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QUEST MEANS BUSINESS
Interview with CEOs of Continental, United Airlines; Stock Markets Down
Aired May 4, 2010 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: It`s a markets rout, the stock markets, the euro, you name it, they`re all heavily down.
At the heart of the sell off is Greece; more problems for an unpopular government.
And a merger, and making sure they don`t make a mess of it. Tonight I speak to the chief execs of United Airlines and Continental.
I`m Richard Quest. We have an hour together, and I mean business.
Stock markets tonight bearing the scares of a fierce sell off and traders spending the day off loading stocks commodities and the single European currency. What we`re seeing is a growing crisis of confidence and it seems to be all about the Greek bailout. European Union and the IMF may be launching the lifeboats soon. There are doubts that Greece will carry out the structural repairs it needs to keep the economy afloat.
Add to that worries over the strength of the Chinese economy, plans for a super tax on mining companies in Australia, and this disastrous oil spill, and it makes-
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-for a very bad session. Wherever we looked today the news was simply grim. Come and join me over in the library.
The European stock markets were off very heavily. They`re down 2.56, that`s the London FTSE, the Xetra DAX was off 2.6, the Paris CAC currant, was down 3.64. Now, within these markets, what we specifically saw were mining shares off very sharply in London because of the proposed 40 percent tax in Australia. In Paris we saw Renault, we saw Peugeot off very sharply. Over in Germany, Deutsche Telecom was down nearly 9 percent on its own worries, but still that took its toll.
But look at what happened with the Southern European indices. Athens down 6 percent; Spain was down 5.4 percent. And Portugal was off 4 percent.
Now these two, this is classic contagion. In the Spanish market BVVA, the bank, and Santander-Santander lost nearly 7 percent. And that is one of Europe`s largest banking conglomerates. So, you get a very good idea that it was broad-based, it was brutal, and it was deep. An the euro also suffered a serious trend. Down off by 1.50 versus the dollar. There were protests in Greece. Now there had been hope-and a wing and a prayer-that the agreement to bailout Greece would give the euro the support that it sought, or that it needed. But with the euro down just at 129-130, it`s lowest level in 12 months. That of course shows the shear lack of confidence the dollar was the gainer on that.
This is interesting. Traditionally you`d have seen gold going up by 10-sorry, you`d have seen gold up, in a crisis like this. Today, gold did rally very sharply and then came back down again after the Greek-the Spanish prime minister said it was total madness, complete madness, were Mr. Zapatero`s words, to suggest that they would also seek a bailout. Gold down $10. Oil was off, that was on the spill, all sorts of other matters.
And if you take a look at what`s happening in New York, at the moment, the Nasdaq is off more than 3 percent. The Dow Jones, though, is down 2 percent. We`re now under-well, under 11,000 and frankly, at this moment, even 10,900 looks a little dodgy.
Maggie Lake is in New York.
Maggie, are we at the lows of the day? I can`t quite remember with the Dow. I think we must be pretty close to it.
MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Yes, not quite, Richard. But we are holding on to this, into the close. Europe`s already finished, so this is going to be a weak day, no doubt about it. And it is very much about Europe. Not so much about Greece, but about the fears of a contagion. About Spain, and the rumors, which as you pointed out, were roundly dismissed.
But I want to make a really important distinction here. None of this is new news. These fears are not new. So, my question to people today is why today are we seeing the selling? And what I`m being told is that you know, throughout last week as you were watching the story develop, you had that as downward pressure. But you had upward pressure coming from really good looking earnings and the economic fundamentals. And the data is, even today, still positive. But we are out of earning season now. So, all of that good news is priced in.
Money managers, investors, are looking at really nice looking performance and big gains for the first quarter. In that environment do you take a chance with the political headlines and risks out there? No. You book your profits. You move to the sidelines. And you know that old chestnut, is being pulled out again, you know, sell in May and go away. But people I talked to say people believe it, its real, that seasonal affect. So, it is that sort of caution that is playing in here. And what we`ve seen, this big run up, as opposed to real fears that anything like that is going to happen tomorrow.
QUEST: Maggie, I have to say, you are the first person who has tried to put the 2 percent fall in the Dow to sell in May, go away. I thought that old bromide in the market had gone out with those of us who are over 40.
Look, Maggie. That is the fascinating part about what happened today. If we look over at the European markets you see that they were off very sharply, too, down 6 and 5 percent. The dollar gains as a result of the euro, oil and gold. But, Maggie, there is no obvious reason why on a Tuesday in May it happened.
LAKE: It is though, Richard, because we`ve seen these big gains. It`s been coming. Remember we had a couple of days last week where the market went down, but then it bounced up. We`re out of the earnings season, all that upward, those positive catalysts are sort of fading. And listen, so many people have been calling for a pull back, saying we were due for a pull back. Now you`ve got a good excuse. You`ve got some good reasons. And they`re real. Don`t get me wrong.
