Michael O Leary: The Jumped up Paddy Who Doesn’t Give a Shit

[00:00:09] Morning folks and welcome to today's episode called Michael O'Leary, The Jumped up Paddy Who Doesn't Give a Shit. And that's actually how O'Leary has described himself, so his words, not mine. And I chose this episode not only because, as you'll find out, it's a brilliant story, but also because James, who turns out to be my youngest listener and my favourite nephew, he has been bugging me to do this story for a long time.

[00:00:36] So I'm going to start with an excerpt from a profile the journalist Philip Watson did on O'Leary. Through a series of audacious business moves and a decidedly gunslinging approach to his opponents, Michael O'Leary made Ryanair the most profitable, low-cost carrier in Europe. As one business associate bluntly puts it, when he goes into battle he boots the shit out of anyone or anything that gets in his way. And to give you an idea of O'Leary's view of business, here's a quote from O'Leary himself.

[00:01:06] When you look at the number of stupid people who have succeeded in business, you clearly don't have to be very bright. Business is all about getting your sales up and your costs down. The bit in the middle is profit. So O'Leary took a tiny airline that was almost bankrupt and built it into what is now the third most valuable airline in the world.

[00:01:28] And he is, I think, without doubt one of the most unconventional, uncompromising, and yet I think in a very roundabout way, one of the most endearing and self-aware business people in the world. And he makes for a cracking story. Enjoy.

[00:01:50] So Michael O'Leary, he was born 1961 and grew up in Mullingar. This is a small town in the Midlands of Ireland. He was the second of six children. His father owned a textile business. So they were upper middle class, as can be seen, because O'Leary goes to Clongoswood College Secondary School. Prestigious Jesuit boarding school. Kind of like the Eton of Ireland. And as a teenager, O'Leary has described himself as, and I quote, an obnoxious little bollocks.

[00:02:18] Now, some people will argue that he still is. He goes to Trinity College in Dublin, where he studies business and economics, and he graduates in 1983. And for a bit of context, the marketplace and Ireland back in 1983, it was not a very good place to be. The country was in bad shape. You had unemployment reached 17%. The government was borrowing heavily, so there was this huge national debt. As a result, taxes were really high.

[00:02:48] And in the words of our Taoiseach, that's the equivalent of the Prime Minister, Charlie Hawhey. So he made this now infamous TV address, where he told the Irish people that they were living way beyond their means, and that they needed to tighten their belts. And this was from the Taoiseach, who at that very time was buying his shirts from Persian tailors, and his lavish lifestyle was being funded by secret payments from very rich Irish business people.

[00:03:15] And Ireland back then was often referred to as the sick man in Europe. So, you know, it was in a bad shape. But in fairness, and regardless of what the naysayers might say, the country, Ireland, it has come a long way over the last 40 years. And while tens of thousands of young people back in the 80s were immigrating, O'Leary decides to stay put. He gets a job at a large accountancy firm that's later bought by KPMG, and he becomes a trainee tax consultant.

[00:03:44] And O'Leary's boss was handling the tax affairs of a guy called Tony Ryan. And we can't talk about O'Leary and Ryanair without doing a bit of a dive into Tony Ryan. So Ryan had worked in Aer Lingus, that's the national airline, but he left it in 1975 to found this company called Guinness Peace Aviation, or GPA. And this company is credited with more or less inventing the modern aircraft leasing industry

[00:04:13] because they pioneered these complex financial structures, which mainly allowed developing countries, which wouldn't have had the money to buy loads of new planes and train up new staff, etc. So GPA helped them launch national airlines more or less overnight. And GPA became this multi-billion pound company with profits in the hundreds of millions. So by the mid-80s, Ryan was one of the most successful and wealthiest people in Ireland.

