Beer and airlines – not a good mix

India is buzzing with news about the dipping fortunes of liquor baron Vijay Mallya whose creditors recently padlocked his sprawling mansion located in a three-acre (1.2 hectare) spread in Goa – said to be the richest state in India – triggering a battle royale for possession of the mansion that Mallya reportedly describes as his “sacrosanct home.” Mallya, who happens to be the chairman of the United Breweries or UB Group with diverse business interests in brewing, distilling, real estate, pharmaceuticals, fertilizer, biotechnology and information technology, was taken off the billionaire league and the global rich list of Forbes Magazine last year because of his dwindling fortunes which has dipped even further down by $50 million last year to $750 million, with his ranking slipping to #84 (from #73) in Forbes’ 2013 list of 100 richest Indians.

Mallya was only 28 when he took over United Breweries built by his industrialist father Vittal Mallya who suddenly died in 1983, with board members unanimously voting the young Vijay to the position of chairman. United Breweries is the maker of the Kingfisher Lager Beer brand, said to be the number one beer in India and associated with the Indian

Premier League (the Indian professional cricket league). Soon after his election as chairman, Mallya embarked on a “modernization” plan, spinning off into a lot of other businesses which he consolidated under the umbrella of the United Breweries Group. 

The flamboyant Mallya apparently wanted to fly even more so he put up Kingfisher Airlines in 2005, which unfortunately failed to soar since the airline began suffering losses from the time it started operating – made even worse by the acquisition of low-cost Air Deccan (later rebranded into Kingfisher Red) in 2007. By 2012, Kingfisher Airlines was bleeding with losses escalating to $1.1 billion, could hardly get off the ground with half of the fleet grounded, and employees threatening to sue because they were not getting paid. 

The Kingfisher’s wings finally got clipped in October 2012, with the company going belly up due to huge debts and losses. Apparently, the beer baron is obsessed with making his airline fly again because he is reportedly trying to sell his 25 percent controlling interest in his liquor business – which could reduce his interest to a mere 15 percent. Mallya’s experience is an example that beer and airlines may not be a good mix.  

Is RSA selling SMC crown jewel?

News on Bloomberg quoted San Miguel Corp. president and COO Ramon S. Ang (RSA) saying that there are many interested buyers for the majority stake in San Miguel Brewery. Loyal San Mig drinkers are nervously reaching for the bottle of their favorite brew. According to reports, Japan’s biggest brewer Kirin – which had already acquired 48 percent of San Miguel Breweries, has first option in acquiring the remaining 51 controlling stake in SMC.  Ang had said he is “not interested” in selling, but he admitted that several interested parties have approached him – something that economic analysts said could be a signal that he is waiting for Kirin to offer a very attractive price. 

The San Miguel Beer brand controls over 90 percent of the market in the Philippines, and is a source of pride among Filipinos because of the popularity of the product that can give other drinks a round for their money. Ang, who also happens to be PAL president, has also embarked on an aggressive $9.5 billion fleet modernization program with the purchase of 65 brand new Airbus aircraft – the largest in the history of Philippine aviation. Yesterday, PAL had its maiden flight for London – the first flight to Europe after 15 years – which signals the serious bid of RSA to regain the preeminence of PAL as the country’s flag carrier. 

Some assets are being sold to finance the ambitious re-fleeting program for PAL. Sources say the 27 percent SMC stake in Meralco is being sold to John Gokongwei’s JG Summit group, but people are hoping that Ang would not let go of the beer business and that ownership of the world class brand would remain in the hands of Filipinos. In any case, many are saying there is a certain irony to the fact that Lucio Tan divested his shares in Philippine Airlines and sold them to San Miguel/RSA to focus on his beer business (Asia Breweries), while Ang seems to be concentrating on the airline business.

AirAsia Zest getting bigger foothold

If ZestAir owner Alfred Yao pushes through with the sale of additional shares in the budget airline to the group of AirAsia’s Tony Fernandes, then this would give the Malaysian company a bigger presence, not to mention a stronger foothold, in the Philippines. If that’s the case, this could bring Ramon Ang’s group with PAL Express president Iñigo Zobel head-to-head against the group of Tonyboy Cojuangco who, along with Mikee Romero, Maan Hontiveros (and a few other shareholders) own 60 percent of AirAsia Philippines.

Last May, AirAsia Philippines (which previously did not have a hub in NAIA), acquired 49 percent of ZestAir, which has since been rebranded to AirAsia Zest. The low-cost airline has been increasing its flights with plans to expand its presence in Cebu and offering one international destination eventually. PAL Express (formerly Airphil Express) is the low cost sister airline of PAL serving domestic island points and secondary routes with hubs in NAIA and Cebu.

According to airline industry experts, the low-cost industry in Southeast Asia is expected to grow even more rapidly in the coming year. But one thing is certain –  the competition will be even more fierce.

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