People are concerned about the situation in Europe, especially Germany. Do they have the money? Do they have the will to step in if anybody needs help? The feeling over here is, no they don`t. But when you`ve had people who have been chasing bad performances over the last few years, this is very real. By the way, very important to say, it`s not over, a lot of people talking about the fact that you could see a 10 percent pull back here over the course of the next few weeks if the headline news is still negative. So, today might not be the end of it, but it is going to be choppy as we go through this.
QUEST: Maggie Lake, in New York, with the Dow off more than 2 percent. Maggie, many thanks.
One of the issues that was raised in Germany, of course, was whether or not a country could become insolvent. Members of Angela Merkel`s coalition party are hoping to put before parliament a proposal that would mean that certain countries could indeed have an insolvency. That, they believe, would prevent a Greece from happening elsewhere.
Earlier I spoke to Azad Zangana, the European economists at the asset management company Schroders. And I asked him, when you look at the totality of the day what took place?
AZAD ZANGANA, EUROPEAN ECONOMIST, SCHRODERS: Well, the fears are over Greece and now additionally Portugal and Spain, in terms of their sovereign debt, are simply reignited again. The unprecedented bailouts announced over the weekend has simply not quelled the fire spreading through sovereign debt markets and we are now seeing wider fears of potential sovereign default from Greek government bonds in particular, perhaps not initially in the first three years, but in the next-following the three- year bailout is completed.
QUEST: As I look into the market data, we`re seeing it broad-based, construction companies, telecoms, in Germany; the car companies in France, were down very sharply. The only thing that seemed to rally in any small sense were the non-cyclicals and the FTSE.
ZANGANA: Well, that`s right and defensives would have been doing very well from this today. Of course, the problem for Germany and France is even though they are export dependent, they are dependent on exports to the rest of the Euro Zone. And any fiscal austerity measures are going to be harsher and earlier than previously expected. Then that growth is going to be hit and that export demand is also going to be hit.
QUEST: You talk about the Greeks, the lack of confidence, basically, in the rescue package. Now if that is right, I mean we even saw today the yield on Greek bonds rise. That is extremely serious. It is sending a signal that the markets don`t believe the plan, either in its efficacy or in its ability to implement.
ZANGANA: That is absolutely correct. And the yield curve is once again inverted. Greek two-year government bond yields are now higher than when the Greek package was announced, the bailout package was announced last week.
QUEST: Sure, but with that in mind should we be concerned about what is taking place today?
ZANGANA: I think we should certainly consider the potential for a Greek default some point in time in the future. And we need to be very careful about how far this contagion spreads, and whether other governments are going run into similar problems. Let me just give you and example. If Spain runs into a similar kind of difficulty the Spanish package would cost around 205 billion euros. And on top of that, you would need to provide and additional 10 billion euros for the amount that Spain was going to provide to Greece for this bailout.
QUEST: One final point does occur to me. What will it take to bring the markets back into some sort of confidence measure?
ZANGANA: That`s a very difficult question to answer. But there are rumors circulating among the markets that the ECB may at some stage partake in more traditional quantitative easing methods. That is, going into the secondary bond market and actually purchasing Greek government bonds along with Spanish and Portuguese government bonds. That is certainly not a nailed plan to stem this crisis, but it certainly would help.
QUEST: Azad Zangana of Schroders. It has been a very busy day, not only in the markets, and in the business world. The news just hasn`t stopped and Becky Anderson, now, at the CNN News Desk to bring us up to date.
QUEST: In a moment, the people along the U.S. Gulf Coast are putting their faith in floating oil barriers. That is about all that is between them and more than 3 million gallons of oil. It`s drifting their way. The weather is playing a role in all of this. We will consider it all, in a moment.
QUEST: Shares in BP are continuing a downhill slope. This session slides another 3 percent off the value of the shares. Since April 20th when an explosion ripped apart an oil rig that they had leased in the Gulf of Mexico, BP`s market value has dropped about 17 percent, $28 to $30 billion. BP says it is spending $6 million a day cleaning-the clean up effort. The eventual bill looks certain to be in the billions. That share price, incidentally, is the lowest that it has been for 12 months or so.
BP has agreed that it will pay the costs of the clean up, but the company`s reputation could be very seriously damaged-well, is being seriously damaged if the leak is not plugged soon. The waters in the Gulf of Mexico are calm and that made it easier for the emergency teams to once again deploy their floating barriers, hoping that the booms can keep oil from the ruptured wells that makes landfall. Biloxi, Mississippi is about 120 kilometers east of New Orleans. And like the rest of the region it is waiting for the oil. In Biloxi, Richard Lui is tonight for us.
