Vijay Mallya, chairman UB Group: High life

Photography by Kevin Phillips

It is early evening and a sleep-deprived Vijay Mallya, founder of fledgling Kingfisher Airlines and chairman of Indian conglomerate UB Group, is on a conference call at his New Delhi home. Under discussion is a bid for French Champagne producer Taittinger. As he talks with his senior staff around the world, a text message comes in on one of his mobile phones. Before checking it, Mallya lights up a cigarillo with a lighter branded with the logo of his top-selling beer, Kingfisher, after which the carrier was named. He picks up his BlackBerry and taps out an email, gold chain with initials VJM in diamonds weighing heavily on his wrist. He grabs a bottle of Kingfisher and takes a swig before checking the text message.

It is from an employee to tell him that one of his aircraft has just departed. All his airport managers have to send such messages every time an aircraft takes off, specifying the time it spent on the ground and the number of passengers on board. It is the kind of micro-detail that Mallya says helps him understand how his fast-growing new airline is doing. Although supremely confident, he admits to having had to “run up the learning curve in this business pretty damn quick”.

While running a conglomerate that at its core is one of the world’s largest alcohol producers, 50-year-old Mallya somehow finds time to be an elected Member of Parliament – and probably the only male MP with diamond ear studs. A flashy dresser, he also pilots aircraft for fun, collects vintage racing cars, hosts lavish parties, sails his yachts and regularly visits his wife and children in San Francisco. Befitting his playboy image he has a fleet of private aircraft to shuttle him around to his many homes in India and elsewhere.

One of India’s most flamboyant, high-profile and outspoken businessmen, Mallya’s days are stretched more than usual as he spends an inordinate amount of time on his latest venture, Kingfisher Airlines. The billionaire (Forbes magazine ranks him the world’s 746th richest person with a $1 billion net worth) launched the airline with great fanfare in May 2005.

Yes, it lost a little more than $40 million in its first year, but in terms of attracting frequent “guests” – he bans use of the term “passengers” – it has already established itself as a key player in the fast-changing Indian market with a domestic market share of 9%. Mallya claims it is right on track to meet planned forecasts and is anticipating profitability in 2007.

For the record, Mallya is well aware of the joke that the best way to make a small fortune in the airline business is to start with a large one. But he insists it does not have to prove true in India. “I suppose there is some truth to that statement in the international context, in the more developed countries. But in India the opportunity is unique. I don’t know of any country in the past 25 years that has offered growth potential in civil aviation of 25% year-on-year,” the tycoon says in an interview at the heavily guarded New Delhi home where he stays when parliament is in session. “In this changed and rapidly changing and growing economy, an airline doesn’t necessarily have to make a billionaire a millionaire.”

Since taking over UB at age 27 after his famed industrialist father died suddenly, Mallya has grown it into one of the world’s largest spirits producers. Best known for its hard liquor and Kingfisher beer, it also has interests in engineering, fertilisers, infrastructure, media, pharmaceuticals and trading.

Mallya first tried to get into the airline business in 1990 through the establishment of UB Air, but the plug was pulled on the project when the government said it could only be an air taxi operator. Things are different now, however, as the current government has proved it is serious about liberalisation and flying is no longer considered a luxury.

A fresh look was taken at the business in January 2004, amid a media buzz following the launch of Air Deccan as India’s first low-cost carrier. Until then there were only two dominant domestic airlines, state-owned Indian Airlines and privately owned Jet Airways, followed by the smaller Air Sahara. Air Deccan’s success led to the launch of other no-frills carriers, such as SpiceJet and Go Air, and this year alone the government expects the number of domestic passengers to jump 40%, after 25% growth last year.

Mallya says extensive research determined that the no-frills concept was not for Kingfisher Airlines, which like virtually everything in the UB stable is positioned as a premium “lifestyle” brand. In an environment where there are no secondary airports in major cities, high fuel taxes, frequent delays, a shortage of skilled personnel and requirements for airlines to serve so-called “social” routes, a no-frills operator’s costs cannot be much lower than a full-service carrier’s, he adds.

Instead, UB opted for a single-class, full-service offering appropriately dubbed Kingfisher Class. Brand is everything with Mallya and even naming the airline after his popular beer was considered genius, as India has stringent alcohol advertising restrictions and Kingfisher Airlines effectively advertises the brew. Alcohol still cannot be served on board, but Mallya is lobbying to have the law changed.

Kingfisher launched with a handful of leased Airbus A320s and purchase orders in place for many more. By its first birthday on 9 May it had eight A320s, three A319s and two ATR 72 turboprops, with 10 more aircraft due this year. It already serves 16 cities with 70 daily flights and next year’s market share target is 15%. It is an extremely ambitious goal given the many new competitors, but the brash, risk-taking businessman is not bothered.

“This low-cost model they are talking about in India and creating a huge amount of hype over is nothing more than a bubble waiting to burst,” says Mallya. “What is the difference between a low-cost and a full-service carrier in India? The $20 of the goodies and the good food that I give out. Our yields are significantly higher. These low-cost carriers are only creating big hype in order to achieve market capitalisation so that in the initial public offering their owners can make a quick buck. We don’t need to create a quick buck. Our reputation is more important to us.

“We are building a sustainable business model in which we cut costs where they can sensibly be cut, but we also offer a premium-class product to the growing wealthy Indian. That is the model. People who get enamoured with the opportunity of converting the railway passenger to the plane, that model is not going to work.”

