The Journal. - Ryanair: Cheap, Cramped and Making Its CEO a Fortune

Episode Date: April 1, 2024

Michael O’Leary has been running Ryanair for the past 30 years — the longest tenure of any major airline boss. During that time he has turned a paltry operation that flew 200,000 customers a year into a low-cost behemoth, with passenger numbers set to reach close to 200 million this year. WSJ’s Benjamin Katz profiles the colorful CEO, who is now on the verge of earning a more than $100 million bonus.  Further Reading: - The F-Bomb-Dropping Airline CEO About to Earn a $100 Million-Plus Bonus  Further Listening: - How Southwest Airlines Melted Down  - A Hole in a Plane and a Headache for Boeing  - The Love Triangle Over Spirit Airlines  Learn more about your ad choices. Visit megaphone.fm/adchoices

Despite its incredible name, Ryanair gets a lot of hate online. The best way to describe Ryanair is like that X that you shouldn't go back to, but you just know what you're going to get when you go back. Ryanair is a budget airline based in Europe, and it's known for its super cheap flights, some of which only cost a few euros. Look, we all rip on Spirit for being the worst airline in the sky, but until you have flown Ryanair, you cannot make that call. It's also known for cramming passengers into tight seats and for charging travelers extra for nearly everything, like water, seat assignments, and

baggage. Passing by the dreaded Ryanair carry-on checker. All four of us have oversized bags. Tensions are high. I think for a lot of people who are flying, they're used to this idea that flying is, you know, the customers first. You get maybe your free snack or your free drink. You, you know, get treated as like a client.

That's our colleague Benjamin Katz, who covers the airline industry. He recently interviewed Ryanair's CEO, Michael O'Leary. Ben says that O'Leary doesn't see customers the way most airline CEOs do. He was very distinct in saying that, like, we don't treat our customers like guests. You know, we give them a seat to fly on. And that's the agreement. O'Leary has often said that he doesn't really care what customers think. Is the customer always right?

No, the customer is nearly always wrong. And didn't he also say at one point that people who forget their boarding passes are idiots? Oh, yeah. I mean, he refers to customers as idiots a lot. He refers to, you know, corporate partners as idiots as well. And he said that customers who want a refund can f*** off. I mean, I suggest anyone listening to this, do a Google Michael O'Leary best quotes. I mean, there are lists of articles, right? Best quotes, I mean, there are lists of articles, right? He's no stranger to controversy and kind of running his mouth.

I think he'd probably describe it himself, you know, happy to run his mouth to get headlines. Even though many people seem to hate Ryanair, a lot of people still fly Ryanair. It's the biggest airline in Europe, and it's extremely profitable. Which is why O'Leary is up for a massive bonus, worth more than 100 million euros. So it's an airline that doesn't make customers pay very much for individual seats, but the company will be paying a lot for the man who's filling the seat of the CEO. 100%, yeah. And I think that really speaks to the business model, right?

This is a business model that Michael O'Leary has been astutely following for the last 30 years. You know, stick to the low cost, cut out all the excess, don't mess around with passengers, don't mess around on the ground, just get it done, fly, and the low cost will bring in passengers. Welcome to The Journal, our show about money, business, and power.

I'm Kate Leinbach. It's Monday, April 1st. Coming up on the show, how one CEO changed air travel forever and is now on the verge of a massive payday. Attention all soccer fans. From Orlando to Los Angeles, take to the fields of the USA for your next vacation. Ready to kick off? Discover exciting games and events. Plus, find amazing hidden gems in cities full of adventures, delicious food, and diverse cultures. You'll love it so much you'll want to extend your stay beyond the matches.