Richard, we know the weather is playing a role in all of but what is the situation? Is there oil coming your way? And if so, when do they expect it to arrive?
RICHARD LUI, CNN CORRESPONDENT: You know, Richard, weather is playing a very key consideration here. You can see that it is a sunny, sunny afternoon here, but just this morning and overnight, it was quite inclement. Very difficult for the planes to get up in the air even for NOAH, the federal government agency that measures the size of this oil spill. Tough for them to get up to make their estimates. Today is a good day to deploy the booms, it is a good day to make flyovers to put the dispersants and perhaps the boi-remeditative (ph) agents that they need to put on top of that oil spill for.
But you know what is at risk here really is the issue of the entrepreneur. This is the land, we talk about the Gulf Coast, the land of entrepreneurs that have gone through many families, father to son, father to son, father to son, they go out and they buy a boat. And as they say here, they hang a shingle and they begin to start a business developing relationships. Unfortunately, with a 10-day moratorium right now. It is becoming very difficult for them to continue to have those two, three employees that they have had for years or even decades, in case-instead they have to dig in to their reserves. Which in some cases are only a month or two months long.
OK. But this is also a place that is used to adversity. They are going to put up a fight. They are not going to wait for BP. They are not going to wait for the government, and so many of them are actually buying their own booms, their own absorbents, even. Spoke with one individual, one business owner, small business owner, called Sonny Middleton. And this is what he`s doing and what he told me.
SONNY MIDDLETON, MISSISSIPPI WATERMAN: Got to do something right here, on our own, right there that is the mouth of Dog River.
This is all the area, the marshlands that you have got to deal with.
LUI (On camera): What do we have at stake here?
MIDDLETON: We got homes, we got marinas, we got restaurants, we`ve got boat yards, we got all of the marsh area.
That is heavy duty boom, and we`ll use it in the river if we have to.
LUI: Why are you doing this?
MIDDLETON: Because it is our livelihood. We have 38 families here. That work here, besides all the other marinas, if we don`t take care, we ain`t going to have a job.
We had a meeting this morning with all of our people. I said, I`ve been through fires and tornadoes and hurricanes. I`ve never had to do this. Never laid anybody off, I don`t want to lay anybody off, we`ve got to bust our tails and make it work.
LUI: What`s this over here?
MIDDLETON: That`s the eight-inch boom.
LUI: These are the eight-inch booms?
MIDDLETON: Yes, sir.
LUI: So, this is what you`ve got just for your defense right now.
MIDDLETON: That`s right, take care of it.
LUI: So, if the oil gets in here?
MIDDLETON: We`ve got a mess. We got a mess. It won`t be cleaned up in my lifetime.
LUI: Not in his lifetime, but you know what he is also thinking about protecting here, Richard, is also the 900 other homes that are in that same Dog River estuary. He is thinking about saving the wildlife there, manatees, egrets and all the rest. Just to give you a sense of what is at risk, when we talk about shrimpers for instance, there is one estimate that says three-quarters of the shrimp that is caught in the United States happens right over my shoulder right here. That is worth over $125 million. They are not doing any of that right now, because of that moratorium.
QUEST: Richard Lui, tonight for us in Biloxi and we`ll be following up with Richard in the days ahead.
On the corporate front, BP is shouldering the blame for all of this. President Obama has told the company it is responsible and it will pay the bill. And that is something that Tony Hayworth, the chief exec, has agreed with. But the oil giant is one of several companies which had a hand in the ill-fated rig. Jim Boulden is with me.
Jim, BP says it is responsible. It didn`t cause the accident.
JIM BOULDEN, CNN INT`L. CORRESPONDENT: Right.
QUEST: But it is responsible for the clean up costs. Take it from there.
BOULDEN: Yes, I think it is interesting Mr. Obama called it the BP oil spill. He has made sure that name is in there the whole time. But BP is only one company in all of this. BP is by far the largest owner of this well. It got the lease in 2008. It owns 65 percent of this operation, while Anadarko Petroleum, a U.S. company, owns a further 25 percent. And Mitsui, out of Japan, owns 10 percent. Now, that is of the other operation itself.
Now, everyone around it, there are other companies around it, Transocean, we know owns the Deepwater Horizon rig. It says on its web site that it has insurance to recover the money for the loss of that rig. But also, Halliburton, a name we know very well, of course, quite a controversial company, oil services. It does a lot of work in the Middle East. It was cementing, it was capping that well when things to have gone very bad. So, Halliburton is in there as well. And a little company called Cameron, which I had never heard of. They are supposed to have the blow out preventer. They are oil services. They have a lot of oil equipment that the oil companies use. So they are in that mix as well.