[00:04:39] And also around this time, the Irish government was slowly starting to pull away from the idea that Aer Lingus, the national carrier, should be protected from competition because Aer Lingus was owned by the government at that stage. And the reason they were thinking this is because, like, the Dublin to London route was essentially a duopoly between Aer Lingus and British Airways. And as a result, the fares were really, really expensive. Most Irish people back then who were emigrating to the UK,

[00:05:06] they would have to take this really gruelling bus journey over on the ferry to get to London. I remember myself, I took the Slatteries bus back in 1989 to work on the sites in London for the summer when we were just 16. So, Ryan officially launched Ryanair in July 1985. Just one route, one small plane. It was Waterford, a small city on the east coast of Ireland to London Gatwick. First year, it carried 5,000 passengers.

[00:05:33] The following year, it launched routes Dublin to London Luton, offering a return fare of £95. This was against £209 being charged by Aer Lingus and British Airways. Ryanair then adds routes to Amsterdam and Brussels, but the costs are mounting. It's losing millions every year. So, back to O'Leary. He's working with his boss on Tony Ryan's taxes and he impresses Ryan because O'Leary is very, very smart and very direct.

[00:06:03] But, he's also very independent and he wants to be his own boss. So, after just two years with the accountancy firm, he leaves, borrows £25,000. And I'm saying pounds actually because at this time we haven't moved into the euro yet, so it's Irish pounds. And he buys a corner shop in southwest Dublin. He opens at 7 in the morning, closes at 11 at night. He even opens the shop on Christmas Day. That was unheard of in Ireland back then. Very few shops even open on Christmas Day now.

[00:06:31] And O'Leary marks up the prices of essentials on Christmas Day like bread and milk. And he also marks up the prices of stuff like batteries. You know, so you've got all these kids waking up on Christmas Day with these toys that need batteries. And O'Leary is the only shop that's open. So, business is booming. And he opens up a second shop. He's also dabbling in property. He does this for a few years. But then Ryan reaches back out to O'Leary and he asks him to take a look at Ryanair. And O'Leary says to him,

[00:07:01] I strongly encourage Tony to close it down. But Ryan refuses. Instead, he asks O'Leary to fix it. Offering him the job of deputy CEO. But O'Leary is reluctant. Like he's happy being his own boss. But he says he'll join based on the following condition. That he would take home 25% of any profits above £2 million. Ryan agrees. This is 1988. By 1990, Ryanair's losses are still mounting.

[00:07:31] £20 million in losses. And Ryan has to invest £20 million of his own money just to keep the company going. O'Leary takes control of the finances. And he starts cutting everything. No personal calls on company phones. He stops ordering pens entirely. Staff are told to borrow them from hotels or from banks. The same applies to paper. No fresh sheets for notes or drafts. Everything has to be reused. So the back of old documents. Tea, coffee, biscuits. Gone. Lights are switched off when you think there's enough daylight.

[00:08:00] Heating is kept low. External cleaners are removed. So that staff and even managers are expected to clean their own areas. Now, the important point of this is that none of it really is about saving money in any meaningful way. What O'Leary is doing here is he's instilling a mindset where every penny matters. There's no room for waste. But just as importantly, there's no room for entitlement.

[00:08:27] Because he's flushing out anyone who doesn't fit the culture that he's building. You know, people who expect aviation to be a cushy corporate job, which it was back then. But he also realised, of course, that the whole business model needs to change. So he looks to an airline that has been consistently profitable. The first real rebel airline. Southwest Airlines in the USA. Built by Herb Kelleher.

[00:08:56] A guy I'm definitely going to be doing an episode on. O'Leary flies over to Texas to meet with Kelleher. And he watches the Southwest crew turn the plane around in just 25 minutes. Which was unheard of in any other airline. Then he has dinner with Kelleher. And to quote O'Leary, I don't remember anything about the dinner because Herb drank me under the table. But O'Leary leaves Texas with a blueprint. Three main things. The same plane model across the entire fleet.

[00:09:24] Secondary airports with lower landing fees. And no frills whatsoever. So he comes back and he tells Tony Ryan that they had to stop being nice and start being cheap. And you know, while O'Leary wasn't the actual CEO at this stage, he was Ryan's inside man. And so with Ryan's approval, he had the authority to make the changes. So the free in-flight drinks and meals, they were gone. Customers now had to pay for them. And Ryanair put a premium price on them.