As with US carrier JetBlue Airways – which Mallya once flew cross-country for research purposes, with his personal Boeing 727 following to collect him at the destination – Kingfisher Class features personal televisions at every seat. This was something new to the market and it has proved a big hit in an entertainment-loving country of 1.1 billion people, which produces more movies each year than Hollywood. Mallya says load factors are so high that he has been able to “shut off all the lower fare buckets, which means my revenue yield has gone up significantly”.

Taking on Jet Airways
His main target is the established full-service operator Jet Airways. Its domestic market share is estimated at 35-40% and this will grow if it completes a $500 million acquisition of Air Sahara, which was agreed early this year but which recently looked to be in danger of collapsing. Mallya himself toyed with buying Air Sahara, but very publicly walked away, saying the asking price was too high. Jet signed its takeover deal soon after and many industry observers saw it as a defensive move, as slots are in short supply at the main airports and had Mallya acquired Air Sahara, Kingfisher’s growth could have been accelerated.

Not to be outdone, however, headstrong Mallya is now going after Jet where it hurts most: at the front of the aircraft with Kingfisher First, which caters to the high-yield business market.

Introduced in April and currently on just four aircraft, perhaps nowhere in the world is there a domestic product with as many frills. Even for short sectors there are generous amenity kits, three-course meals, video entertainment, better seat pitch than the competition, personal “valets” to escort passengers through security and on to aircraft – even an in-flight suit press.

Jet did not become the market leader by accident, however, and the well-regarded, profitable airline has been making improvements to its own business class. Chairman Naresh Goyal also hinted recently that changes were on the way in economy that may include in-seat video.

For all his bravado and regular anti-Jet rhetoric in the local media, Mallya knows his main rival should not be underestimated. But he brags that Kingfisher has such an increasingly loyal following and UB Group the credibility and deep pockets to make it India’s largest privately owned carrier in terms of capacity and market share by 2010.

“Kingfisher today has established itself as the only serious rival to Jet Airways, the market leader. More significantly with my first class, Kingfisher is today regarded as India’s best airline. I have understood how to raise the bar,” he boasts.

“Look at my products, be it beer, the vodka, the whisky, the rum, whatever it is. I always refresh my product. I do not go to sleep saying that I have a ­winner here. That is where I caught Jet napping. Instead of constantly refreshing their product and making it better they just allowed it to get tired, thinking they were unbeatable.”

Mallya – whose New Delhi villa is ironically next door to a monstrous house being built by Jet’s Goyal – is not stopping at the domestic market. He wants to go international next year, and he certainly will have the aircraft to do so. On order with Airbus are five A330s for delivery from next year, five A340-500s from 2008, five A380s from 2010 and five A350s from 2012. Together with additional A320-family narrowbodies and ATR turboprops on order, current plans call for a fleet of 69 aircraft by 2010.

His aim is to serve the India-USA market on a non-stop basis, which no Indian airline does now. But there is a very big problem: under Indian government rules Kingfisher cannot fly abroad until it completes at least five years of operations, or May 2010.

The shrewd Mallya rarely shies away from a challenge however, and is lobbying aggressively for the rules to be changed. He is better placed than most, as he is impeccably well connected as a member of the influential Parliamentary Consultative Committee on Civil Aviation. So far it does not look promising, but Mallya says he will keep lobbying “until the very last day”, quickly adding that he also has “commercially viable back-up plans”.

One is to have a US-registered airline operate the aircraft on Kingfisher’s behalf, flying “the other way around” into India. Talks are ongoing with at least one scheduled operator in the USA and Mallya says it is a realistic alternative. Another would be to set up an all-new US airline and Mallya has already registered a company called Kingfisher International in Delaware for this purpose, with the majority of the shares held by his US-national children. He recognises that this is a much more complicated option, however.

Mallya readily confesses to unashamedly living like a king and spending his vast fortune on “the good things in life”. But the fact that he is so often in the pages of India’s high-society magazines on par with Bollywood celebrities does not mean he is flippant when it comes to business. Those who know him say that stubbornly tearing down regulatory barriers is a passion and he loves to come first in whatever he goes after – whether it is in business deals or racing cars, for which he has won trophies over the years.

He admits to being “a very tough task master”, known for calling employees or holding meetings in smoke-filled rooms at ungodly hours. But he insists his closest work confidants – who refer to him as “Boss” or “Dr Mallya” because of the honorary doctorate he holds – are free to make their own corporate decisions where appropriate.

Attention to detail
It seems contradictory, then, that he is micromanaging Kingfisher Airlines so forcefully. He not only studies aircraft turnaround and load factor trends through text messages, he flies on his airline regularly to monitor service standards and is involved in virtually everything from the selection of staff uniforms to interviewing would-be employees. Particular attention is paid to flight attendant interviews, with Mallya insisting he needs to personally vet every future employee who will have contact with a “guest” to ensure strict quality control is maintained.

It is not what one would expect of the chairman of a business empire with well over $2 billion in annual revenues, but he sees it as an important responsibility in his additional role as chairman and chief executive of Kingfisher Airlines.

“My management of the mainline UB companies are people who have reported directly to me for over 20 years. They are people who are my trusted loyal lieutenants who know exactly what I want and how I want it done. So it is fair to say that most of UB’s big businesses are on autopilot and I need to just call them in for discussions on new ideas, new initiatives and stuff like that,” he says, pointing to a front-page newspaper article on the sought-after Taittinger acquisition (his bid was later withdrawn) as an example.

“But the airline, this is such a huge investment by UB and it’s so damn visible. If there is one wrong move in Kingfisher Airlines it could spell disaster. I am aware of that. Once I am established and I have the reputation of having an absolutely fine airline, then I can put this on autopilot too. Until then, this is not something I take lightly.”

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Source: Airline Business