So, we get back to this idea in the long run BP paying out all this money, which it will be, it is unlimited when it comes to the spill itself. It has to clean it all up. But then there is the $75 million limit when we are talking about the economic impact, about the loss of jobs, when they are talking about that kind of stuff. And that is when it all gets kind of murky. Will BP also be looking for money from its partners in this operation?
QUEST: So, let`s be clear. All these other companies, the Halliburtons, the Transoceans, the Anadarkos, they are all liable along with BP, or could well be liable. And BP will be looking to them to help shoulder some of the cost?
BOULDEN: I could see them doing that, if you look at the lawsuits which have been filed, which is a whole other story. We have already lawsuits filed. The company-lawyers are mentioning BP and Anadarko, Cameron, and Halliburton. Here is the interesting thing. I talked to a lawyer to day. In the oil pollution act of 1990 companies are supposed to, people damaged are supposed to submit claims to BP, to pay these claims, and then you are supposed to have the lawsuits if you need to. So, there is a question whether these lawsuits make any difference at all. They may be thrown out, if the judge decides to do that.
QUEST: Whoever ends up paying the cash, all of these other companies, their reputations, internally, with in the industry, may be sullied, but it is BP that will always be known as the cause of the Gulf shores, of the Horizon oil spill, however unfair that might be.
BOULDEN: And that is why I think they`ve been very clear-you know, there is this. They have a phone number you can call already to get the liabilities, if you think you have been damaged. You can already call the 800 number. They already have the forms. They already have people there, seven days a week, 24 hours a day; 2,000 BP employees on the line already, working in that region to BP to do this. Now, I have to say, they have to do this. This is what the law says. Not only do they have to clean it all up, but they have to be seen to be doing a lot and the law stipulates that they have to advertise themselves. Meaning they have to make it very easy for people to make claims. And so far, that what BP is doing.
QUEST: Thank you for that, Jim Boulden. Many thanks.
Now, when we come back, they are ready to fly United. The CEOs of Continental and United Airlines talk to me about the merger that will make them kings of the skies. In just a moment.
QUEST: Together they say they are better. I spoke to the two men who could soon be running the world`s biggest airline, United Airlines; the merger, of course, of Continental and United. Jeff Smisek and Glenn Tilton, they are the two chiefs. They agreed a $3 billion deal to merge their two companies. It is a deal that has absolutely enlivened the aviation industry, because it would create the largest. But putting airlines together is notoriously difficult. There are different cultures, there are different ways of operating, different rules. And you idea is to do this, what you don`t want is that. So, I began by asking the two men how they are going to do it.
JEFF SMISEK, CEO, CONTINENTAL AIRLINES: You know, Richard, we know each other really well. We`ve been working together in the Star Alliance for quite a while. As we transition at Continental from our former alliance with Star Alliance, we have gotten to know the folks at United well, their management team well. We have gotten to respect them. We understand how each other does business and I think that will help a lot as we integrate these carriers together.
GLENN TILTON, CEO, UNITED AIRLINES: You know, Richard, we have gone beyond the Star Alliance. And we have the immunized alliance across the Atlantic and the application for the Pacific. So that has brought us even closer together. And Jeff and I know each other very well.
QUEST: Glenn, I know that you don`t believe there is much regulatory- not too many regulatory issues because there isn`t a lot of overlap on the routes. But this will be the first opportunity for the Obama administration to really get their teeth into U.S. domestic aviation. Are you worried?
TILTON: You know, I think that we`re really encouraged. What we`re trying to do and what we know the Obama administration appreciates is create a stable airline, Richard, that is going to be able to withstand the extraordinary cycles and tumultuous experiences that this industry has had to endure here, recently. So, in creating a much more structurally, foundationally sound airline, I think the Obama administration understands we`re creating the platform for future employment.
QUEST: The art here, is to ensure that the new entity can withstand the shocks and what we do know is that when economic volcanoes-whatever it might be hit, it hits the biggest hardest.
SMISEK: You know, we are really confident that the airline we are building can withstand those shocks. We have run a lot of sensitivity analysis around downside scenarios. With the cash flows that this carrier will generate, with the cash that we have on hand, with the access to the capital markets, with the revenue generating capabilities of this airline. Bringing these two great brands together we are going to improve the mix on our aircraft. We are going to be very appealing to high-yield business customers and those customers will be sticky to us, because not only will we have the broadest, most comprehensive network in the world, but also the largest frequent flyer program, which will bring great benefits to all consumers. And we will be focused heavily on the business customer, because the business customer is of course the most demanding, but also the highest yield customer.