[00:09:52] So not only do they save a million pounds a year by doing this, but they also now have a new revenue stream. Cabin crew numbers on board dropped from six to three. And the crew now are expected to clean the aircraft themselves during the turnaround. The target is, of course, 25 minutes on the ground, max. O'Leary also occasionally starts working as a baggage handler himself. I mean, it's a gimmick, but a very deliberate one. Because the message is, you know, that no job is beneath the leadership.

[00:10:22] And crucially, this also gets a lot of free publicity. And free publicity through stunts and controversial comments, they become a key ingredient of Ryanair's success. So we're into 1991 and the Gulf War happens. It is a disaster for the aviation sector. But O'Leary, like an awful lot of great leaders, he nearly always manages to turn a crisis into an opportunity.

[00:10:52] I'm reminded of the quote by Andy Grove of Intel. Bad companies are destroyed by crisis. Good companies survive them. Great companies are improved by them. So O'Leary uses the Gulf crisis to cut the route network from 19 destinations down to six. He focuses entirely on the high-density Ireland-to-UK corridors where the demand is proven. And this, together with the cost savings, starts working. He's turning the company around.

[00:11:21] At the end of 1991, Ryanair posts its first ever annual profit. It's just £293,000. But remember, they were losing £20 million just the year before. And for Tony Ryan, this provides him with a lifeline. Because in 1992, his main business, GPA, it crashes. Spectacularly. Because the Gulf War resulted in a massive downturn. GPA has huge debts.

[00:11:49] They go for an IPO, but they have to pull it at the last minute because there isn't enough demand. And Tony Ryan's empire and much of his wealth is gone. So Ryanair is the only valuable asset he has left. And with the Southwest blueprint, O'Leary starts approaching secondary airports. Places like Beauvais outside Paris. Charlois outside Brussels. And these airports, they're desperate for traffic and are willing to do deals on landing fees.

[00:12:15] O'Leary also convinces the Ryan family to start moving the fleece to one make of aircraft only. The Boeing 737. Which means one training programme, one maintenance operation. Not only that, but he also ensures that Ryanair becomes an early adopter of slimline seats. And this is one of the reasons I hate flying Ryanair. Because the seats on Ryanair planes have less padding, less leg room, no pockets, they don't recline.

[00:12:40] And so while its main competitors, like Aer Lingus, carried 150 passengers on their 737s, Ryanair could carry 189 passengers. Then in late 1993, the Ryanair CEO resigns. And Tony Ryan obviously wants O'Leary to take over. But he wants to scrap the 25% profit deal that he had agreed with O'Leary a few years previously. Because he knows that if O'Leary keeps growing the company, that 25% will turn into a huge sum.

[00:13:09] And he also knows that they'll never be able to float the company with this condition in place. But O'Leary, he is tough as nails. He's also someone who really understands his worth. He refused to back down and he tendered his resignation. And Tony Ryan blinked first. He knew how good O'Leary was. And he couldn't afford to have him leave. So they reached a compromise. O'Leary was to get £17 million over the next three years.

[00:13:36] And he was also able to buy a 17.9% stake in the company for £1 million. Crucially, O'Leary now also had total operational control. So Ryan kind of moved back into a more chairman style role. So, like as we can see, O'Leary negotiates really hard. And nearly always comes out on top.

[00:13:59] Now, because of all these changes that O'Leary implemented, Ryanair costs were up to 50% lower than any other airline. So, as we move into the 1990s, people who had never flown before are flocking to Ryanair. You had Irish immigrants in the UK who could now afford to fly home for birthdays, for funerals, for weddings. You also had the Celtic Tiger which was taken off. Ireland was booming. And people were now flying to premiership games.

