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QUEST MEANS BUSINESS

Airlines Post Profits; Austerity Measures in Germany

Aired June 7, 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: Back in the black. IATA says the world's airlines are flying back into profit.

Cutting the deficit, Germany says it is time to put on the hair shirt.

And is Hamburg Germany's most modern city, it certainly is our "Future City".

I'm Richard Quest, tonight, live from Berlin, where I mean business.

Good evening from Berlin, where tonight I bring you some cautious optimism from the world of aviation. The head of IATA, Giovanni Bisignani, says that things are getting better, and that the airline industry is expected to make a profit for the first time in some years.

We are live tonight, in Berlin, with more than 600 aviation leaders attending the IATA annual meeting. And tonight, on QUEST MEANS BUSINESS, you will hear from the chief executives of Lufthansa, American Airlines, Ajahad (ph), Qatar, more. We start, though, with the announcement that the global airline industry is expected to return to profit in 2010.

The tough times haven't gone a way in Europe. The continent is expected to be the sad weak man of the industry. IATA is raising its outlook for the aviation industry overall. It's now forecasting a combined profit of $2.5 billion for aviation. A huge improvement in its previous prediction for another year of bit losses. IATA says it is an uneven picture. In Europe things are worse, not better. European airlines will loose $2.8 billion this year. There are a host of negative factors, you know them well, the volcanic ash cloud, strikes, new taxes, and Europe's weakest economies.

Now, the head of IATA, the man who will retire next year, Giovanni Bisignani, spoke to me earlier today and I asked him, when you look at the total aviation industry the fact that there was going to be a profit is a little bit misleading. Because the actual results are very Spartan across the world.

(BEGIN VIDEO CLIP)

GIOVANNI BISIGNANI, DIR. GENERAL, IATA: The bad news is Europe is going through a very difficult situation. Europe will be the only region in the world, with a red number, $2.8 billion losses, is our forecast for this year.

QUEST: Even the United States is expected to move into profit.

BISIGNANI: Yes, also the United States. You know this is directly related with the GDP. Where you see in the U.S., that has a GDP growth of 3 percent, this is good news. In Europe, it is less than 1 percent, on top of this you have the volcano crisis, you have a crisis in the currency. It is a difficult moment for Europe. It's a wake up call for everybody. You know, here in Europe we saw what was a disaster situation with the volcano. It stopped the industry. It stopped also the economy. The economy lost $5 billion in a couple of weeks. It is a wake up to government who say please try to regulate us less, and try to appreciate more the role that aviation plays, because when we stop aviation we have a different world.

QUEST: Do you tire of these calls that you come up with every year, whether it is single European skies, change of ownership regulations, all sorts of different things. But the pace of change, Giovanni, it is glacial.

BISIGNANI: Absolutely. You're right. But on top of this, look for example on our relation with airports, air navigation service provider, at the beginning it was very difficult. Last year we saved nearly $2.6 billion in savings in more efficiency from those external partners.

QUEST: What do you believe is-is going to be the future direction for consolidation. We know that this consolidation has been on the agenda. We have seen some of it taking place already. Is there more to come?

BISIGNANI: Yes, we have seen some positive examples at the level of regional consolidation. Lufthansa has played a great role, consolidation among European carriers. We see that in the United States, we see United, we see Delta, what we need is in-transnational consolidation, between Europe and United States, between Europe and Asia. Unfortunately, in order to achieve those we have to change certain kinds of rules. But these rules were created 60 years ago. We were flying the DC3s and now we have the same rules of that time. Isn't it amazing that government do not understand what are the needs of the airlines. We ask, what? To be able to run this as a normal business.

(END VIDEOTAPE)

QUEST: Giovanni Bisignani, the head of IATA, who retires next year.

Things may be on the up, but the actual industry looks very different now than it did before the downturn. It is less diverse. There are fewer airlines. There has been more consolidation. For a long time, those in the industry said that is what needed to happen. But even the world's largest airlines have decided in these difficult times you simply can't go it alone.

(BEGIN VIDEOTAPE)

QUEST (voice over): Hatch, match, and merge, I'll find new friends in dangerous waters. As the industry reels from recession and the effects of competition carriers are doing deals. Where the smaller ones are finding they can no longer survive on their own, they are now easy prey for the legacy, predatory carriers.

UNIDENTIFIED MALE: What we will see is a lot more amalgamation, so that we will see Lufthansa becoming ever bigger, along with Air France carrier, maybe British Airways, Iberia, will be able to accrue some of the smaller airlines. And so we are going to have incremental growth, but I don't think we are going to have a complete rebuilding of the airline model that a lot of people say we desperately need, if airlines are ever going to make any sensible profits.

