These are dismal times for the airline industry. In the past 18 months, fewer people have been flying because of terrorism fears, war in Iraq and SARS. All the world's major carriers are shedding staff by the thousands, and they expect more cuts throughout 2003. But one airline is standing head and shoulders above the rest: Ireland's Ryanair. The Europe-only short-haul carrier's profits rose 59 percent in the last fiscal year, and its customer base is continually growing. NEWSWEEK's Malcolm Beith spoke to Ryanair's charismatic CEO, 42-year-old Michael O'Leary, to find out the secret of his success and what he foresees for the airline industry. Excerpts:

NEWSWEEK: While the rest of the airline industry languishes, Ryanair is doing fantastically.

O'LEARY: [Laughs] Ah, we're probably doomed.

What's behind your success?

Fare-cutting is the principal factor. But we're also the No. 1 customer-service airline in Europe. We're No. 1 for on-time flights, No. 1 for fewest cancellations, No. 1 for fewest lost bags and No. 1 for fewest customer complaints. I always say that if it was only about lowest fares, Aeroflot would be the biggest airline in the world. It's about lowest fares and delivering what people want, which is [something] safe, on time, reliable... It's not s--ty wine and an inedible meal reheated for the fifth time that day.

By selling tickets through your Web site, you've cut out the middleman.

Four years ago we sold 60 percent of our sales through travel agents, who charged us about 9 percent of the ticket price. Then computerized reservations added about another 6 percent. So we were paying about 15 percent for distribution. Today, 96 percent of our sales are sold across, and the cost is about a cent per ticket.

The last 18 months have been tough times for the airline industry. Will airlines pull through, and if so, how?

Some will survive. [But] these have not been the worst 18 months in the history of the airline business. The problem with the airline industry is that most of it is run by people who lose money hand over fist and then blame outside influences. They all throw their hands up in the air and say, "There's nothing we can do about costs." There's always something you can do about costs. If you take most of our competitors, they've all reduced flights, reduced the number of passengers they're carrying and tried to charge those passengers higher fares. Is it any wonder they're losing money and going out of business?

So what were they thinking?

I think it's the lemming strategy. This idiot is doing it, so we'll follow it as well. It's the same in any industry. If you want to stimulate and grow your business, you lower prices. Only in the airline business do they think, "Here's a revolutionary strategy, let's increase the prices. We'll blame war when fewer passengers want to pay higher prices."

Do you expect to cut your fares even more this year?

We don't expect them to be cut--we will cut them.

By when do you think Ryanair will become Europe's largest airline?

In terms of traffic, we will pass British Airways and Lufthansa in about two years. Which is great. You know their [tagline] for all their ads, "Fly British Airways, the world's favorite airline"? It's based on them carrying the most international passengers. So we're going to write them and demand that we get the slogan. It's going to be "Welcome to the Paddies, the world's favorite airline."

Do you see the larger airlines like BA shifting strategies to follow your lead? And could smaller outfits pop up to challenge Ryanair?

Neither, really. BA have tried twice to shift strategies to follow us. They just can't. BA presently carries about 30 million international passengers, and it has 65,000 staff. In two years we'll have more traffic than them and they'll have 20 times our staff. Can any other start-ups compete with Ryanair in Europe? No, they can't. Because there is no price point below Ryanair.

So you're not concerned with the competition.

Nope. The only thing that worries us is laser travel, you know, [like] "Star Trek." Then we'll be really screwed.

That's probably some way off.

I hope so.

You've said in the past that you foresee a time in the near future when passengers will fly free.

I think it's coming. The days when you could charge consumers $500 and $1,000 per flight are over. We're all running glorified bus services. We've got to make it easier for people to fly.

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