Wednesday 21 March 2018

Dogfight in the skies: the two men changing the face of aviation

Willie Walsh & Michael O'Leary

Wingmen: IAG's Willie Walsh and Ryanair's Michael O'Leary
Wingmen: IAG's Willie Walsh and Ryanair's Michael O'Leary
John Meagher

John Meagher

IAG's imminent takeover of Aer Lingus is set to precipitate a price war with Ryanair, but while it's win-win for consumers for now, will the long-term impact be quite so rosy?

It was the sort of positive PR that few companies could dream of - and it happened in the wake of a tragedy that moved the entire nation.

Dubliner Jonathan Wallace was so impressed with the way that Aer Lingus dealt with the families of those killed by the Berkeley balcony collapse last month that he posted a public message on the airline's Facebook page to thank them for their sensitivity. His words went viral and it led to an outpouring of gratitude from hundreds of others who had also experienced kindness from Ireland's national airline over the years.

It was notable that among all the feel-good messages, were those urging the International Airlines Group (IAG) to take heed of the importance of goodwill gestures. The aviation giant, a product of a 2011 merger between British Airways and Spain's Iberia, is just weeks away from completing its takeover of Aer Lingus, and questions are being asked what the new dawn will mean for an airline that's famed for the way it treats its customers.

"You couldn't buy that sort of PR," says travel industry journalist, Eoghan Corry. ''Aer Lingus have been doing this for years, and quietly too.

"It's one of the reasons why Ryanair never achieved the sort of affection that Irish people have for Aer Lingus."

Corry knows only too well how sensitive the airline can be in trying circumstances. When his brother suffered a paralysis injury abroad in 1990, Aer Lingus did "everything it could" to ensure his smooth return home.

"I think IAG would take stock of the reputation Aer Lingus has for customer support and not change it," he says. "Even on brutally fiscal terms, a smart bean counter would see that that sort of goodwill has more value in the long run."

It helps that IAG's CEO is an Irishman, Willie Walsh, whose many years service at Aer Lingus make him better placed than most to understand how Irish people regard the airline. The takeover was made possible when Ryanair sold its near 30pc stake in the airline and the Government's ratification of the deal (the state owns 25pc in the company).

Ryanair CEO Michael O'Leary is only too aware of how a newly bolstered Aer Lingus will provide a considerable challenge to Ryanair's business out of Ireland. With that in mind, his airline is planning to introduce new routes and low fares deals in the autumn. Newspaper headlines earlier this week suggested the expected dogfight betwee the IAG-backed Aer Lingus and Ryanair would be good news to Irish consumers.

Independent Senator Sean D Barrett, an economics lecturer at Trinity College Dublin, is among those greatly opposed to the takeover.

"No proper evaluation was supplied to the Oireachtas and its Transport Committee. Now that Aer Lingus is determined to be part of BA/IAG, we have to take steps to restore some competitive elements to the market."

He says that will be a challenge considering British Airways' home record in the UK. "It neglects its own regions especially on the North Atlantic. British Airways has no transatlantic services from major cities such as Manchester, Birmingham, Glasgow, Edinburgh and Belfast. This is in noted contrast to the Aer Lingus record at Dublin and Shannon."

Barrett insists that takeovers reduce traffic when an airport loses its home-based carrier, pointing to the example of both Europe and North America.

"The risk for Ireland is that Heathrow-based IAG will route traffic through its hub as it does now for passengers from Scotland and the other UK regions and as Iberia routes Barcelona traffic through Madrid."

Eoghan Corry insists that any celebrations should be put on hold.

"What the IAG takeover is is consolidation, and consolidation is never good for the consumer. It's competition that forces costs down and this deal will ensure that there are fewer competitors than before.

"Even in an environment like the US where a low-fares model has been in operation for many years, fares have increased and that's because mergers and acquisitions mean there are far fewer competitors than there used to be.

"When deregulation was introduced in 1978, there were 10 airlines in the US. Now there are three. And last year, airfares in the newly consolidated American Airlines rose sharply.

"Price increases will be especially felt on transatlantic routes. You won't see a return to the sort of prices Aer Lingus were offering a few years ago, the €99 one-way to Boston, that sort of thing. It won't be as apparent on the European routes because there are more players, but prices will go up there too."

One way in which the consumer is likely to benefit is in a greater choice of routes. "Both Willie Walsh and Michael O'Leary see Dublin as a European hub, with a lot of flights coming through there, and you will see a lot more destinations coming on stream, places like Denver and Dallas, perhaps."