QUEST: The international rules make cross border mergers tricky. So where they can't actually become one airlines have used alliances to build up bulk. Plane and simple, airlines need allies because in times of crisis there is profitability as well as safety in numbers. No sooner did Continental airlines jump from Sky Team to Star, then they jumped into bed with United. If the merger goes ahead, United/Continental will form the largest airline in the world.

UNIDENTIFIED MALE: I think we will see the alliances being strengthened. But I'm not looking for a massive consolidation. And I am probably old enough and wise enough to realize that what's the point in one airline taking over another, just for revenue purposes? It doesn't work. There's nothing to be gained. The costs of merger and transition are too great.

QUEST: As airlines get together it becomes more difficult for those that want to remain independent. Virgin Atlantic, for instance, it is not a member of an alliance and is worried as its principle competitor BA gets bigger with Iberia and American. For the first time Virgin is now saying publicly it too may have to merge.

STEVE RIDGWAY, CEO, VIRGIN ATLANTIC: There is good consolidation and bad consolidation. And we will fight what we believe is bad consolidation, where people are trying to become too dominant and it is not in the interest of consumers. But equally we may want to become and may have to become stronger by consolidating ourselves, which ever way it goes.

QUEST: For years the industry has said there were too many airlines chasing too few passengers. The changes taking place may be slow, but they are happening and there are plenty more deals to come.

(END VIDEOTAPE)

QUEST: Now, one of the biggest names in European aviation is, of course, Lufthansa. The airline has been on a buying spree in recent years, snapping up Swiss, Austrian, Brussels, and BMI in the U.K. Lufthansa's chief exec, Wolfgang Mayrhuber, is the host for the IATA conference, here in Berlin. I sat down with Mr. Mayrhuber, and clearly we needed to know how Europe's largest carrier was performing.

WOLFGANG MAYRHUBER, CHAIRMAN & CEO, DEUTSCHE LUFTHANSA: I believe we have a modest increase in demand in Europe, but mainly in the continental operation, so those actions (ph) are going up, which is good. And price- wise, yield-wise we see a fast recovery in cargo. So that is the good news.

QUEST: Ah, when you said fast recover in yields, I was about to say, in passenger numbers but it is in cargo.

MAYRHUBER: Cargo.

QUEST: You are not seeing the pricing ability yet, in passenger numbers?

MAYRHUBER: No, not really. I mean we are coming back to volumes that eventually give us a little bit of an opportunity to optimize the yield but we are far away from that. So, the good news is volumes are coming back. Demand is there. But yield is not yet there.

QUEST: And when do you expect to be profitable, or return to serious profitability.

MAYRHUBER: Well, serious profitability was something we had two years ago. Last year we a small operating profit. We-our focus for this year is to have a better operating result than last year. Despite the fact that we had a harsh winter and also closure of the airspace.

QUEST: So, if the macro environment is improving, the individual factors affecting airlines, for example, industrial action, and industrial relations, seem to be-seem to be rearing their head, at least, again you've had trouble with the pilots?

MAYRHUBER: All of the-there is not one airline in the world who has not sometimes problems with some of their constituencies. So, yes, we do have also issues internally. But in all fairness I have to say that our pilots know that they are well paid, the have a great company to work for, that there is perspective in there. So, I'm not too pessimistic, that we'll solve the issue.

QUEST: So, you think it can be solved without-

MAYRHUBER: Oh, sure.

QUEST: -some sort of industrial action that other airlines are seeing?

MAYRHUBER: Well, we have had one day's strike with pilots and they announced another one that will be in arbitration mode. I have not reassurance that it will not come back, but, as I said before, I mean, we are smoothly running the company. They have -we have no layoffs, we have, again, in a small growing mode. So, and we are paying our pilots, and not only the pilots, all of the others, a decent wages and their perspectives, so why should we have a problem as some others have?

QUEST: The volcano, E15, the volcano, the Icelandic volcano. It was not by any stretch of the imagination European aviation's finest hour. Both from regulators and from the way it was handled, would you agree.

MAYRHUBER: I sure would have to agree. There is nobody who could disagree with that. I mean, Europe is the cradle of mobility, we invented a lot of things, but how to handle that issue is something we have to improve dramatically.

QUEST: Were you left frustrated at the regulators, or angry at the way in which so much airspace was closed for so long.

