Ryanair-CEO: Eurowings „is doomed to fail“


 

Ryanair’s chief executive Michael O’Leary defends Ryanair’s sick pay policy for pilots and predicts that German carriers Eurowings and Air Berlin will lose the „price war“ agsinst Ryanair. Interview: Claus Hecking for DIE ZEIT.

Die Zeit: Congratulations, Mr O’Leary.

Michael O’Leary: On what?

Your Horse “Rule the World” has recently won the Grand National Aintree, the of the most prestigious steeplechase races worldwide. At the same time, Ryanair has beaten the 100 million passengers per year mark and has become friendlier to the customers. Are you now part of the establishment?

No, I just see that ever since we have started being nice to our customers about two or three years ago, not alone that the airline performance is taking off, but my horses are running a lot better. Good things happen to people who are nice. Good things are happening to Ryanair.

You’re now offering Business Plus Fares, premium seats with more legroom and even renting out a corporate jet. No more toilet fees or standing cabins, as you proposed? No more insulting passengers as “stupid” or telling them to “f*ck off” as you once said?

The days are over when we would say outrageous things for the sake of cheap publicity. Some years ago, we could not afford large advertising campaigns. So we needed cheap PR, and that was easy by being controversial and saying rude things. Now, we can afford to be more caring towards our customers and address issues such as the free seating and not to be overly restrictive on one carry-on baggage while we are still keeping airfares falling.

In 2010 you cut a lot of flights from and to Germany because of the air traffic tax. At that time you said: “As long as this new tax exists, we will not expand in Germany any longer.” What that also cheap PR? The tax is still in place, but Ryanair is expanding heavily. 

We still object to the German air traffic tax. But what has fundamentally changed in the last two years has been the implosion of Air Berlin whereby we now have most of the German airports actively offering us discounted airport services. Somebody needs to step into that breach. Otherwise the Germans finish up paying overpriced domestic and short haul airfares because they are left at the mercy of a duopoly of Lufthansa and Air Berlin.

„Germans would crawl bollock-naked over broken glass for cheap airfares“

But Lufthansa is expanding now its own low cost carriers Eurowings and Germanwings…

…nothing in Eurowings or Germanwings is low cost. Their fares are high, their costs are high. We would have to double our fares to be competitive with Germanwings. It is only Lufthansa who thinks that Germanwings is a low fares airlines. But no consumer thinks that Germanwings is a low fares airline.

On which routes do you want to attack Lufthansa?

We do not attack airlines. We serve routes, particularly those where people are being ripped off. Look at the connections between Germany and Belgium. Here, Lufthansa practically has a monopoly with its subsidiary Brussels Airlines on one hand and themselves on the other, and German consumers have been asked to pay €400 or €500. We do it for €50.

You once said that “Germans would crawl bollock-naked over broken glass to get cheap airfares.” With your expansion, will we see much lower prices for airline tickets? 

I hope we will get a price war. You are going to see much more low fares because Ryanair is expanding rapidly this winter with two new bases in Hamburg and Nuremberg, and a lot more routes from Berlin. But does this mean a price war yet? For that, Lufthansa would have to cut its airfares in half by the least.

You are even offering domestic flights within Germany: five times a day Berlin-Cologne  – a typical Air Berlin route. Is it your target to squeeze Air Berlin out of the market?

No, our target is focusing on those routes where Air Berlin is cutting down flights and capacity. German domestic routes are not a big focus for us.

FotoBusiness.jpg

„You would be crazy not to have a business product“, Mr O´Leary says.

But you also have flights from Germany to Spain, Portugal or Greece: classic Air Berlin routes. Are you trying to replace them as number two in Germany?

We will overtake them as number two in Germany in the next year or two anyway. All of our route decision or base decisions are based on discussions with airports – and those airports who tend to be the most aggressive in persuading us to allocate capacity to them, are those where Air Berlin or Lufthansa are cutting capacity.

But what will happen to Air Berlin?

Where is Air Berlin going? Last year their losses almost doubled to around €450 million while they carried 8 percent less passengers than in 2014. The plan for this year is 6 percent less passengers than in 2015, so where will the losses go? To €600 million? There is no strategic direction to what Air Berlin is doing. You cannot succeed in the airline business by getting smaller. I believe that in a couple of years, their largest owner Etihad will sell Air Berlin to Lufthansa.

