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Ron Baron Comments on Ryanair

August 02, 2013 | About:

In the world of publicly-owned businesses, we try to invest with the same sort of individuals. In our opinion, Michael O'Leary, Ryanair's Chairman and CEO, is one such example of a talented, driven executive. Michael was born on a farm in Ireland, the second oldest of six siblings. Although his beginnings were not remarkable, Michael figured out how to get the best education he could by attending the best schools he could. After attending a Jesuit boarding school as a young boy, he graduated from Trinity College with an accounting degree; began his career working for KPMG, a large public accounting firm; and, soon afterwards, became a financial advisor to Tony Ryan, Ryanair's founder. In 1986, Michael was hired to work for Ryan and initially advised him to close the airline immediately since it was losing so much money! In 1989, when Ryanair (RYAAY) was on the brink of insolvency, Ryan offered Michael the job of Deputy CEO of the airline and in 1994 as its CEO. Michael accepted, on the condition that if he couldn't make it profitable, he would be allowed to shut it down! He also chose to work for a percentage of profits rather than for a salary from the money losing business.

Michael then began to study Southwest Air (LUV), the most profitable airline in its industry. When Michael recently visited us and, when we asked, he described the epiphany he had at Love Field in Dallas more than twenty years ago when a Southwest Air plane landed. The Southwest Air plane was immediately surrounded by its ground crew that Michael thought looked like swarming locusts! The Southwest Air plane was quickly prepared for its next flight; its new passengers boarded; and the plane took off for its next destination in about half the time other airlines needed to prepare their planes for flight. Michael immediately grasped the reason Southwest Air planes produced more revenues and profits than others' planes. It was because they flew on average two more short haul flights every day than others! Michael put that lesson into practice at Ryanair. In the hub airports where his airline had previously operated, the inefficiencies of those welllocated facilities made it impossible to turn around a plane for takeoff in less than an hour. Ryanair then began to operate from less convenient and less crowded but more efficient regional airports. His goal was to turn around Ryan's planes in less than 25 minutes! Further, while flag carriers which land in hub airports pay an ever increasing amount per passenger, each year to use those facilities, Ryanair is paid to land at regional airports that are seeking jobs and tourists! Ryanair passes those savings on to its passengers, with significantly lower fares and better service. Of course, its customers need to be willing to travel using airports that are a little less convenient.While competitive flagship airlines are losing money or are marginally profitable, Ryanair is profitable and growing quickly.

We think our portfolios of about 400 investments in competitively advantaged companies with big growth opportunities are operated by hundreds of entrepreneurial executives who will somehow find a way to make those businesses successful. None of these executives are exactly like Michael, which I am certain you could tell in an instant after meeting him. But, they are, nevertheless, terrific executives whom we have confidence will be able to overcome whatever "insurmountable" issues they encounter…and, in most instances, the businesses they operate will become much larger than at present. Of course, there can obviously be no assurance this will be the case.

From Ron Baron's second quarter 2013 commentary.

Rating: 3.0/5 (1 vote)

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