MAYRHUBER: Well, as an engineer you are bound to look at the reasons why you do it. And fact-finding of where, as your model, you know, turn out to be there, and our criticism was hooked on the question, if we have obviously no detection of ash concentration to a level that could endanger a flight operation. Why don't we test, really, what the concentration was. And it took too long. That is my biggest complaint.

(END VIDEOTAPE)

QUEST: And that is the chief executive of Lufthansa, Wolfgang Mayrhuber, talking to me at the IATA conference.

We have much more on-in this aviation special. As QUEST MEANS BUSINESS comes live from Berlin. But interestingly today was also the day when the Chancellor Angela Merkel announced it was time for the German government to join the austerity party. What does she mean? And what measures were introduced? When QUEST MEANS BUSINESS returns in just a moment, we're live in Berlin.

(COMMERCIAL BREAK)

QUEST: We're back live from Berlin, QUEST MEANS BUSINESS, where today Germany became the latest country to join the austerity drive. Chancellor Angela Merkel announced the biggest spending cuts since World War II. Welfare payments and unemployment benefits will be cut as part of measures designed to save $96 billion between now and 2014.

The budget deficit is expected to rise this year to 5 percent of GDP, that is one of the lowest in the Euro Zone. But the chancellor argues, Germany can't afford to put off the tough decisions.

(BEGIN VIDEO CLIP)

ANGELA MERKEL, CHANCELLOR OF GERMANY (through translator) The gravity of the situation is clear to us. And I believe that Germany has an obligation as the largest economy in Europe to set a good example. And in addition we are duty bound to do so as a result.

(END VIDEO CLIP)

QUEST: Now, I'm joined by Irwin Collier, professor of economics at the Free University of Berlin.

Professor, the idea that the German government-does it need to introduce deficit cutting measures. It only has a deficit of 5 percent of GDP?

IRWIN COLLIER, PROFESSOR OF ECONOMICS, FREE UNIVERSITY OF BERLIN: That is precisely the question. What is the big hurry? It is not obvious that it has to be now. What is clear, structural reforms are needed, down the road. Most people, I think, would agree, it is premature at this moment.

QUEST: So, why is she doing it? What is the purpose?

COLLIER: Oh, it is politically brilliant. It's politically brilliant. In Germany it is like every month, every quarter, there is some election some place. It is never the right time. This is about the only time to put in such cuts.

QUEST: But the people here must know that to cut the deficit now risks weakening growth and will have affects elsewhere in Europe.

COLLIER: I don't think everybody knows that. I think this is-

QUEST: Do they care?

COLLIER: I beg your pardon?

QUEST: Do they care about that, do you think?

COLLIER: I don't think they care a whole lot about the affects on other members of Europe. I think this is national policy, pure and simple.

QUEST: What will be the affects of these relatively modest budget cut backs, do you think?

COLLIER: Well, it is certainly not helping us get out of a European recession. What it is helping us do-what it does is it consolidates one country's position.

QUEST: Well, you say that but it is the single largest and most important economy in Europe.

COLLIER: Absolutely.

QUEST: So, from that point of view, that is not to be sniffed at?

COLLIER: Well, except that we would like that big economy to be importing goods from the rest of Europe, and anything that slows that economy down is going to make it harder for all the fiscal adjustment to take place in the weaker countries.

QUEST: So what sort of measures would you think that Germany should be introducing to, if you like, boost domestic demand?

COLLIER: Well, here is a time when certain strategic tax cuts, but precisely, cutting certain social benefits, we know those are spent, those are turned into consumption. That is precisely what is slowing us down. I would at least let things run out, run longer, before cutting.

QUEST: When Chancellor Merkel says, it is setting an example. Isn't she right? How can the German government, say to the Greeks, the Portuguese, the Spanish, the British, cut your deficits?

COLLIER: Well, in 1992 we saw also how the Bundes Banc almost single- handedly ruined the European exchange rate mechanism by jacking up interest rates and hurting everyone around them. What we are seeing right now is the fiscal equivalent. We have an exit strategy that looks like basically yelling "fire" in a crowded theater.

QUEST: Professor, many thanks, indeed for putting that out (ph). Many thanks. Excellent discussion (ph) on the German issue of cutting the deficit.

When we come back, we start a new month of "Future Cities" and coincidentally, our "Future City" is right here in Germany, the city of Hamburg. QUEST MEANS BUSINESS, we're live tonight, in Germany.