QUEST: Right, now you`ve skated to my territory. Let`s talk about the business flyer and exactly-if I look at some of the online blogs, in the last 24 hours, Glenn, you are either doing a deal that is about to destroy the best airline in the world, or Jeff, you are getting into bed with the devil and you should be removed and taken out and shot. I mean, they simply-the online flyer talk community is-can`t decide which of the airlines they think is getting the best or the worst.
TILTON: I think, Richard, that the online bloggers community has too much free time.
SMISEK: Yes, I think they`re-I think they`re-both side are wrong, Richard. What we`re bringing together is an airline, Continental, which is know for its culture, is known for its extraordinary service levels, with a carrier like United, with a great worldwide brand, great assets, and great operational performance and operational integrity.
What customers want is high quality service and an airline that operates on time and can be relied upon.
QUEST: Give me an update on what you are seeing at the moment, in your individual carriers and individual brands, because we know business travelers are coming back. We know you are getting a little bit of pricing yield availability.
TILTON: You know, the last time you and I had the opportunity to talk, Richard, we talked about the international component of your question? The Pacific is performing very, very strongly for us. For the Atlantic-for the United franchise. Atlantic, then, next, Latin America, where Jeff is strong and we are not, doing pretty well. But really the international business traveler is back.
QUEST: And Jeff, what are you seeing at Continental, because you also have been very much saying that the recovery is there, just not there yet.
SMISEK: Well, the business traveler is coming back. He`s coming back more slowly than we had otherwise anticipated. But like Glenn, we are seeing good recovery in the Pacific, we`re seeing good recovery trans- Atlantic, especially in Heathrow-of course, volcano aside. So we see a clear trend, a clear upward trajectory, which also makes this merger the perfect time-
QUEST: Jeff Smisek and Glenn Tilton, of the new United Airlines. And that is what the planes are going to look like.
In a moment, anger at the Acropolis, Greece is bracing itself for a nationwide strike. There is outrage over the terms of the bailout. We`ll be back in a moment.
QUEST: Hello, I`m Richard Quest. QUEST MEANS BUSINESS, this is CNN.
The markets open in New York and as you can now see-
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-it is a very unpleasant session. As indeed it has been across the euro bourses, from Athens, which was down some 6 percent, London down 2.5 percent, Madrid down 4, 5 percent, and now New York, off 2, minus 2 percent, down 239. \
Many Greeks have deserted their posts for a second day, on Tuesday. On the streets of Athens danger anger, despair at the prospect of more cuts to public spending. It is a bitter pill to swallow. Greece badly needs to detox the system. Diana Magnay is in the Greek capital where she has been investigating the makings of the Greek debt crisis-Diana.
DIANA MAGNAY, CNN INT`L. CORRESPONDENT: Hi, Richard, well, it is interesting because we have obviously talked to a lot of those people protesting on the streets, and the sense that you get from all of them, is that they would like to see people held accountable for the kind of crisis that Greece finds itself in. The corruption and certainly petty corruption in issues like tax evasion, when you talk to experts in those areas, manifest themselves at every level in society. And of course that has played a large role in racking up the debt that Greece has. Here is how.
MAGNAY (voice over): A quick look around Athens` Stigmata (ph) Square tell you a lot about the way Greece operates. Street hawkers sell illegal goods, police walk by with other things to worry about. Like yet another protest march against the government`s new austerity measures.
But does the average citizen believe they have played a part in the country`s debt problems?
CONSTANTINOS BACOURIS, TRANSPARENCY INT`L., GREECE: I think the truth is, if you talk to some serious people is that if we look at ourselves into the mirror, we are to blame for what has happened.
MAGNAY: To blame for things, well, a simple as this.
(On camera): Can I have a receipt?
UNIDENTIFIED FEMALE: No.
MAGNAY: No? No receipt? OK.
So, I get a bag but no receipt. And that is something that is going to have to change. People at kiosks, everybody in Greece is going to have to keep their receipts and prove that they are not escaping taxes.
(Voice over): According to anti-corruption group, Transparency International, more than 30 percent of the country`s gross national product goes undeclared each year. Part of a broader puzzle of petty corruption.
BACOURIS: We see that mostly on the health sector, where we see it, which is about one-third of the cases we report, it is actually there. Usually it is in the hospitals, it is in the doctors. And then we see that in the permits for building houses, in the city planning. And we see that, of course, in the taxes.
MAGNAY (On camera): This is the special investigations unit of the finance ministry. The place were tax evaders are hunted down and prosecuted.
KAPELERIS IDANNIS, FINANCE MINISTRY INVESTIGATIONS SERVICE: (through translator): The old system meant that Greece became part of a culture of tax evasion. You know, a consumer going to buy clothes, the shop owner will say to you, 150 euros with a receipt, 100 without. So the citizen was drawn into the problem of tax evasion in this way.
