Is This Any Way to Run an Airline? Michael O'Leary Has Already Made Ryanair the Hero of European Travelers and the Bane of Its Rivals. What Will He Do for an Encore? Free Seats for Everybody!

By McGinn, Daniel | Newsweek, October 4, 2004 | Go to article overview

Is This Any Way to Run an Airline? Michael O'Leary Has Already Made Ryanair the Hero of European Travelers and the Bane of Its Rivals. What Will He Do for an Encore? Free Seats for Everybody!


McGinn, Daniel, Newsweek


*****

CORRECTION: In "Is This Any Way to Run an Airline?" (Enterprise, Oct. 4), we reported that Ryanair claimed its average ticket is priced "570 percent lower than British Airways'." In fact, Ryanair claimed that British Airways' average fare is 570 percent higher.

*****

Byline: Daniel McGinn

CORRECTION APPENDED

Michael O'Leary is sitting in his spartan office on the outskirts of Dublin airport, wearing headphones and crooning along--badly--to the U2 classic "Bad." "If you twist and turn away," he warbles, in a key that makes a visitor wish a jet would roar overhead. The music is coming from a handheld device about the size of an Etch A Sketch. It's a digital media player, equipped with music from 100 CDs and hours of video: cartoons, sitcoms, even first-run movies. Starting next month Ryanair, the no-frills airline O'Leary has turned into an industry darling, will begin renting the devices to passengers for $6 per flight. The plan has all the markings of the strategies Ryanair has made famous. The handheld units are far cheaper than installing the seat-back TVs other airlines use, and renting them gives Ryanair a whole new way to squeeze money from its passengers during flights. Says O'Leary: "We think this is going to be the next really big thing up in the air."

If his track record is any guide, the hyperbole may prove prescient. Over the past decade, O'Leary has reinvented the European airline industry and driven down fares across the continent. While his strategies owe much to Southwest Airlines, the pioneer in low-fare flying in the United States, industry observers credit him with going beyond imitation to find ways to improve on the model.

That's one reason Ryanair's ascent offers lessons far beyond the airline industry. The company is already a case study at Harvard Business School, used to illustrate how competitors respond when a new player enters a business. And O'Leary, who routinely garners headlines for trash-talking and outrageous stunts (he once drove a tank to a rival's headquarters to denounce its high fares), could offer any executive lessons on using publicity to help build a brand. Looking ahead, O'Leary is toying with some revolutionary ideas about pricing: he envisions a day when Ryanair gives away the bulk of its tickets and makes money by selling things to its captive in-flight audience.

Ready for a tutorial from the world's best airline? Buckle your seat belt.

Like many start-ups, Ryanair took a few years to get off the ground. Founded by veteran Aer Lingus executive Tony Ryan, the airline began offering $180 flights between Ireland and England in 1986. Prior to Ryanair's launch, getting from London to Dublin required either a $400 flight or a nine-hour journey by ferry and train. While Ryanair's sales grew, profits were elusive. "In the early days the company was trying to be everything to everybody--they were trying to provide service and amenities comparable to Aer Lingus and British Air, but at a lower price," says Jan Rivkin, a Harvard professor who's written on Ryanair. That began changing in 1991, when O'Leary, an accountant who'd become Ryan's protege, visited Southwest's headquarters in Dallas. At the time, Southwest was already garnering accolades as the industry's big innovator, though it hadn't yet expanded to become a national airline.

O'Leary liked what he saw. Then as now, Southwest used a single type of plane, the 737, to keep maintenance costs down. It shunned assigned seats and in-flight meals, providing service more akin to Greyhound than American Airlines. Its employees worked hard to cut turnaround time, allowing aircraft to spend more hours in the air. Most important, Southwest avoided major airports and the hub-and-spoke system of connecting flights favored by bigger airlines. "It's like everybody drives into the city during rush hour so they can all swap cars to drive back out," O'Leary says. …

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