(COMMERCIAL BREAK)

QUEST: We take great importance here on QUEST MEANS BUSINESS in looking at the way we live our lives and the cities where we live; and what they may look like in the future. Our "Future Cities" of the evolving face or our towns. From today, we're going to be right here in Germany for the next month on Monday, as we look at the city of Hamburg. In particular, how this city is completely regenerating itself. It is building vast new parts that is trying to make a new city out of an old era. As we now report, "Future Cities", Hafen City of Hamburg.

(BEGIN VIDEOTAPE)

QUEST (voice over): The banks of the River Elbe, harboring one of the world's great industrial ports. Here the wind sweeps hard and fast, over Germany's second largest city. And now brings monumental change. Site after site, cranes cast their shadow over Hafen City, a new district of Hamburg is being born.

CHRISTIAN MAAS, MINISTRY OF URBAN DEVELOPMENT: For Hamburg, the Hafen City is of enormous importance. We're trying to build a new quarter in the city center.

QUEST: It is from the air that we can see the scale of this multi- billion dollar project. Over the next two decades, Hafen City will grow east and south and bridge the gap between he river and the current city center.

UNIDENTIFIED MALE: It is built at the coastal area of Elba River. And that is the name, Hafen City means, Harbor City.

QUEST: When completed it will host 12,000 residents; 40,000 workers, and increase Hamburg's city center by 40 percent. People are moving in slowly. At the moment the streets and the waterways can feel eerily quiet. Only the lunch hour brings life to the streets, perhaps a glimpse of a vibrant future.

MAAS: We are opening the city back to the water, back to the river, and also having a new face of Hamburg.

QUEST: This new face is taking shape on the site of the old industrial port, where the demands of modern shipping force port activities west, to more spacious waters. And on the land left behind, Hafen city claims to be Europe's biggest and boldest regeneration project.

Where Hafen City joins the rest of the Hamburg, we can still enjoy the 19th century port warehouses, of the Speicherstadt District; red brick reminders of long maritime history.

Helping to blend old and new is the responsibility Jurgen Bruns- Berentelg, the chief executive of Hafen City's public management company.

JURGEN BRUNS-BERENTELG, CEO HAFEN CITY MANAGEMENT CO.: We are actually using the historical structures of the former harbor area, and we are relating the height of the buildings to the historical heights within the existing city. We are thus preserving the character of the European city, although it is newly built.

QUEST: This rising district creates 10 kilometers of new waterfront. It is a developer's paradise. But it sits on a notorious flood plain. In 1962, more than 300 people were killed when a North Sea flood swamped Hamburg. To protect the future in habitants, building here requires exceptional innovation.

BRUNS-BERENTELG: In order to keep the linkage between land and water, we developed a new waterfront promenade-type. And behind that we raised the level of Hafen City area towards roughly eight meters above sea level. The walls you see represent parking garages, which are below the buildings, which provide now the basis for a new level of Hafen City.

QUEST: Hafen City has the feel of an architect's laboratory. With so many of the world's leading firms all experimenting at once. This is an attempt to create the perfect district, from an urban master plan. And that is what makes Hafen City so fascinating.

There are fears that this test tube planning will manufacture a sterile, artificial environment. City officials believe this can be avoided by learning from past mistakes.

MAAS: I must admit that the Hamburg City Center has been very attractive during daytime, at night time it is quite empty and that is what we are trying to change with Hafen City as well.

OLE VON BEUST, MAYOR OF HAMBURG (through translator): The European cities are still heavily based on the charter of Athens, which divides cities into working, living and leisure areas. Now it is time to combine work, living, and culture, and leisure into a relatively small area, and finally turn the Charter of Athens on its head.

QUEST: So far, 25 percent of Hafen City is complete. And yet the fundamental concept of mixed use environment is already clear to see.

STEFAN SCHURIG, WORLD FUTURE COUNCIL: If you build something from scratch, you can build offices, or you can build places you live in. What they have done, put everything together and they created a mixed use. I think this is one of the core values of Hafen City.

MAAS: And that is not only an environmentally friendly, but it is also for the people that live here. It means a high quality of life.

QUEST: A the district's first school, children play on the roof of their new kindergarten. And workers at Unilever bask in the reflection of an eye-catching regional HQ. And a concert hall promises to be Hafen City's most iconic structure. For now, it is quite literally a case of watch this space.

SHURIG: Let's wait if the soul is going to merge in that district, but what I can say is-it has all the ingredients.

