that we're going to double our profits, so that's a myth."
A famous O'Leary quote is that he could see a time when the fare is basically zero and ancillary revenues would become a primary revenue stream. That may have been a throwaway PR line, but constantly lowering fares is Ryanair's mission. "We're well on our way there. Average fare is down to €32," he says.
The bottom line with O'Leary and Ryanair is that, whatever your opinion of the man himself, or the airline, they have been largely responsible for a transformation of the European short-haul market over the past two decades. In pure traffic terms, Ryanair is already the 19th largest carrier in world and is growing faster than virtually anyone else. In profit terms, Ryanair leads the way too. And, for O'Leary, that is all that matters.
MY BIG MISTAKES
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Who do I respect? I can't think of anybody. Industry role models? There aren't any. I'm sure I respect lots of people. It's just to name them. |
So, does O'Leary recognise his own mistakes? "They are probably too numerous, but they are all small mistakes. The great thing about Ryanair is we've enough cop on to work out that if it's not working, stop. We launched in-flight entertainment, portable DVD systems. I though this was going to be the second best thing since the coming of sliced bread, but it turned out most of the kids already had their own portable DVDs, so it didn't work.
Ryanair has also been blunt about the mistake it made not hedging in 2008 as fuel prices soared. Millar described this as a "cock-up" at a major conference. Says O'Leary: "There are lots of little mistakes we've made but generally speaking on the big issues: The aircraft orders, the model, everything else we've got most of that right."
ROLE MODELS
While it is hard - or more to the point impossible - to find an airline executive who aspires to be like Michael O'Leary, he is admired for building Ryanair into a formidable money-making, passenger-carrying machine. But who are his role models?
"Oh barf. I couldn't even begin to answer that. Who do I respect? I can't think of anybody. Industry role models? There aren't any. I'm sure I respect lots of people. It's just to name them.
"Who are my role models? I don't have any role models. I just make this up as I go along. Who do I respect in the airline industry? Off the top of my head, Michael Bishop, who's managed to sell British Midland about three times and made a fortune. Anybody who has made money out of this business you have to respect because generally it's a business which loses money hand over fist."
O'Leary's not one for hero worship either. "Who's my hero? Look, I'm 48 years of age, I've got a bit beyond heroes and idols. I wanted to be a footballer when I was growing up, but I wasn't good enough so I had to go and find a job that I could do."
O'Leary was educated at the highly regarded Trinity College in Dublin and went on to become a tax consultant at KPMG. He was then recruited by Ryanair founder Tony Ryan and rose to lead the airline in just a few years.
"I am very happy, I like my job, working for Ryanair is great fun. I'm happily married, I have three young children, my life is fully rounded, finished and all that kind of stuff. Are there people I'd like to meet? No, frankly."
And finally, when O'Leary does cash in and pass on the Ryanair mantle what will he spend the money on? That's easy: "Probably fast women and slow horses," he says.
Source: Airline Business