MAGNAY: Promises to crack down on corruption are nothing new in Greece, but experts say that this time the government means it. After all, the money that is lost to tax fraud would go a long way towards fixing the country`s financial problems.
MAGNAY: And Richard, you talk to many people here and ask them how they experience petty corruption in their lives. A lot of people do focus on the health sector and they say, you know, I`ve tried to go to my hospital for treatment, and have been asked for a little bribe on the side. Whether or not they took it or not, they don`t ever admit. But that seems to be the way things operate here. And it is something that the government is certainly now, really, trying to stamp out, Richard.
QUEST: The fascinating part about the informal economy, Diana, is that at some point everybody takes part in it. You either get a cheaper price because you paid cash. Or you are on the receiving end so, you don`t pay tax on it. And that is going to be the big problem, isn`t it? Because it is, as you report made clear, it is a cultural issue as much as a financial.
MAGNAY: It is a cultural issue. So however quickly you try and change the systems you are trying to change a sort of national psyche and as we heard there, people say it is deeply rooted in the society here. But there are these efforts to change things such as the special investigations unit, in the ministry of finance. But interestingly, the systems there were only computerized five years ago, Richard. So there is still a very long way to go, I could say.
QUEST: All right. Many thanks, Diana Magnay who is in Athens for us.
And Diana, of course, you`ll be following the major strikes taking place over the next 24 to 48 hours. Diana watching over for us.
When we return in a moment, as Iceland`s most famous volcano spews more ash, the heat is turned up on European ministers to organize a better response. We`re going to hear from the head of IATA, in a moment.
QUEST: Fresh ash from Iceland`s erupting volcano has forced airlines to take evasive action on flights in and out of Ireland, Northern Ireland, and parts of Scotland`s Western Island. The flights were suspended for six hours because of a new ash plume that drifted south. All the airspace affected has now reopened. I happened as European Transport ministers were meeting in Brussels, talking about how to make the rules for managing Europe`s airspace clearer.
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PETER RAMSAUER, GERMAN TRANSPORT MINISTER: First of all, we urgently need a unified, clear and agreed measuring system for the concentration of volcanic ash in the air. And secondly, we need agreed unified limits that we must develop together with the airline industry, with the engine manufacturers on the question of what blocks a plane, and in that area, and what ash concentration a plane cannot be allowed to fly in any circumstances.
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QUEST: Fighting talk from the commissioners and transport ministers. But they have also backed a plant to unify Europe`s airspace, known as "Single European Airspace," crucially not the idea of financial aid to the airlines after the volcano eruption in April grounded flights for numerous days. I talked to Giovanni Bisignani, he is the director general of IATA. When it comes to paying the $2 billion that IATA estimates that the airlines cost, because of the close down, who should cover the costs.
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GIOVANNI BISIGNANI, DIRECTOR GENERAL, IATA: It is a government responsibility. Why? Because they closed the airspace. We were not able to fly. We have similar cases, also recently, September 11. Also, in that moment, and that occasion, the European allowed government to-I would say, not to bail out-we don`t want to bailout, to compensate the airlines for the loss they have received. So, it is a government responsibility.
QUEST: And you think, then, that effectively is that national governments, or at the European level do you believe?
BISIGNANI: I think in previous times, the European Commission gives a green light to government to say this has been an exceptional situation so it is correct that governments compensate. It has to be a fair compensation because it has to be based on figures and facts. We don`t have to take this as an opportunity to fund restructuring or things like this. It has to be nice, clear and fair.
QUEST: You have been very critical of the, if you like, medium term and longer term response. The criticism is based on the idea that we should have known more about the affects of volcanic ash and not waited six days to have to determine it was safe to fly?
BISIGNANI: Absolutely. It was a European embarrassment. You know safety is a number one priority and the figures and track of safety in the industry is very clear to everybody. But we assess our decision with risk management and with figures and facts. We cannot base, as the Europeans have done, just on a mathematical model that was not correct.
QUEST: Except one organization-
BISIGNANI: We had at least-
QUEST: Well, one organization has already told us that when they tried to organize a discussion, Arkaos (ph) says that when they tried to organize a discussion or a symposium on the affects of volcanic ash, no one was interested, no one showed up.
BISIGNANI: But you know we showed up as IATA, it was not a very popular meeting, that is true. I think that also Arkaos (ph) has to speed up an review the so-called Ferd (ph) and Annex (ph) in order to review the process. But in the emergency situation Europe did not-was not fast enough. It took five days to arrange a conference call. And another thing, I think that we had to be more effective in sending test planes and see what was the real situation of the atmosphere. There was just two planes from U.K. and one from Italy. All the others were grounded or had no pilots. We had to push our civil aviation to authorize our airlines to start making those tests, and at the end of the game, it came out that there was limited, I would say, ash in the atmosphere, and there were many where flying could be safe and normal.
