The Takeoff Episode 02: How Startups Can Adapt and Pivot Sponsored This content is created collaboratively with one of our sponsors.
Ryanair has made some small, yet significant changes. But completely changing a corporate culture is harder than merely refraining from dropping profanities in press conferences.
Michael O’Leary swoops across the hardwood floor of the London Design Museum cafe, dancing between tables laden with champagne flutes and beetroot carpaccio.
“Welcome to the new Ryanair!” the 53-year-old chief executive officer of Europe’s largest discount carrier whoops, greeting the throng of journalists curious to witness his magical metamorphosis from cattle herder to concierge. “If you think this is scary, imagine how I feel, standing here in an expensive London yuppie venue, feeding and watering you lot.”
The sleek setting on the banks of the River Thames is a world apart from provincial airports heaving with budget-minded Ryanair travelers numbed by a formula the airline has perfected over the years: minimalist service, curt staff and charges on everything from extra bags to printing a boarding pass at check- in (that’ll be 70 euros a page, please).
At the center of Ryanair Holdings Plc’s ethos stands O’Leary, a wiry Irishman who likes to claim that customers would “crawl across broken glass” for low fares. The concept of glamorous air travel is a romanticized image of a bygone era, he says, with low prices opening the skies to everyone, from drunken U.K. stag parties infiltrating Poland’s nightlife to migrant plumbers jetting the other way.
Then last year, cracks started appearing in O’Leary’s frugal fortress.
A wave of negative publicity washed over Ryanair in September when a man was charged 188 euros ($258) to switch flights after his wife and children died in a house fire. While Ryanair apologized (not without O’Leary pointing out that travelers regularly fabricate tragic stories to skirt rebooking charges), the plight of the grief-stricken customer stoked outrage at the perceived coldness of the business model.
“Maybe that was a cataclysmic moment,” said John Strickland, a London-based director at JLS Consulting Ltd. “They have such an established reputation of being rough and tough that people have that in their minds.”
Ryanair was still assured investors’ affection. The stock had gained 40 percent in the year through Aug. 30, a period when Air France-KLM Group, Europe’s biggest carrier, had lost 19 percent. While short of rival EasyJet Plc’s meteoric 61 percent gain, Ryanair remained a haven of stability in an industry with historically razor-thin margins.
Then on Sept. 4, Dublin-based Ryanair it said might miss its annual profit target, a rare blunder for O’Leary that caught markets off guard. Two months later, the carrier predicted its first profit drop in five years, causing the stock to plummet.
Suddenly, EasyJet, with its more business-friendly model, appeared to have the upper hand. O’Leary’s macho swagger, by contrast, sounded stilted and out of touch.
Behind the scenes, Ryanair had already begun plotting its transformation. Software programmers were busy streamlining a website notorious for its clunky booking process, and O’Leary stepped before his investors at the annual general meeting in September with an unusual message: the airline would eliminate irritants, soften its image, and be generally more responsive.
A free mobile-phone app and twitter feed followed, together with cuts to fees for luggage and the dreaded boarding-card printing. The airline appointed a new head of marketing in January, followed a month later by assigned seats, a paradigm shift for an airline previously synonymous with a panicked rush for preferred berths.
“The changes that they’ve announced will have an impact, providing it translates into a change in behavior and a change in service,” said Willie Walsh, CEO of British Airways parent International Consolidated Airlines Group SA and also Irish. “When you’re trying to change the culture of an organization, it does take time and it does take effort.”
The image revamp, coupled with new headquarters fitted with a cafe and a slide that would make Silicon Valley startups blush, comes as Ryanair looks to grow passenger numbers by more than a third to about 110 million people by 2019, while fending off Luton, England-based EasyJet and a new generation of leaner low-cost units at IAG and Deutsche Lufthansa AG.
Success will hinge on convincing previously hesitant customer groups — business passengers, people keen to fly to primary airports and older travelers — that the new warm and fuzzy Ryanair is more than just a publicity stunt.
“We need to create that Ryanair tribe that is really excited about what we do, the money we save and how we do it,” Chief Marketing Officer Kenny Jacobs said at a company event at the Hospital Club, a members-only venue near London’s Covent Garden.
Customers have welcomed changes announced so far, with traffic gaining month on month between November and February, O’Leary said at the Design Museum. Load factors for the same period are also up and forward bookings for May, June and July are about five percentage points ahead, he said. Ryanair has changed its ticket-selling model and now makes lower fares available five to six months out.
“This is working already,” said O’Leary, kicking off his Design Museum presentation with a picture of himself hugging a Golden Retriever puppy. “We have returned to being the fastest growing airline in Europe.”
Even with all the changes afoot, O’Leary’s can still play tough guy. Ryanair showed pilots the cold shoulder when some of them voted in a committee in July to demand more transparent contracts, painting them as a privileged caste.
“Never since Noah floated the arc has there ever been a shortage of people who get paid about 150,000 euros to legally fly no more than 900 hours,” O’Leary said.
It is still likely to take at least two years to alter the perception of Ryanair as cheap and aggressive, possibly longer if O’Leary’s renegade image continues to dominate, says Peter Knapp, global creative director at Landor, a branding agency.
“They’ve been so determined to be cheap that the challenge is to find something that they alone can really own and then ultimately find a different way of communicating,” Knapp said. “It’s a very distinctive brand because it stands for such a singular message, but it’s going to be very hard.”
Ryanair readily admits it has some catching up to do. Spain’s Vueling Airlines SA, the discount sister unit of Iberia and British Airways, and EasyJet have built flashy websites, service more primary airports and target corporate travel once dominated by network carriers.
Under EasyJet CEO Carolyn McCall, a former media executive whose air of elegance stands in stark contrast to O’Leary’s brash persona, the airline has boosted the number of business travelers to about 20 percent of its total traffic.
“We already have a gap and it’s very clearly perceived by consumers,” said McCall, speaking en route to Naples where EasyJet opened its third Italian base last month. “What I’m focused on is keeping that big gap.”
By appointing someone with “gravitas,” EasyJet has become a brand that “stands more broadly for innovation, not just low prices,” Knapp said. “They’ve moved away from being just a budget airline and made customers reconsider.”
Ryanair will spend about 35 million euros this year on advertising and digital promotions, effectively tripling its marketing budget. Its first mainstream television commercials outside of Ireland aired in the U.K., Spain and Italy this month, featuring self-mocking reflections on Ryanair horrors moments.
The ramp-up is a marked shift for an executive who once prided himself on using press coverage of outlandish publicity stunts to grab passenger attention. Antics include threatening to make people pay to use bathrooms on-board, buying a taxi license plate to get to work faster, and a calendar featuring scantily clad female cabin crew.
O’Leary is quick to dismiss the notion that a more toned-down role may precede his retirement — not least because he has professed a keen desire to stay out of a house filled with his four children all under the age of nine. While synonymous with Ryanair, the executive’s other interests include a property portfolio worth millions, race horses and a herd of Aberdeen Angus cattle.
A turnaround wouldn’t be Ryanair’s first reinvention under O’Leary, a trained accountant. The executive took over as CEO two decades ago when the airline had less than a dozen planes and lost money. Inspired by a behind-the-scenes visit to Southwest Airlines Co. he proceeded to build it into a European powerhouse with a fleet of 300 jets.
There is a “learning culture” at Ryanair, said Andrew Harrison, managing director Stansted Airport, the airline’s biggest base. “Once they’ve made up their mind, they’re very decisive and they go after execution.”
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