[00:14:27] Or they were going to European cities for hen and stag parties. Couples were going away for weekend breaks. And Ryanair facilitated all of this. And a lot of people in Ireland and the UK who might not necessarily like Ryanair because of its poor customer service, which we'll get onto, they're nevertheless pretty grateful for the changes that happened as a result of the positive disruption Ryanair had on the aviation sector. So, we're now in 1996.

[00:14:57] Ryanair has 16 routes. They're carrying 3 million passengers, 12 planes, profits of 25 million. And it's looking to go public. But they have a credibility problem. You see, Tony Ryan is still associated in many investors' minds with the collapse of GPA. And Mike Lohleary, while he is clearly brilliant, he's viewed by a lot of people as being loud, abrasive and totally unconventional.

[00:15:26] And to give you an idea of some of the quotes from him at this time, Germans will crawl bollock naked over broken glass to get low fares. And another one, The airline industry is full of bullshitters, liars and drunks. We excel at all three in Ireland. So, as you can see, he's not polished. He's not your typical public company CEO type material.

[00:15:50] And so, interstage left, David Bonderman, the American private equity titan. He's the co-founder of Texas Pacific Group or TPG. And he's another really, really fascinating character. And by the mid-90s, he's already built a really strong reputation in the aviation industry. Because TPG helped rescue Continental Airlines from near collapse. So, in 1996, TPG provides Ryanair with a £24 million loan.

[00:16:18] And they also invest £1 million for equity in Ryanair. Bonderman becomes chairman. They take a 20% stake. And this gives Ryanair a huge amount of credibility before they go public. And they eventually do go public in May 1997, with an initial market cap of £300 million. O'Leary has a 14% stake in the business after the IPO. The Ryanair family have about 40%. And TPG has 15%.

[00:16:44] And even though TPG eventually cashes out in 2001 with a 10x ROI, Bonderman, he remains his chairman up until 2020. And he and O'Leary, they work really well together. And O'Leary does credit Bonderman with helping build Ryanair. So, anyway, back to the flotation. Flush with capital, O'Leary placed an order for 45 new Boeing 737s. Opened up a lot more routes to secondary airports around Europe.

[00:17:10] And again, he's now opening up air travel to tens of millions of people around Europe. And this has had a huge, and I believe, a very, very positive societal impact on Europe. It just can't be overstated. But, while all of this is going on, there is huge tension building between O'Leary and Tony Ryan. Because Tony Ryan had always projected an image of sophistication. Like, he lived in a palatial estate.

[00:17:39] He collected fine art. He sponsored the arts. He socialised with the global elite. And for Ryan, air travel was always seen as this, as something glamorous. But O'Leary didn't share this romanticised version. And here's a quote from him. Air transport is just a glorified bus operation. And so, as Ryanair's image becomes brasher, Ryan felt that it was not only tarnishing his name,

[00:18:06] but he also genuinely felt that the image Ryanair was cultivating, and that O'Leary was cultivating, would damage it in the long run. Because following the flotation, he wrote to O'Leary and Bonderman, and this is a quote, a line from that. The company is playing Russian roulette with our cavalier attitude with our image. Currently, we are treating our customers poorly. And it's true. Ryanair has always had poor customer service.

[00:18:35] The thing is, a lot of people say that Ryanair copied Southwest, and they did in many ways. But the one thing that Southwest has always done is have excellent, kind of legendary customer support. Ryanair is the total opposite. And it's very, very deliberate. Because O'Leary has viewed customer service as a cost. They charge high fees for mistakes.

[00:18:59] In other words, if you forget to print your boarding pass, it used to cost you €60 to get it printed in the airport by Ryanair. They charge huge fees for oversized bags. And these weren't just revenue sources. They're also, I suppose you'd call them, behavioural penalties to make the airline run faster. And the lack of customer service, it kind of became a badge of honour. It was a signal that the passenger wasn't paying for fluff.

[00:19:28] And so, despite Tony Ryan's protestations against the poor customer service, there was little he could do because the business was going gangbusters. Now, as a side note, Tony Ryan did die in 2007. And over the years, his family have sold most of their stake in Ryanair. Anyway, in January 2000, Ryanair launched its website.

