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Ryanair: The many faces of a maverick
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The many faces of a maverick
'I was losing some enthusiasm for the job, but [it's] more interesting now with ... competitors falling by the wayside'
ERIC REGULY
Friday, November 28, 2008
DUBLIN After more than a decade of calling European transportation officials "wankers," journalists "mutton heads," environmentalists "half-witted loons," and slagging competitors as "bastards," Ryanair chief executive officer Michael O'Leary decided he was bored.
The airline's low-fare, no-frills model had proven itself many times over. Ryanair was roughing up the competition from Cork to Croatia and had emerged not just as Europe's biggest discount airline; it was the world's biggest scheduled international carrier.
Then came the credit crunch and the recession. Guess what? Mr. O'Leary, 47, claims to be positively energized by the whole mess and has put off his retirement by several years. "I was losing some enthusiasm for the job, but the job is getting much more interesting now with lots of competitors falling by the wayside," he said from his shabby office at Dublin's airport.
Airlines are falling out of the sky like Sopwith Camels in First World War dogfights, handing Ryanair the biggest potential growth opportunity ever.
Since the summer, the European airlines Futura, Lte and Sterling have gone bankrupt and Alitalia is being restructured in bankruptcy protection.
As routes are dropped, Ryanair leaps in. Its expansion has been especially quick in Italy, Spain, Germany and Eastern Europe. "If you have a huge price advantage, you can grow quickly and screw everyone else," he said.
Ryanair's goal is simple: "European domination."
Exploiting weakness among his competitors will allow Ryanair to double the size of its fleet, its passenger numbers and profits by 2012, he said. He is so confident about sustained double-digit growth that Ryanair is considering an order for 200 to 300 new aircraft, though not necessarily Boeings - they could be Airbus A320s. There are also plans for a transatlantic airline.
The question is whether the economic downturn will hinder Ryanair more than help it. While some airlines can suffer recessions better than others, no one has yet invented a recession-proof airline.
The economic downturn has already damaged the airline. Ryanair's share price is in the toilet, ticket prices (and hence yields) are falling and full-year profit is expected to be nil, in spite of higher traffic and far lower fuel prices in recent months. A botched fuel-hedging strategy didn't help, nor did Ryanair's failed bid for Aer Lingus (Ryanair still owns 29.3 per cent of its Irish rival).
Howard Wheeldon, the senior strategist at London's BGC Partners, wonders whether Mr. O'Leary is on a kamikaze run as the recession deepens. "It's a huge gamble," he said. "There is only one airline in the world doing the opposite of everyone else and it's Ryanair."
Ryanair did not always buck the trend. The airline was co-founded by Tony Ryan in 1985 as a full-service carrier. At the time, Mr. Ryan (who died 13 months ago) was running Guiness Peat Aviation, one of the world's biggest aircraft leasing companies. The early Ryanair used small jets to fly between Waterford, in Ireland's southeast, to London's Gatwick airport. It didn't make money.
Enter Michael O'Leary, a wiry young KPMG accountant who had been Mr. Ryan's tax adviser. At the time, the hottest name in the industry was Southwest Airlines, the pioneer low-fare carrier. In 1991, Mr. O'Leary, by then Ryanair's deputy CEO, flew to Texas to meet Southwest's executives. He came back with plans to more or less clone the airline in Europe (Canada's WestJet, launched in 1996, also ripped off Southwest's business plan).
The formula, novel at the time, now seems almost clichιd, but continues to work. To ensure low costs, and low fares, Ryanair would use a fleet of identical jets (twin-engine, single-aisle Boeing 737s, the same planes as Southwest's). The airline would concentrate on secondary airports, where the landing fees and airline terminal costs were far lower. To reduce turnaround times, it would use something akin to military discipline to load, unload and clean the planes.
Under Mr. O'Leary, the cheapie formula was brutally refined. To save money on aircraft purchase and maintenance costs, the seats on the Ryanair Boeings do not recline. Nor are there magazine pouches, which speeds up cleaning and saves weight. It never uses fuel surcharges and often relies on ultracheap, even free, tickets to trigger booking frenzies. In the newest promotion, a million seats are going at 10 ($15.89) apiece.
The kicker is the charges. While Ryanair has by far the cheapest average ticket price in Europe - 44, or about 50 per cent less than easyJet, its main discount airline rival - it makes passengers pay for every little service, from checking a single bag to getting a cup of water. "We can't charge for a pee because Boeing hasn't made a toilet door to take coins," Mr. O'Leary said.
Geoff Van Klaveren, an analyst in London at Exane BNP Paribas, said Ryanair hauls in more revenue, relatively speaking, from "ancillary" sales than any other airline. In the last financial year, to March 31, 2008, this category was equivalent to 18 per cent of total revenues of 2.7-billion, up from 14 per cent in 2005 and 11 per cent in 2001. "This will keep climbing," he said, which is one of the reasons Ryanair is one of the few airlines that carries an Exane "sector outperform" rating.
Ryanair did more than push the Southwest formula to the extreme. It relied on Mr. O'Leary's extreme Type-A personality, and sarcastic, profane remarks, to badger the competition and European transportation bureaucrats and to promote the airline. In a company statement last week that combined the announcement of new Gatwick routes with a defence of the 2009 "Girls of Ryanair" calendar, Mr. O'Leary said: "Loony groups like the various Institutes for Ugly Women are simply jealous of our good-looking girls."
Rude ads are designed to generate buzz, even outrage, in Mr. O'Leary's belief that there is no such thing as bad publicity, unless it concerns safety. Its most famous ad used the "Manneken Pis," the Brussels bronze sculpture of a little boy urinating in the fountain, to advertise the launch of service to Belgium. "Pissed off at Sabena's high fares?" the ad asked, referring to Belgium's national airline.