QUEST: Billed as a blue print for the future of city living, Hafen City has the potential to reinvent Hamburg on the world stage. The project is inspirational. It's ambitious. But it will have to find its true identity over time, just like any old city.

(END VIDEOTAPE)

QUEST: The new city of Hafen City, in the old district of Hamburg. And over the rest of the month we will be visiting the region, again, to bring you different aspects of how this place is changing the way the city now looks. It is part of "Future Cities".

When you and I come back in just a moment or two, back to the world of aviation, as we continue this special, the people who build planes are Boeing, the chief executive tells me which planes he hopes to build next.

And the chief executive of Atta House (ph), will be with us to talk about his worries are on his agenda. QUEST MEANS BUSINESS, we are live tonight, in Berlin.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest, "Quest Means Business" with an aviation special tonight live from the IATA Summit in Berlin. This is CNN where the news always comes first.

We'll have airline CEOs for you in just a moment. We first need to update you with the world news headlines and Max Foster is at CNN, London. Good evening, Max.

MAX FOSTER, HOST: Hi, Richard. Fresh morning in Gaza. After the Israeli military opened fire on a group of Palestinian divers. Hamas says four men were killed. Israel says it foiled a terror attack, but Palestinian's sources give conflicting accounts on what the men were doing in the water.

Meanwhile, the Iranian Foreign Ministry says the country's Red Crescent Society will try to break the blockade of Gaza by sending shipments of food and medical supplies.

Verdicts in Bhopal, India, but many feel it's too little too late. Seven former executives were found guilty of negligence in the 1984 Union Carbide gas leak that killed at least 14,000 people, for the penalty for each about $2,000 and two years in prison.

A long-time White House reporter stepping down, 89-year-old Helen Thomas, a living legend amongst journalist in Washington. She's been covering U.S. politics for 50 years. Last week, controversy erupted when her critical remarks about Jewish people in the Middle East surfaced on Youtube. Thomas later apologized, but critics demanded that she step down. Richard, back to you.

QUEST: Many thanks, Max Foster at CNN, London. Welcome back to Berlin where IATA is holding its annual general meeting. One of the large plane manufacturers, Boeing has an optimistic forecast for how many planes it expects to sell next year as the industry returns to growth.

Boeing also expects to deliver the 787 Dreamliner plane or about two and a half years late on time according to the new forecast by the end of the year. Jim Albaugh is the chief executive and the president of Boeing. Earlier, I told him about fairing in mind the industry is making money once again. Was he now hoping to sell many more planes?

JIM ALBAUGH, CEO, BOEING COMMERICAL AIRPLANES: Well, first of all, the first quarter showed great growth in freighter, traffic and also with passengers. We had a little (inaudible) in April because of ash, but we see the trend to be very positive.

We have not gone public with number of orders we're going to get this year. What we have tried to do is book orders so we can keep our production lines stable. We want to run at a stable capacity overtime so we don't' have to have these wild swings and what we produce.

And we've been able to do that. We've got a backlog right now, 3,350 airplanes and that's enough to keep us building airplanes for five or six years. We're in pretty good shape right now.

QUEST: The 787 on calls at last. It had its maiden flight. It's now on its testing. You do still expect to make the deadline into this year.

ALBAUGH: Right now, we've got a schedule that supports entry into service in the fourth quarter. The testing is going well. The airplane is flying as we predicted that it would, but we don't have so many flight hours as we'd hope for in the flight test program, but we're getting more test points completed for fight. So we're about where we're expected to be.

We have contingency in the flight test program and barring what I call an unexpected discovery, yes, we should deliver in the fourth quarter.

QUEST: You must now would be looking at the next stage of that process, which is Rampa (ph). You don't want to fall foul of the problems of your principal competitor with the 380. How much of your attentions now concerning that?

ALBAUGH: The day we had first flight was the day that we really started focusing on the rent. We're going to go from building two airplanes a month today to 10 airplanes a month by 2013. We have never produced 10 one body airplanes in month. It's going to be difficult.

QUEST: It's going to be difficult, but it can be done? And I mean -

ALBAUGH: It can be done and we wouldn't say that we're going to do it if we didn't think that it could be done. We've gone with all our suppliers. We've looked at their people, their process and their tools. We looked at the learning curves and we put actions in place that we think will support getting to the ramp rate of 10 a month.

Well, this is an exciting time to be in the airplane business. We've got the 787 coming in line this year. The 747-8, later this year, we'll make a decision on whether or not we're going to re-engine the 737 airplane or are we going to decide to do a new single-aisle airplane.