QUEST: Giovanni Bisignani of IATA, on of course the thorny question of who pays for the close down of airspace.
Lola Martinez is with us this evening, at the CNN World Weather Center. Two areas that we need to quickly get to grips with I suppose. First of all, what is happening with the oil spill. Secondly, the fact that the volcano has seems to have done a bit of damage over Ireland tonight, in terms of during the day. And of course, the European temperatures.
LOLA MARTINEZ, CNN METEOROLOGIST: That`s right. I`ll try and get to all of that Richard. You know, first of all, big changes across all that Gulf area, Gulf-because of the temperatures we have been seeing massive change. The winds have eased, so it has improved weather wise, at least, for all those efforts there.
In terms of the ash concentration, this is the latest information we have from the Volcanic Ash Advisory Center. And in fact, an area where the ash concentration is, as we can see has definitely shrunk and it is no longer affecting any substantial part of European airspace. So, that is the latest information we just got in. In terms of the winds, they are still blowing to the south, but we are seeing a slight change away to parts of the west, so moving away from any land, which is of course, good news as well.
Towards that central and southern parts of Europe, very different weather story, because we are seeing a very slow moving weather front. This was producing not just rain, but very windy conditions, stormy weather, even some ice and some snow across the higher elevations. We saw many areas into Spain, northern Spain, southern France, into Austria, Switzerland, and particular here, into Italy, with that severe weather that means delays at airports. I`m going to point these out to you. Across the north, they are looking fine although the winds are blowing a little bit there into Paris, as we can see, and that can pose a few problems, scattered showers there, into Dublin. We are seeing green boxes, so I don`t think it is going be a massive impact, but towards the south, this is where you are going to see some major delays, even some red boxes there into Milan. But we are seeing Madrid, Barcelona, it was a little bit windy earlier. We then see spotty showers still continuing and the winds can be still a little bit problematic, due to those systems moving through.
And take a look at this, flooding rains, then, to Riyadh, Saudi Arabia. Caused quite a bit of havoc and even for driving. You can see what a mess that actually led to earlier today as well.
Well, we are seeing a different scenario finally, across parts of the United States. In fact, recovery begins as those flood waters are receding into Tennessee. The storms that we saw passing through parts of the south and the southeast are finally going to be moving further to the east, we are still seeing some lingering showers into parts of Florida. Right behind it we are seeing those winds, actually light and variable. That could actually be changing by the end of the week, into south, southeasterly winds.
So, we are keeping a close eye there, into parts of the north, looking fine. So, we are not seeing major delays at airports, drier weather, warmer conditions towards the south. I was just checking some airports and Newark is the only one that is actually reporting some major delays. So not bad travel weather across the United States, Richard.
QUEST: Now, just a second Ms. Martinez, I have just been looking-I have just been doing a bit of Googling. Apparently, according to one site, I don`t know whether this is true or not-the average rainfall in the city of Riyadh is 100 millimeters a year and comes between January and May.
MARTINEZ: Uh-huh, well can you believe those pictures, though? That I showed you? That is why it caused so much havoc and it just paralyzed so many people. So, I thought it was interesting just to illustrate to show them there. But good Googling, Richard.
QUEST: Yes, I`ve glad I spelt it right, who knows where I might have actually been broadcasting the weather forecast from. Lola, many thanks indeed.
MARTINEZ: All right.
QUEST: See you tomorrow.
Now, we return in just a moment, days away, it could be an historic election in the U.K., the political rulebook is on the verge of being ripped up. The prospect of a hung parliament, the election results won`t only affect people here, but business around the world. We`ll have a view from India, in a moment.
KUNAL SADARANGANI, PRESIDENT, TROPICAL CLOTHING COMPANY: I am Kunal Sadarangani, I am the president of Tropical Clothing Company. We are a leading ladies nightwear manufacturers to the United Kingdom to stores such as Marks & Spencers, LaSenza (ph) and Dot Shop (ph).
I reside in this fair city, but I unfortunately I think I live most of my life on a plane between Mumbai and London.
It might surprise you to know that I think some of us here are keeping a close eye on the U.K. election than the general public in the U.K. The reason being is it affects business, in general. Confidence at the moment is at an ebb. And as such, an event such as the U.K. election needs to be finished and done with for us to proceed with business as usual.
I`m hoping for change. Sometimes the only way to re-instill confidence is change. I`m hoping the conservatives win.
Currency fluctuations affected us greatly. It has created price pressure, which in turn has created margin pressure on the retailer, and thus a possibility of increased prices even for the end consumer. The reality of the situation is that we are hoping that the election is the catalyst that creates a sense of recovery for confidence in the United Kingdom, which will in turn increase the value of the pound.
