SANTIAGO - The recent decision of the U.S. Justice department to block the acquisition of Mexican beer giant Grupo Modelo by the Belgian Anheuser-Busch InBev came as a surprise.
The $20 billion acquisition was announced last June, and what’s surprising is that neither company involved is technically an American company.
Belgium-based multinational AB InBev is the largest brewer in the world. It was formed in 2008, when Belgium-Brazilian InBev bought American brewer Anheuser Busch. InBev was formed four years earlier, when the Belgian Interbrew and the Brazilian Ambev merged. Ambev had itself been formed by an earlier merger between Brazilian beer brands Antartica and Guarana, giving the Brazilian company a near monopoly on beer sales in Brazil and a huge portion of the South American market.
Grupo Modelo is the largest brewer in Mexico and also has a significant portion of the market share in the U.S., thanks to the success of Corona, America’s number one imported beer. AB InBev already owns half of Grupo Modelo. The U.S. wants to prevent it from buying the other 50%.
What right does the U.S. have to prevent the merger between two foreign corporations? After the acquisition, AB inBev would control more than 50% of the total U.S. beer market, which would allow them to manipulate prices and hurt consumers. The U.S. government is not using anti-trust laws to prevent the acquisition, because it doesn’t have jurisdiction. Instead, it is asking the courts to decide whether the merger should be stopped because it will make price collusion easier, which would hurt U.S. consumers.
It might seem like this case is not relevant to Latin America, but it is, and not only because AB InBev has its hands in Brazil, the third-largest beer market in the world. The truth is that the U.S. market is not the prize in this acquisition - it is Mexico. By buying Grupo Modelo, AB InBev is doing the same thing it did in Brazil – buying the dominant company and then increasing margins by reducing costs.
Fighting monopolies and price collusion
The case is a good example of the complexities involved in globalization. It’s not enough if companies have anti-trust laws as long as some countries – Ecuador and Guatemala come to mind – don’t even have an agency to enforce those laws.
Price collusion tends to happen in small economies where it is difficult for several companies to compete in the same industry. Chile, for example, has a market economy with clear anti-trust laws that are actively enforced, but in spite of that it has had several cases of price collusion in the past couple years. There has been collusion in the price of medicine, for example, which is probably caused because almost all the pharmacies in the country are owned by three companies.
In market economies, the state has the responsibility for making sure that no company has monopoly power. When an industry depends on government concessions for its operations, the government has the responsibility to issue enough concessions to allow real competition.
The U.S. Department of Justice is right to say that the absorption of Grupo Modelo by AB InBev will make the prices go up and paralyze innovation. But Mexico should have been the one standing up to the merger, not the U.S. And that would have happened if the Mexican government was more committed to protecting competition.
The lesson for all of Latin America is that each country should strengthen its defenses against monopolies. At the same time, countries should standardize their practices, so that what is unacceptable in one country will also be unacceptable in another.
Coming back beer – If AB InBev ends up rescinding its acquisition offer; it will have to pay a $650 million breakup fee. If it goes ahead with the deal, it can look forward to a long and costly battle with the U.S. Department of Justice. But the lesson is that when there are mergers that will allow price manipulation, the consumer defender can pop up from the most unexpected places.
Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.
It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.
More than a year later today, experts believe that air traffic won't return to normal levels until 2024.
But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:
Cleaner aviation fuel
The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.
While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.
Fees imposed on the airline industry should be funneled into a climate fund.
In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.
Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.
High-flying ambitions for the sector
Hydrogen and electrification
Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.
One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.
Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.
New aircraft designs
Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.
International first class will be very nearly a thing of the past.
The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.
Aerial view of Rome's Fiumicino airportcommons.wikimedia.org
Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.
The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.
Data privacy issues
However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.
Auckland Airport, New Zealand
The billion-dollar question: Will we fly less?
At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.
Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.
40% of Swedes intend to travel less
According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.
But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.
At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.
- How Persian Gulf Airlines Surged To Top Class Of Travel Industry ... ›
- How Countries Are Coping With A Tanking Tourism Industry ... ›
- COVID Recovery? End-Of-Summer Checkup On Travel Industry ... ›