Get the ball rolling on your soccer getaway. Head to visittheusa.com. There are a lot of airlines like Ryanair these days. In the U.S., we have Spirit and Frontier. They offer super cheap fares, but then nickel and dime you by charging you to choose a seat or bring a bag on board. For that, you have Michael O'Leary to thank. He pioneered this entire business model. O'Leary started at Ryanair in the late 1980s. He was hired by the company's then-CEO, Tony Ryan. Back then, Ryanair was just a small Irish airline, flying only about 200,000 passengers a year. And after he started there, O'Leary thought it didn't seem like a business worth being in. He kind of lost faith in the airline and he said, you know what, this really isn't working and suggested to Tony Ryan that they even shut it down.

And Ryan went back to him and said, listen, before you lose faith, and went back to him and said, listen, before you lose faith, go to Dallas and speak to Herb Kelleher, who is this iconic aviation figure in kind of American business, and go see what Southwest is doing over there. Herb Kelleher is the legendary airline executive who founded Southwest Airlines. This is Kelleher in one of the company's early commercials. It seems perfectly obvious to me. Bring in leadership. At the time, it was Kelleher who was revolutionizing the way people fly by eliminating luxuries and offering cheaper flights. And the strategy made Southwest incredibly successful.

Well, there might be some other reasons. We're Southwest Airlines Keeping face low for you O'Leary flew from Dublin to Dallas to see how Southwest operated and to meet with Kelleher. There is this kind of legend around this first meeting between the two where they

sat down at dinner and Herb kind of explained the theory and the practice and the mathematics behind the low cost model. I asked O'Leary about that and his response was that actually both of them just got completely smashed and he fell asleep kind of under the table.

And when he woke up at four in the morning, I hope Kelleher was still drinking. During that boozy dinner, O'Leary says that Kelleher told him it wasn't just the low fares that made Southwest successful. It was also how efficient the airline was. Like when it came to getting planes in and out of the airport. When O'Leary saw how quickly Southwest did it, he was amazed. And he described the Southwest turnarounds as, you know, like a Formula One pit stop. So this is, you know, an aircraft landing, pulling into the gate, passengers disembarking, bags being offloaded, and the whole process going so that the aircraft within 15 minutes of getting to the gate was already pushing back to the next flight.

Ryanair was nowhere near that. At the time, Ryanair was only achieving that in about an hour and 15 minutes. So we're talking like multiples quicker. And that's really the fundamental part here of the business, is he realized that if they can get down those turnarounds to even close to 15 minutes, it meant that each one of their aircraft assets, they could fly an extra two flights on average every single day. O'Leary left the meeting inspired, and he got to work immediately. O'Leary left the meeting inspired, and he got to work immediately. The first thing they did was he came back to Dublin, where Ryanair is based, and he told his team, over there in Dallas, they're turning around these aircraft in 15 minutes, we're going to do the same here.

And his staff, they looked at him and they said, no, it's not possible. So obviously O'Leary's response was to fire them all. So he fired, yeah, he fired the staff. He fired everyone who were naysayers and said it wasn't possible. And he brought in a team that, you know, were committed to doing it. O'Leary became CEO in 1994. And he transformed Ryanair by adopting many of Southwest's ideas. For example, Ryanair started flying to smaller, less congested airports that wouldn't slow down the turnaround times.

And like Southwest, Ryanair got rid of simple luxuries like legroom and free meals. But O'Leary took Southwest's model to new extremes. I mean, they don't even have seat pockets. You know, you can't, you go into the aircraft, you don't have like a place to put your book or your iPad or whatever it is. Like, you know, they really stripped back this whole, the whole operation. He pushed fares to eye-poppingly low prices and started charging customers for almost

everything, choosing a seat, bringing on a bag, and priority boarding. But there's also kind of a clever reasoning behind quite a few of the charges. So, for example, Ryanair charges you the equivalent of about $60 to check in at the airport. If you've arrived at the airport, you haven't checked in online, you get slapped with a $60 charge. Sorry, what could possibly be clever about a $60 charge for checking in at the airport? Right. The thinking is, if everyone starts turning up at the airport to check in, they have to pay for more staff, right? If you check in with multiple bags, it's more luggage that they have to handle. So I guess what I'm saying is that their use of charges

is also a way for them to discourage behavior from passengers that would make it more expensive to run their operation. The deal being that you agree to kind of partake, you know, you agree to check in online, you agree to try and travel lightly with as little baggage as possible. And in exchange, Ryanair has to hire fewer people and they then pass on those costs savings, you know, to you. And it's part of the reason why their operation, their flights are so cheap. Southwest Airlines says this kind of low-cost nickel and diming is not what Herb Kelleher had in mind for his airline. Kelleher died in 2019. A Southwest executive told Ben that the airline aspires to be low-cost, but never low-service, and that it's important for airlines to keep customers happy.