And Eurowings? With them, Lufthansa is now copying parts of your business model: extra fares for baggage and certain seats, no more free food, no connecting flights. Will they succeed?

No. Our average fare is €47, Eurowings’ average on short haul is close to €100. Lufthansa does not want to serve any airport except Frankfurt and Munich, and most of the other routes have been put into Germanwings or Eurowings or whatever they are calling it this week. Why don’t they call it Lufthansa? Because this concept does not work. In three or four years they can quietly close it down or sell it.

You predict Lufthansa will close down Eurowings in three or four years?

They will ultimately close it down. It is doomed to fail, because it cannot compete on price with us.

„We are the Aldi of the airline industry“

Why are you better in cost cutting?

We have been doing low cost for nearly thirty years. We have only one type of aircraft, Boeing 737, which reduces complexity, all of our planes have 189 seats compared to say 130 or 140 seats in comparable Lufthansa planes because we do not have a business class. Almost all of our sales are done across the Internet. We do the aircraft turnarounds from the arrival at the gate to the departure in 25 minutes. We do not have a complicated system of connecting flights. Low cost is our philosophy. Our average fare was €47 last year, but we dream that in the next five years we can drive that down to maybe €25. Lufthansa’s CEO Carsten Spohr has no interest in lowering airfares. He must put airfares up.

What did you copy from other industries to bring prices down?

We are the Aldi of the airline industry. The business models are pretty similar. When you go to Aldi, you have a limited range of products. You get lots of German meat products and cheeses, but you might not get the one particular Irish cheese that you are looking for. We do the same. You may not get the business class seat or the special meal you wish. But you get the lowest fare, you arrive on time, you will be safe, you will be on a brand new aircraft and we have a very good website and a mobile app. What else do you need?

You have been changing your own business model considerably. Now you have a Business Plus offer, a frequent traveler program and, people get assigned seats. Are you copying Lufthansa or EasyJet?

We are copying the best of what other airlines are doing, but without copying their high fares structure. When you look at the routes like Cologne-Berlin five times a day, you would be crazy not to have a business product.

 

26 p22 Number of Passengers-01 Lufthansa Ryanair Air Berlin Easyjet Air France KLM IAG Emirates Turkish Airlines

 

You have had enormous success with a simple and strict business model: Point to point traffic only, no frequent flyer programs, low landing fees in obscure airports. Now you are breaking your own rules  are you endangering your cost advantages?

We have changed the business model, but only for maybe 30 percent of our customers, 70 percent of our customers are still travelling to secondary airports, on leisure, very price sensitive. But as we have gone increasingly to more primary airports in recent years, Brussels, Rome, Madrid, Berlin, we should also cater to those other customers who want our low prices but maybe a different type of service. And we can do both. Our unit costs have gone down by 2 percent in the last two years.

„Rubbish, Rubbish, Rubbish“

Is it possible that your main cost advantage is lower pay for pilots?

No. Pilots are probably our biggest cost. Or have you been listening to the German unions? Oh, yeah: we enslaved them at seven years of age, we refuse to feed them, they are locked in the cockpit, naked. Listen: Ryanair pilots earn on average over €150,000 and fly less than 900 hours in a year which is 18 hours a week.

A lot of your pilots and first officers are self employed. This means they have to set up small companies and contract themselves through intermediary companies such as Brookfield Aviation or McGinley to Ryanair. As they are not  officially employed by Ryanair, they have to pay their own social security costs. 

A minority of our pilots are self employed. They are free to go to any airlines they wish at any time.

And what about the First Officers?

The majority of our First Officers are contractors.

According to a document from your provider Brookfield, their pilots working for Ryanair are paid per hour they fly. They do not get anything when they are sick. Isn’t it dangerous when a sick pilot is sitting in a cockpit? 

That is not true. We have a minimum sick leave scheme that applies to all of our employed pilots and to our contractors. Even if you are sick, you are guaranteed to be paid around 50 percent of your maximum amount of hours for this month.