[00:19:48] And again, O'Leary was very quick in publicising the fact that it was built by two teenagers for about €20,000 after he rejected multi-million pound quotes from big agencies. And the website worked perfectly well. Within a year, 75% of all bookings were online. And this allowed O'Leary to stop using travel agents, saving 10% commissions. And this is what he had to say about travel agents. Screw the travel agents. Take those fuckers outside and shoot them.

[00:20:16] What have they done for passengers over the years? So, by the summer of 2001, Ryanair was cash rich, a profit of €110 million. It was carrying 7.4 million passengers. It was digital first, ultra-efficient and was perfectly positioned to survive a global shock. And that global shock, of course, happened on 9-11. And the aviation industry, it effectively freezes.

[00:20:44] And the big airlines are all looking for government bailouts and are cancelling or deferring airplane orders. O'Leary does the opposite. He'd been in negotiations with Boeing for about a year. But when 9-11 happens, he dramatically stops the negotiations with Boeing and starts talking to Airbus. Then he places ads in aviation magazines in this Wild West style with a big wanted slogan on the very top,

[00:21:12] saying that Ryanair is looking for second-hand planes. And that generates hundreds of offers. And so he uses all of this leverage to put the squeeze on Boeing at a time when Boeing is in dire straits. And finally, in January 2002, he signs a multi-billion dollar deal for 100 new 737s and options for 50 more. And industry experts, they believe that O'Leary got as much as a 50% discount.

[00:21:39] The largest ever discount in Boeing's history. And here's an excerpt from the Philip Watson article that I quoted at the start of the episode as well. Michael O'Leary is standing on the roof terrace of a London office block, kissing a middle-aged businessman fulsomely on the cheek. Wearing his trademark rugby shirt, jeans and black suede shoes, O'Leary is play-acting for the assembled photographers by getting affectionate with Toby Bright,

[00:22:05] the besuited and somewhat embarrassed-looking vice president of US aircraft giant Boeing. So that was on the day they signed the deal. Now, of course, by this stage, you have plenty of other airlines attempting to copy the Ryanair model. There's the likes of Go and EasyJet. But their average fare is £52, whereas Ryanair's is just £33. And this is the thing. You know, while in one way it might look easy just copy what Ryanair does,

[00:22:33] you can't copy a person. And Ryanair is Michael O'Leary. You just can't copy his unpredictability, his innate sense of what to do. But you also need to remember that while O'Leary is controversial, bombastic, unconventional, he's also totally conventional and precise and brilliant when it comes to having the fundamentals of the business right.

[00:23:02] Because underneath it all, Ryanair is a fantastically run business. And this is why the company is able to take advantage of opportunities as happens in the next crisis, the 2008 financial crisis. And again, the aviation industry is his heart. But because Ryanair is so well run, it has a nest egg of $2 billion. And O'Leary uses it to pile even more pressure on his suffering competitors.

[00:23:31] He puts 5 million seats on sale for €5 each to maintain an 85% load factor. And he crushes his weaker rivals. Three low-cost European airlines went bankrupt and Ryanair hoovered up their routes and their passengers. Now, it's around this time he's featured on a Bloomberg documentary, well worth watching. And when asked about the secret to success, he said, Well, it's generally a by-product of 99% perspiration and 1% inspiration.

[00:24:00] But in my case, probably less inspiration and more perspiration. He also bats away any environmental concerns by pointing out that Ryanair is the greenest airline because it has the newest fleet. And as a result, their planes produce 50% fewer emissions than their predecessors, burn 45% less fuel and make 45% less noise. And Ryanair continues to grow over the next few years. But it wasn't all plane sailing.

[00:24:28] In September 2013, the airline issued a profit warning, then a second one in November of that year. And while Ryanair is carrying 81 million passengers by this stage, it's consistently ranked as the most hated brand in the UK. And competitors like EasyJet, they're starting to improve their product. So O'Leary does something he's never, ever done up until now. He admits that the image has become a problem. He tells shareholders he'd be more cuddly.