Both IAG's Walsh and Ryanair's O'Leary have been among the most powerful men in aviation for several years. The two joined forces earlier this year with three of Europe's biggest carriers, Aer France-KLM, Lufthansa and EasyJet, to lobby the EU for lower airport taxes and measures to safeguard airlines against traffic controller strikes.

Both are said to have great respect for each other, having come up through the ranks of a notoriously tough industry and not just survived after the trauma the sector experienced after 9/11, but prospered.

In an interview last year, Walsh said he had "great respect" for what his counterpart had achieved at Ryanair, but said he would not describe their relations as a friendship. "I think we are civil to one another, but we also clearly enjoying having a go at each other as well."

In a classic O'Leary move, he nominated Walsh to take the ice-bucket challenge for motor neurone disease after quipping that as his rivals couldn't freeze their fares, they should freeze themselves.

If Michael O'Leary is famed for his straight-talking, Willie Walsh doesn't hold back either as his forthright views on Virgin Atlantic boss, Richard Branson, for instance, clearly demonstrate.

"I just don't see that the guy has anything that stands out in terms of what he has achieved in the industry," he told the Daily Telegraph. "I've said it publicly, I don't respect him in the way I respect other people in the industry, and that's a personal view."

Unsurprisingly, Branson has made no secret of his unhappiness over IAG's Aer Lingus takeover, calling the merger "absolutely wrong" and insisting it is bad for competition: "I find it incredible that the competition authorities allow such things to happen."

Like O'Leary, Walsh has little fear of getting his hands dirty. His tenure as Aer Lingus CEO in the early 2000s was marked by a series of high-profile strikes as he went to war with the unions. Hundreds of staff jobs were lost, Aer Lingus stock sold off and the entire fleet reconfigured.

It was during his time in charge of the airline that it took its first tentative steps to the low-cost model pioneered (in Europe) by Ryanair, a policy that would be rigorously pursued years later by Christoph Mueller, who left his position as Aer Lingus boss earlier this year.

An aviation insider believes the biggest fear for unions will be the practice of sub-contracting. "It's where savings on the bottom line can be made," he says.

"Look at something like catering - that's currently been done by Aer Lingus - and they might see it being a lot cheaper to do by outsourcing it."

Trade unions have long been opposed to the proposed merger, but their stance softened after Aer Lingus established an internal disputes resolutions board.

Ryanair, of course, is not unionised although the company has been attempting to repair its reputation for poor customer service, and O'Leary has largely refrained from the sort of headline-grabbing antics of the past and comments like, "Germans would crawl bollock-naked over broken glass to get cheap fares."

Ryanair may be talking up its new customer-caring qualities, but the aviation analyst says timing is everything. "Michael O'Leary changed attitudes when it came to flying. People pack differently now, 80pc of us flying with Ryanair don't check in bags into the hold any more.

''That sea change wasn't painless and people resented Ryanair for it, but they're used to it now, and with that battle won it's a bit easier for O'Leary to talk about customer care.

''At the end of the day, Ryanair and Aer Lingus under IAG control will be focused on cutting costs and increasing profits. That's the bottom line."

Sean D Barrett, meanwhile, has a bleak message: "Increased emphasis in Europe on legacy airlines through so-called consolidation is not good news for an outer offshore island.

"In short, by selling Aer Lingus, we blew it."

O'Leary V walsh - at a glance

Michael O'Leary, 54, from Mullingar, Co Westmeath. Privately educated at Clongowes Wood, Dublin, studied economics at TCD.

Trained at Stokes Kennedy Crowley (later KPMG) before establishing a newsagents in Walkinstown, Dublin, in 1985 but left two years later to work as tax advisor to Tony Ryan's newly formed Ryanair.

Studied the low-fares model pioneered by Southwest Airlines in the US and convinced Ryan of its merits. Was made Ryanair CEO in 1994 and turned the airline into a European giant.

Willie Walsh, 53 from Dublin. Educated at local CBS, Ardscoil Ris, and became an Aer Lingus pilot after school. Studied management and business admistration at TCD during his pilot days and became CEO of Aer Lingus subsidiary, Futura in 1998. Was promoted to Aer Lingus chief in 2000 and pursued a low-fares policy. Became British Airways CEO in 2005 and oversaw its merger with Iberia six years later. Now head of IAG, the third biggest airline group in the world.

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