Well, I think anyone who says that business has not been affected is lying, it has just been a question of degree. We treat our business as a partnership. The retailers and us have lived out good times together and now are suffering the bad times together, but we can see a light at the end of the tunnel.
QUEST: The view from India. The election, of course, is on Thursday. Becky Anderson and myself will be bringing you the election results and reaction.
Now, when we come back-I do promise you, some people call it the beautiful game, for people it is more like a bountiful game. The top man at Adidas admits why he is looking forward to 2010 World Cup more than most.
QUEST: Welcome back.
Adidas has a spring in its step, as the football World Cup rushes closer. Tournaments like this are massive marketing opportunities for the makers of sports wear. Adidas is already having a pretty good year, the Q1 profit jumped $220 million from $6 million a year ago. That is an impressive performance. Earlier I asked the Chief Executive Herbert Hainer about how Adidas is going to make the most of South Africa 2010?
HERBERT HAINER, CEO, ADIDAS: The World Cup is definitely the biggest sports event for us. We are the clear number one in football. And football is in the DNA of our brand, Adidas. So therefore we are quite excited about this event. And we have set ourselves quite an aggressive target.
We definitely want to achieve new record sales, in the category of football. In 2008 we had the best results with 1.3 billion euro and we are absolutely convinced that we will over achieve this number. And the first quarter was proof of that. Football sales have been up already by 26 percent and we have the orders in for the next two quarters. So therefore, I am quite convinced we will new record sales in the football category for us.
QUEST: What is driving that? You know, absent the World Cup, how much can we say that your results reflect the return to economic growth and improving economic scenario, where people are prepared to pay for branded products, rather than generics?
HAINER: I do believe it is a combination of both, on the one had, yeah, we see slightly optimism within the consumer base in some countries. But on the other hand I also do believe that we are able to bring very innovative products to the markets, which really caters for the desires of consumers. Giving you a few examples: Be it (ph) the new ball for the football World Cup, the Trabulani (ph). Be it the individual jerseys for our teams, and we have 12 teams for the World Cup, more than anybody else. Or when we go to Reebok, seeing the new Easy Tone shoes, which have captured the imagination of the consumers around the world, and we will sell up to 10 million pairs of this shoe, just in 2010.
So, I definitely do believe that we have a great portfolio of brands with really strong innovative products and this is paying off now.
QUEST: The fascinating part about your industry is that you only have to go into any sports store and you realize how competitive it is. And how difficult it is for you to you, if you like, gain a march, and to gain an advantage. So, I`m wondering, how much is the advantage marketing and the look of the shoe, if you like. The look of the product? And how much is performance related? Since most of us, frankly will never use your products anywhere near to the extremity of performance.
HAINER: You are absolutely right. And this is the reason why we divided our brand Adidas several years ago, in two divisions, a performance division and a the style division. In the performance division there are all the products which you really normally use for sports, be it football boots, tennis shoes, basketball shoes, etc cetera. Where as in the style division there are the original products, which have been good sports products in the past, but were now used for lifestyle.
QUEST: Finally, if we look at the next six months. The World Cup, you and I know doubt will speak to each other by the end of the year again. What do you hope to be able to tell me after the world cup? Who wins?
HAINER: I am convinced you will see that Adidas is the dominating football brand and the clear number one in football, in the world. And secondly, I do believe that Spain will win the World Cup.
QUEST: Adidas, the chief executive, with impressive results, and of course, are looking forward to the World Cup.
When we come back in a moment, as the markets continue to tank, and as it is a rather sorry day for investors, we`ll have a "Profitable Moment".
QUEST: Tonight`s "Profitable Moment": There was no single reason why the markets have been so unhappy today. The losses have been widespread, they have been deep, they have hit banks, currencies, and across energy and mining companies.
There was plenty of blame to go around. Greece, of course, and the possibility that the bailout either won`t go through smoothly, or the money won`t be enough. If you ad in contagion, and worries about Spain and Portugal. You throw in the ECB decision to breaks its own rules when it suits. But what do you end up with?
You end up with a market that is simply unhappy. And it all reinforces the point, that even on a day of good U.S. economic numbers, we are reminded that everything is still very fragile. It takes mere rumor or gossip to put the sellers in charge. The lack of confidence is very real. And we should be worried, especially, when extraneous incidents like volcanoes, oil spills, can also damage the recovery.
Today was grim. Let`s hope it isn`t repeated in tomorrow`s market.
And that is QUEST MEANS BUSINESS. I`m Richard Quest, in London. Whatever you are up to in the hours ahead-
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QUEST: I do hope it is profitable. "WORLD ONE" is next.