[Note: According to internal Brookfield Aviation documents DIE ZEIT has seen, no sick payment is foreseen for contractors i.e. self-employed pilots. Ryanair´s press departments confirms our information while stating that the pilots have the opportunity to make up the lost income by flying more in the following weeks/months.] 

We heard it is at Ryanair’s discretion if they pay out this money or not.

No. It is a minimum for all pilots. And what is important is that if a pilot is sick for a day or two weeks or three weeks, they can make up that time later on in the year.  Look, if pilots did not want to work here, they would go to Easyjet or Norwegian or whoever else there is. The remarkable thing is: very few pilots leave.

[Note: DIE ZEIT has seen internal documents stating that there payments are at Rynair´s discretion. Ryanair´s press department states: „The guaranteed payments applies to employee pilots only. Contractors receive payment at Ryanair’s discretion.“] 

„If you are a bad seller, you´ll be gone“

The average time pilots stay with Ryanair is a bit longer than 5 years.

That is nonsense. It is much longer.

According to one of your annual reports, the average time they stay is 5.2 years.

We do not have anything like that in our annual report.

Could you please find out how long pilots stay with Ryanair?

They stay for life.

[Note: In Ryanair´s Annual Report for 2014, the company states on p.113: “At March 31, 2014, the average age of Ryanair’s pilots was 35 years and their average period of employment with Ryanair was 5.2 years.”] 

Some of your first officers get basic salaries of less than €21,000 per year.

Rubbish.

We have seen a contract from 2014.

Rubbish. Rubbish. Rubbish.

We can show it to you at the end of the interview. 

Show me the contractOn average, our first officers will be paid between €65,000 and €75,000 a year and after three years, they become captains.

[Note: at the end of the interview, Michael O´Leary did not want to see the contract, which was a first officer contract between Ryanair and a pilot from 2014, stating that the basic salary is below €21,000. Ryanair offers some extra allowances for pilots in certain situations and under certain conditions, but these are not part of the basic salary.]

You do not like unions, do you?

I do not care about unions. But their record in protecting jobs or pay has been pretty poor recently.  In Germany, they have been negotiating pay cuts and pension cuts and salary cuts. We now employ more than 10,000 people here, and there are no unions. But we have just negotiated a new five year pay deal for the pilots and the cabin crew in which we guarantee them pay increases  every year.

We heard some of your flight attendants don’t even get a basic monthly salary of €1,500 before tax.

Rubbish, not true. The average pay of our cabin crew last year was over €25,000 per year. They generally depend on how many flights they fly and on their sales. At the higher level, they can earn over €35,000 a year.

And at the lowest level?

There is no low level. If you are a bad seller, you will be gone.

„My children think I am an idiot“

You are a multi millionaire, you own 3.7 percent of Ryanair. It will be hard to spend all that money so why accumulate more?

I do not come to work in Ryanair because I need more money. I come to Ryanair because it is fun. I hope to make Ryanair about twice the size it is today over the next five to eight years. Hopefully we will be able to carry about 180 million passengers a year at airfares of about €25. If we do all that, the value of Ryanair will hopefully double in the next five to eight years. And then what I am worth right now will be doubled again. And do I care? Not in the least.

A couple of years ago, you said you might retire in 2014, but you are still working. Why?

We want to be the second largest airline in Germany behind Lufthansa. We want to be the largest airline in the U.K., the largest airline in Italy, the largest airline in Spain. We want not just to be the lowest fare airline in Europe, but also the one with the best customer service. And we want to have fun doing it.

Your contract is supposed to end in 2019. Don’t you think about retiring before?

God no.

What about your family?

I have a family life away from business, that’s fine, but I don’t want to spend all of my life with them.

You have four young children. Don’t you want to spend more time to them?

No. My children think I am an idiot anyway, so that’s fine. If your children don’t think you are stupid at this age, they will be useless anyway. I’d like to spend more time with my wife – but not while she has four children under the age of ten. So I wait until the children have grown up a little bit, and then I will spend more time with my wife.

And then you will be travelling around the world?

I will be travelling around in Europe: with Ryanair.

FotoWarteschlange

 

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