And, you know, we don't have a real time table for it or doing it in a very methodical disciplined fashion sometime this all I think we'll have announcement on whether or not we re-engine. I think the other issue for us is do we do modifications to the triple 7 to make it even more efficient still.

Whatever we do is going to be an airplane that's going to be driven by what our customers want and we will always have an airplane in each market that we think provides greater value than the competition. Obviously, we're going to be to some extent by what has done by AirBus and what's being done with (inaudible) in the C series and what's happening with Comac (ph) in China with the 919.

All these things will help drive us in the direction that we need to go, but Richard, you're not going to send me down (inaudible), you're not going to do that.

QUEST: Hey, you can't blame a man for trying. Jim Albaugh, the chief executive of Boeing refusing to be drawn on where he stands on replacing the 737. Now that will found out, (inaudible).

Now with so many optimistic forecasts both from IATA and from Boeing, I spoke to the chief executive of Qatar Airways Akbar Al-Baker. Now, I wanted to know, did he think that IATA was being too generous and too optimistic in its forecast?

(BEGIN VIDEO CLIP)

AKBAR AL-BAKER, CEO, QATAR AIRWAYS: (Inaudible) forecast the financial downturn. The economic (inaudible) collapsing banks, Greece getting bankrupt, nobody forecasted. So forecast is always something in the air and I think we have to be very careful. I feel that there will be difficulties again especially to European carriers and U.S. carriers over the summit.

QUEST (voice-over): So what are you going to do because at the moment - let me blunt, you and I can be blunt to each other. You're filling incapacity. All the Middle East airlines are filing incapacity.

AL-BAKER: I'm sorry I'm not - don't put everybody in the same basket. I'm not filing capacity of the roots that we are exhaustingly operating. I put capacity very careful where we venture into new markets and where see there are opportunities.

In Qatar Airways, it's - we have been very clear. We are not in the business of dumping capacity.

QUEST: The growth is being phenomenal. The success has been very, very strong and what is your next move? That is what everybody always asks?

AL-BAKER: Well, you know a successful general never leave down his battle plan in front of everybody. So I will keep my plans to myself, but I assure you , Richard that we in Qatar Airways are very conservative in the way we do business. We are there to make money and we are not there to just show our flag.

(END VIDEO CLIP)

QUEST: When we come back in just a moment, we're going to stay in the gulf region and talk to the Chief Executive of (inaudible) Airways. We're going to talk about what we see as the risks ahead with so many people having so much optimism. Are there any clouds on the horizon? "Quest Means Business," we're live in Berlin in a moment.

(COMMERCIAL BREAK)

QUEST: Welcome back "Quest Means Business" live from Berlin where IATA is having its annual general meeting. If you look at the numbers, there is one area of the aviation world that has shown consistently strong growth. It is, of course, the Gulf region.

Even as Asia now comes back from (inaudible), the U.S. starts to grow. It is still the Gulf region, which will probably show the most impressive numbers. With me is the Chief Executive of Etihad, James Hogan. James, we know that you and other Gulf carriers are doing well.

But are you doing it profitably? Anybody can fly an airline and lose money.

JAMES HOGAN, CEO, ETIHAD AIRWAYS: If you look at the challenges, we're all in different cycles of ally. We're six years old so if you look at Etihad Airways, we're very clear (inaudible) she removed to break even in profitability.

I think I'd like to go back to your initial question, what is the opportunity for the Gulf carriers. It's geography as technology, as markets opening up and that's what we're all taking advantage of Richard.

QUEST: When I have, for example, from one CEO today in the Indian Ocean, that's so many carriers like us - well, not necessary like us, but there are others. Putting flights great capacity driving down the hills to some extent making it difficult for others, is that fair?

HOGAN: Look at the end of the day, the consumer decides who wins, and we are doing is we're in great access of Abu Dhabi in the Middle East in connecting all parts of the world. We're fortunate again new technology aspect, best in class and first business economy.

We price at a responsible level because it's important to me to move the business to break even. In fact, that clean sheet, I'm not a legacy carrier. That clean sheet of paper because we (inaudible) advantages and the part of the world that is now opening up.

QUEST: So as between the three of you, Emirates, Etihad and Qatar, well, sometimes things, you know, there's more than friendly rival with that as you go after each other's markets. At the end of the day, we respect each other, of course, that's competition, but what we're doing is new.

If you look back at the Asian carrier, the Asian hubs, again, geography technology (inaudible) the opportunity to make all points of the world nonstop. Let's talk about more generally now for the industry overall. What is the biggest single risk? Because you lost money over the volcanic ash, everybody lost money in volcanic ash recession.