O'Leary says that Southwest is now a bit antiquated, and that it wants to be loved by its customers, whereas Ryanair does not. O'Leary told Ben that, quote, We want to be the lowest-cost, lowest-fare provider. We're not that bothered whether people love us or not. O'Leary told Ben that, quote, And if you look at Ryanair's social media accounts, you can tell. You know, on Twitter and TikTok, like, their social media team takes the piss out of themselves quite regularly. We're Ryanair. Are you really going to tweet us all your problems? Huh? Huh? Huh?

We're Ryanair. Of course we blow our own trumpets when we arrive on time. Those trumpets, by the way, play in the cabin when a Ryanair flight lands on time. And it's something people complain about. O'Leary sometimes even says things he seems to know will draw negative attention. Like the time he floated the idea on Irish public television of charging people to use the bathroom. We have three toilets. If I can get rid of the two toilets at the back of the planes, I can add six extra seats.

With six extra seats, I can lower everybody's airfare by another 5% all year round. Did you want to make some passengers stand on planes to fit more people in, a la the tube? Yes. How safe is that? Very safe. O'Leary says the bad press can actually drive business.

Like, last September, when O'Leary was in Brussels to deliver a petition to European regulators. He came outside, he was setting up to do an interview, and I really heartily suggest that you go online and you check out this footage.

But these two protesters walked up and threw a pie in his face. Welcome in Belgium! Stop the pollution of the plane! Well done. The video itself was pretty iconic. It ended up going super viral all over social media. Mr. O'Leary, how was the cream? It's delicious.

This footage really, really, you know, reached every corner of the continent and beyond. So much so that Ryanair actually ended up seeing a 6% increase in sales every day for the next five or six days. So we discussed it because O'Leary says that he learned very early on in his career that the negative publicity actually ends up selling more tickets and doing kind of more for Ryanair's promotion than the positive stories. O'Leary's unconventional ideas for running an airline have paid off. This year, Ryanair is expected to carry 200 million passengers.

But it hasn't been without some turbulence. That's next. We'll see you next time. Delivered with Uber Eats. What do we mean by almost? Well, you can't get a well-groomed lawn delivered, but you can get a chicken parmesan delivered. A cabana? That's a no. But a banana? That's a yes. A nice tan? Sorry, nope. But a box van? Happily, yes. A day of sunshine? No. A box of fine wines? Yes.

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and a tasty bacon and egg or breakfast sandwich for only $5 at A&W's in Ontario. In 2019, Ryanair's board of directors struck a deal with Michael O'Leary. If he could double Ryanair's stock price over the next five years, he'd get a 100 million euro bonus. How did people view that at the time? Did it seem like a really, really lofty goal? I think it was an ambitious goal, but one that they believed in, that they thought was at least kind of realistic. I think what's interesting about it is they signed this

agreement in 2019. 2020 was the pandemic. They ended up actually extending the deal. So the final deadline was meant to be 2024. They extended it to 2029. But because of how successful Reiner has been through the pandemic and coming out of the pandemic, he's actually managed to, or is expected at least, to hit the target this year. Even though the pandemic grounded most of the airline industry in 2020 and left many companies struggling to survive, Ryanair was able to get through it, in part because of something O'Leary had once fought against, unions.