Ryanair's growth has been phenomenal. In 1994, the year Mr. O'Leary became CEO and Ryanair took delivery of its first Boeing 737, the airline flew 1.6-million passengers. The airline went public that year on the Dublin and Nasdaq markets and the price more than doubled on the first day of trading. Mr. O'Leary owns 5 per cent of the airline.
In the last financial year, 51-million passengers were carried on more than 800 routes from 31 European bases.
Ryanair flies 168 Boeings and has firm orders to take the number to 262 by 2012. Not all the numbers are pointing in the right direction. The airline got clobbered by high fuel prices earlier this year. In the six months to the end of September, after-tax profit fell 47 per cent to 215-million while the net profit margin slumped to 12 per cent from 26 per cent as fare prices fell 4 per cent and the load factor declined marginally to 85 per cent. At about 3, Ryanair shares are almost 50 per cent below their 52-week high of 5.85.
The good news is that Ryanair has no fuel hedges in the fourth quarter and is largely unhedged next year, which should allow it to save a fortune as oil prices come down, all the better to propel its conquer-all-weaklings strategy.
The possible flaw in Mr. O'Leary's European domination scenario is recession's potential length and severity. While people seek cheap airfares in a downturn, it's only one part of their travel budget.
Indeed, airlines everywhere are struggling as passengers go missing, and almost all European airlines are cutting back capacity. But Ryanair expects 14-per-cent passenger growth this year with the aim of carrying a total of 58 million passengers, though it's being careful to avoid "mature" destinations, where the competition is still intense.
In essence, Ryanair is telling its investors to accept short-term pain for long-term gain. With the recession in full swing, the definition of "short" is anyone's guess. But Mr. O'Leary is confident his strategy will succeed. "The lowest cost always wins," he said.
*****
AT LEAST THE AIR IN THE CABIN WAS FREE
The thought of flying Ryanair from Rome, where I live, to Dublin made me uneasy. It wasn't just that a Ryanair Boeing had hit a flock of starlings above Ciampino, Rome's second airport, earlier this month and had to make a wheel-crunching emergency landing. It was that the cheapie airline has a reputation for treating passengers like cattle. I am 6-foot-5 and like my space.
But, clever me, I had sprung 8 ($13) for a "priority boarding" option. The airline has no reserved seats. Passengers with such exalted status get to board the plane ahead of the great unwashed. I was the third or fourth hunk of meat into the plane and I galloped for the emergency-row seats, with their extra legroom. So far, so good. Even better, the plane left on time. Ryanair boasts the highest percentage of on-time flights in Europe.
I took Ryanair because I wanted to save some money. The ticket, including tax, came to 243.68, about half the price of any other airline on the three-hour Rome-Dublin route. I wondered how Ryanair could keep flying at those prices. Within seconds of boarding, I found out. Ryanair charges for every little thing and employs its planes as airborne malls.
The fee for a single checked bag (return) is 20. The second bag costs 40. There's also a 10 airport check-in fee. Once in the air, you don't get so much as a cup of water free. The prices are extortionate. A half-litre bottle of water costs 3. Ditto the "gourmet" coffee. The "hot breakfast bap," which looked like disfigured Egg McMuffin, was 5.
The sales pitches never end. The plane's loudspeakers blared ads for Ryanair offers such as Christmas gift vouchers. The overhead storage bins were covered in Ryanair ads. Flight attendants cruised the aisle flogging scratch cards (first prize was a new Fiat 500), airport bus tickets and other fare such as perfume.
When I decided to tune out the sales pitches and relax, I tried to put the seat back, but couldn't - Ryanair seats are fixed upright. I could get no explanation for this. Nor do the seats have magazine pouches, all the better to speed up the cleaning between flights. But the flight attendants were polite enough to pass out (and collect later) a Ryanair magazine featuring "The girls of Ryanair" on the cover - employees clad in bikinis draped in jet engine intakes and other unglamorous airline settings. You can also buy the "girls of" calendar, though my wife said she has had better gifts.
When CEO Michael O'Leary was asked by journalists why no men were featured in the calendar, he replied: "Because if there were men in the calendar it wouldn't sell, you mutton head."
Good point. Mr. O'Leary likes to sell and does it well. Just don't expect anything approaching luxury. Ryanair is a flying bus ride made bearable by cheap tickets.
Eric Reguly
Fancy a weekend in Spain?
Here's how Ryanair compares with British Airways*
Ryanair:
London (Stansted) to Madrid
£120 ($227.95) British Airways:
London (Heathrow) to Madrid return (economy class)
£140 ($265.94)
*Departing Dec. 12, returning Dec. 14. Lowest online prices as of 11/27/08
Ryanair's seats are cheap, but they charge extra for everything else. All fees one-way:
1st bag 10 ($15.90)
2nd and 3rd bag 20
Flight change fees 25
Payment handling fee 5
Airport check-in fee 5
Priority boarding fee 4
Infant fee 20
Musical instrument 30
Sources: staff, British Airways, Ryanair
© The Globe and Mail
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source:
http://www.globeinvestor.com/servle...nair27/GIStory/
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| Yohan |
| quote: | | When CEO Michael O'Leary was asked by journalists why no men were featured in the calendar, he replied: "Because if there were men in the calendar it wouldn't sell, you mutton head." |
:stongue: |
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| Skipper |
How any journalist can use the word maverick now is beyond me.
Most overused word of 2008. |
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| rabbitjoker |
| quote: | Originally posted by Skipper
How any journalist can use the word maverick now is beyond me.
Most overused word of 2008. |
Don't be such a maverick and start using it as well. |
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| Engine9 |
| quote: | Originally posted by Skipper
How any journalist can use the word maverick now is beyond me.
Most overused word of 2008. |
reminds me of top gun |
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