What's your biggest worry now? Why didn't on the agenda?

HOGAN: Well, look, obviously (inaudible). If you talk to any CEO here from an airline, every two and a half years, whether it's (inaudible) tsunami and of course, volcano this year, but don't forget the crisis in Bangkok. Also place pressure on the airlines so moving forward, we're seeing the revenues are coming back, the yields are good, any (inaudible). Will there be another volcano incident? Will there (inaudible)? That's what we have to be agile to adjust.

QUEST: Do you sometimes have to almost pinch yourself? Because let's face it there are so many industries, SARS, avian flu, volcanoes, civil unrest, global financial crisis. Do you ever wonder what's next?

HOGAN: Well, the key thing is moving forward and being (inaudible). We're based in Abu Dhabi. Huge activities emerging as a city, a new of line, that what's gives me the confidence moving forward and it's competitive and it is tough. It's never changed. Focus on your cost. Focus on the customer service and move forward.

QUEST: And who knows? I won't even have a bet what could be the next because well, I'll probably lose. James, many thanks indeed. Thank you for joining us.

The morning started horrifically in terms of the weather. I was quite sure I was going to be drenched. Whatever that is in German, but what a delightful evening we've got. Guillermo is at the world's weather center and with a bit of luck in the following wind, you've more the same tomorrow.

GUILLERMO ARDUINO: Yes, you are and you know what? "Quest Means Business" because you're going to get it. You're going to have nice weather in the next days ahead. Actually, London is under a lot of rain now and so many parts of Western Europe are under a lot of rain, but the east is going to remain fine.

So is the time for Germany, and especially for Poland. I'll give you details in a second to dry out. Remember the low that we had here and that's the low that is actually bringing some windy conditions in Berlin and other parts of northern Germany. But you're right under the jet stream so the warm and nice conditions will continue and this is especially good for Poland.

Because, you know, we were talking about the floods and not so long ago that we had in the area and now we are likely to see warm conditions and also very dry indeed for the next days. The west is where we will see the rain all the way down into Paris.

I think it works out perfectly for the French open beautiful weather. Perfectly for you, we have conditions in London. Now, you're going to get the nice conditions in Germany as well. Maybe rain in Amsterdam, in Dublin, in Brussels, but elsewhere conditions are going to be OK at these major airports.

Berlin is going to be fine. Temperatures are going to be on the warm side especially from Berlin all the way into Moscow. Look at Bucharest forecasting 28, Rome 27, still Madrid at 34 tomorrow, London 20 with a lot of rain there in the area. I look at Turkey and I see rain in the next two days all over especially central to eastern parts.

Istanbul is going to start with rain, but Greece is going to be fine. (Inaudible) is going to be fine too and the cyclone that we had over Pakistan dissipating moving into northern India right now. Richard, enjoy your day.

QUEST: We will indeed and if you're right then I've got lots to look forward to. When we come back in just a moment, just when you thought Smart phones couldn't get any smarter, Apple unveils the latest communication tool. It's designed to impress and we'll get a first hand review from San Francisco.

(COMMERCIAL BREAK)

QUEST: Welcome back "Quest Means Beans" in Berlin. Another big story to bring to your attention tonight, the Apple chief exec, Steve Jobs has just brought out the latest generation of the iPhone. It's called the iPhone 4. It is flatter. It's more squared off than the current model.

Unveiled in your iPhone the company's worldwide developers conference in San Francisco in California about an hour ago. And Fortune senior writer, Jon (Fortt) was in the audience. Jon now joins me live from San Francisco.

John, what is - I'm not an iPhone user. Let me quite clear about that now. So you tell me what is new about iPhone 4. What it's going to cost and what does it do?

JON FORTT, SENIOR WRITER, FORTUNE MAGAZINE: Well, there's a lot of new stuff, Richard. We had seen the pictures on the internet, but Steve Jobs still had a few surprises up his sleeve. This iPhone is 25 percent thinner. It's got 40 percent more talk time because of new battery life and the 8 chip that we've seen in the iPad is now in the phone.

The screen is four times crisper and four times higher contrast and there's a (inaudible). There's now video editing on the iPhone for instance and Apple is really gearing up in advertising strategy and app strategy that's more enhanced. The thing has a (inaudible) scoop in it.

They really want to take it to Google and reassert themselves as the leader in the Smart phone space.