Michael O'Leary, throughout his initial years or decades running the company, had always been adamantly against unionization. Whenever there was the prospect of it, he would immediately shut it down. He once kind of famously said that hell would freeze over before Ryanair recognized unions. Over the years, O'Leary has clashed with Ryanair staff. He once referred to pilots as glorified bus drivers. Over the years, O'Leary has clashed with Ryanair staff. He once referred to pilots as glorified bus drivers.

And then one summer in 2017, he found himself in a sticky situation where a couple rivals had started to expand in Europe and were coming after Ryanair pilots. They started hiring Ryanair's pilots and eventually Ryanair discovered that they actually didn't have enough pilots that fulfill their flying obligations for the next few months. They ended up canceling over 20,000 flights. Pre-pandemic, that was a huge number.

O'Leary kind of refers to himself as like probably the biggest monumental screw-up, in his words, that he's made kind of running the company. O'Leary was asked about the cancellations by a reporter. Can we just ask you, I mean, just what's your message to customers? I mean, they've faced an awful lot of disruption. They did, and for that we sincerely apologize, and we're working very hard at the moment to make sure we finalize the list of flight cancellations,

which will affect less than 2% of our customers, and also look after those customers who are disrupted. It's a bit of a mess, though. It's a bit of a mess. It is clearly a mess, but in the context of... That screw-up gave the remaining Ryanair pilots a lot of power. It basically gave pilots leverage to then go and unionize because Ryanair needed those pilots to fly the flights that they

hadn't cancelled. There was this kind of anonymous push at start because a lot of pilots were a little bit nervous still about speaking out that, you know, they may face retribution from the company. But ultimately, they got enough support from local European unions to eventually formalize their organization. Even though he reluctantly accepted the formation of a union, O'Leary says he's now thankful for them. To get through the pandemic, O'Leary was able to negotiate with the union for a 20% pay cut for most employees. O'Leary also took a 50% cut to his salary. And what that allowed them to do was to keep their staff on board. And this kind of all happened while Ryanair's rivals and other airlines really around the world had really fired most of or the majority of their staff. So what that meant was, you know, in 2022, when we saw this rapid recovery in air travel, everyone else pretty much was getting terrible headlines, having to cancel thousands and thousands of flights,

massive delays, terrible lines at airports. Ryanair, meanwhile, sailed through. Now they're operating at about 130% of the capacity that they had before the pandemic, whereas a lot of their rivals are struggling to get back to the same levels that they were at in 2019. How would you characterize where Ryanair is now in the airline industry? Ryanair is a behemoth.

They're pretty kind of unstoppable. O'Leary is pretty clear. He says, you know, unless we mess it up, unless we become bloated or lazy or whatever it is, like the route to kind of domination is open. Ryanair is a very difficult airline to compete with. Ryanair's stock has now roughly doubled from where it was in 2019 to about 21 euros. And if the stock stays at or above that level for 28 straight days,

O'Leary will get his 100 million euro bonus. How would you characterize the impact that Michael O'Leary and Ryanair has had on the airline industry? It's difficult to kind of overstate. I mean, the industry has had to just completely reshape their operations in order to even begin to compete, right? You know, the entire industry has shifted down, down to where Ryanair is at. I remember when I was younger, hearing about like the A380, this massive aircraft, and I remember they sold it as like, you know, the future of aviation travel is going to be bars in the sky and restaurants and, you know, beds and luscious space. And Ryanair has kind of shown the opposite, you know, that the

business model here is, let's see how tightly we can pack as many people in as possible, with as few amenities as possible. And I think that just really, that's the reality of aviation. It's not kind of, you know, more spacious experience luxury in the sky. It's, it's, it's less. You get less space, you get less food, you get less drink, you know, you get less customer service. But the reality is that we keep choosing that option. Customers are choosing to pay the cheaper price for, yeah, it's the worst experience. But at the end of the day, you get from A to B, and then you get on with your holiday. That's all for today. Monday, April Fool's Day.

I'm Ryan Knudsen. No relation to Ryanair. The Journal is a co-production of Spotify and The Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.