[00:24:58] And here's a quote from him. One of the weaknesses of the company now is that it is a bit cheap and cheerful and overly nasty. And that reflects my personality. So he launches what he calls the Always Getting Better program. So now there's allocated ceasing, which they didn't have up to this stage. There's a redesigned website. There's reduced charges for minor infractions. You know, instead of charging €60 for your boarding pass if you didn't print it, it's only €15.

[00:25:27] Now, the pivot works faster than most people expected. By the end of 2015, traffic has grown 11%. Net profit has rebounded to €867 million. The following year, 2016, Ryanair became the first ever airline to carry over 100 million international passengers in a single year. But, like, if that sounds like Ryanair has vastly, you know, improved its customer service, don't be fooled. There's still a terrible airline to fly with.

[00:25:55] But the growth has just continued. Mainly because they're cheaper and have more roots than their rivals. And, yes, there have been plenty of other bumps and battles. In 2020, of course, there was COVID. And Ryanair posted a loss of €815 million. But, because it's such a well-run company, by 2023, it's thriving again. By 2025, Ryanair becomes the first European airline to carry 200 million passengers in a single year. Revenue is at just under €14 billion.

[00:26:24] Profits at €1.6 billion. It's now the third largest airline in the world in terms of passenger numbers. And also the third largest in terms of market cap. And throughout all of this, O'Leary continues to fight with national and European politicians. He takes them to court. He berates them on the airwaves. And it can be really funny at times.

[00:26:49] This is what he had to say about Boris Johnson, the former UK Prime Minister who pushed through the whole Brexit campaign. He's a liar and a buffoon. Brexit was a disaster. And anybody who tells you otherwise is either an idiot or a politician. And in his case, he's both. And Donald Trump, he said the following. I don't have any faith or trust in Trump, who's proven himself again and again to be a liar. And then, just recently, he got into a very, very public spat with Elon Musk.

[00:27:17] Because O'Leary publicly rejected the idea of installing Musk's Starlink satellite Wi-Fi on Ryanair's fleet for cost reasons. And then on X, Musk calls O'Leary an idiot and also a twat. O'Leary responds with the following. All I would say to Elon Musk is he would have to join the back of a very, very, very, very long queue of people who already think I'm a twat. Including my teenage children.

[00:27:43] And then O'Leary launches a huge advertising campaign that depicts both himself and Musk as idiots. And he calls it the big idiot seat sale. Offering 100,000 seats at 16,99 euro. And then O'Leary went on to thank Elon Musk for the huge amount of free publicity that Ryanair generated from all of this.

[00:28:05] But again, look, don't be fooled by the bombast, the public mocking of politicians or of anyone who's against him. But everything O'Leary does has a single focus. To grow Ryanair. In recent interviews, O'Leary said that he will remain in charge of Ryanair up until 2035. He'll be 73 at that time. I think his aim is for Ryanair to become the number one most valuable airline in the world.

[00:28:33] And I think he'll get there. I mean, in terms of personality, yeah, he'll say things that I don't agree with. But for most Irish people, O'Leary has been part of our lives for 30 years now. And I think, despite the abrasiveness and everything that comes with him, you know that a lot of it is tongue-in-cheek. And all of it is geared towards building Ryanair. And underneath it all, you know that he's just a very smart, driven person. But I don't think he's a bad guy.

[00:29:02] I think he's just a very direct and very, very interesting fella. And that's why he makes for such a great business story. Anyway, that brings us to listeners' emails. And this one comes from Julian. And Julian would love to hear the story of Jack Ma, the founder of Alibaba. It's a great suggestion, Julian. I might do a two-parter on him. And thanks so much for listening and for the suggestion. And remember, if you have any comments, any corrections, or any story that you'd like me to cover,

[00:29:32] email me at info at gbspod.com. All the best, folks.