QUEST: Will iPhone users be - love it. I mean, the one thing I know about these people is once the phone comes out, they all manage to cap and gripe and may find complaints. Is this going to find pleasure and pleasing?

FORTT: Well, one thing that a lot of iPhone folks will be disappointed about is there is no new carrier in the U.S. You still got AT&T or nothing. But there are a lot of things in here that people were expecting. There is the front facing camera for video conferencing.

There is the longer battery life. There is the slimmer form factor that fits in your pocket now. They've got lots of things for developers. (Inaudible) that they paid out a billion dollars to application developers so try to say that this is the platform for mobile software development.

QUEST: And finally, Jon, how much is it going to cost? Do we know?

FORTT: Well, as a standard with Apple, the low end version with 16 gigs of storage will $199, the higher end version with as much storage will be $299. We can expect to see it at the end of the month Apple said, June 24th. IOS, the one that stretches across the iPod Touch, iPhone 4 and the iPad will be released also at the end of the month, June 21st.

QUEST: Jon Fortt, we will follow that and we thank you. Jon Fortt joining me from San Francisco.

Now, back to our aviation, so far, this lady and myself have been having various challenges. I won the pilot.

UNIDENTIFIED FEMALE: I won the cabin crew challenge.

QUEST: It is time for the third one, this time the plane spotting challenge. When it comes to knowing our air buses and our Boeings which is best.

(BEGIN VIDEOTAPE)

QUEST: You think you know your plane.

UNIDENTIFIED FEMALE: I do and I think I know more than you.

QUEST: We're going to prove it once and for all.

And this is the man who's going to be the judge, Tom Singfield (ph), who's written books on the subject. He rarely knows his plane.

UNIDENTIFIED FEMALE: Six hundred, the world's longest plane, (8014- 600).

UNIDENTIFIED MALE: Here we go, this one.

UNIDENTIFIED FEMALE: OK.

QUEST: 737-700.

UNIDENTIFIED MALE: What do you think?

UNIDENTIFIED FEMALE: I'm going to say, it's a 737-800 without (inaudible).

UNIDENTIFIED MALE: I think the winning point goes here. It's 700.

UNIDENTIFIED FEMALE: No.

UNIDENTIFIED MALE: 700. 700 and -

UNIDENTIFIED FEMALE: OK, there'll be another one.

QUEST: Triple 7 with non-striking workers and three volunteers (inaudible) first class.

UNIDENTIFIED MALE: Correct, correct. It was (inaudible). You could see that through the windows.

QUEST: Bonus point, bonus point. To be a real spotter, you got to know your variants.

UNIDENTIFIED FEMALE: It's an A320.

QUEST: 320.

UNIDENTIFIED MALE: Yes.

UNIDENTIFIED FEMALE: It's a (inaudible).

QUEST: But I'm going to go with the (MBAT).

UNIDENTIFIED MALE: He's got it (MBAT) McDonald Douglas.

QUEST: The MBAT (inaudible) and match.

UNIDENTIFIED MALE: Aisha has 8 points and Richard 12, and I'd like to congratulate you on your stunning victory today -

QUEST: So another travel of challenge comes to a close. And it's Quest two (inaudible) one.

(END VIDEOTAPE)

QUEST: We could all enjoy a moment of plane spotting. Bad luck.

UNIDENTIFIED FEMALE: It's all in the engines.

QUEST: It's all in the engines. Absolutely, bad luck. If you got an idea what you'd like to see us challenge each other in the travel industry quest@cnn.com. The travel a challenge has a long way to go.

When I come back in just a moment, another profitable moment from Berlin. Good evening.

(COMMERCIAL BREAK)

QUEST: Tonight's profitable moment. For an industry that seems to have thrived on bad news. The return to profitability is welcome news indeed. But the profitability is far from even. Europe remains a very weak part of the aviation world, which would why Chancellor Merkel's announcement that she is going to cut the deficit and would also raise taxes is somewhat bewildering.

Even with this profitability, the margins are simply horrible. Basically, you might be better off during the lottery than running an airline. So this is no time for the airline industry to cut back on the cost cutting. We'll have a birth of (inaudible) and start expanding with new roots and adding capacity.

The aviation industry is notorious for losing a fortune. Let's hope those magnificent man in there flying machines learn how to make real money. Tomorrow night, we will have the chief execs of American airlines, Quantas and Air New Zealand.

And that is "Quest Means Business" from Berlin. I'm Richard Quest. Whatever you're up to I hope it's profitable. Good night from Berlin.

END