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Quest Means Business
U.S. Consumer Confidence Down; Continental Leaves SkyTeam for Star Alliance; India Holds Rates Steady with Eye to Exit
Aired October 27, 2009 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INTERNATIONAL ANCHOR: A collapse in confidence, U.S. consumers now seriously worried about unemployment and the economy.
And a new star in the air. Continental Airlines shifts alliances to the largest alliance in the world.
I'm Richard Quest, from Newark's Liberty Airport. I mean business.
Good evening. Kind of them to lend me this plane that this evening will probably be crossing the Atlantic, a Boeing 757 of Continental Airlines. Over the course of this program, Adrian Finighan will be bringing us up to date with European markets, and you will be hearing from the chief executives of Continental Airlines, Singapore Airlines, Lufthansa, and United Airlines.
It's all part of our coverage, getting to grips and getting to feel how the aviation industry is handling the downturn and the recession.
There was disappointing news on that front here in the United States today. Consumer confidence numbers actually tumbled, a very sharp fall at a time when analysts had expected it to be either an increase or, at very best, unchanged.
This sharp fall took the market with us. Susan Lisovicz is at the New York Stock Exchange. Susan Lisovicz joins me now in New York to put perspective into it.
What happened? Why did the market fall?
SUSAN LISOVICZ, CNN FINANCIAL CORRESPONDENT: Well, you know, to be honest with you, Richard, I mean, it wasn't really much of a rally to begin with. We had a higher open on this encouraging housing prices report. Then we got the consumer confidence report 30 minutes after the open, and that really -- that really took some of the air out of the bubble, if you will.
We're coming off of back-to-back triple-digit losses for the Dow. That's the first time we've seen that since June. And there are some concerns. It's also kind of a slow day, to be honest with you. Monday and Tuesday have been slow, so these economic reports are -- pretty much take front and center with what is happening on Wall Street.
And what we're seeing right now is very modest gains for the Dow, which is below 10,000, up nearly half a percent. But the NASDAQ is down by about a percent. And the broader S&P 500, it's completely neutral, it's flat, Richard.
QUEST: But there is no getting away from the fact, Susan, however we may wish to portray it, there was this falling consumer confidence at a time when they expected the number to improve and the reason behind it seems to be a deepening concern over jobs. Isn't that sort of more worrying looking into the forward (ph), because consumer confidence is supposedly one of those forward-looking indicators?
LISOVICZ: It is. And, you know, you have to remember that what we've seen and what people like us and many others are saying is that not only is the unemployment rate high, at a 26-year high, rose in September to 9.8 percent, but it's going to get higher still.
And so, you know, one of the key measures of this consumer confidence report is, you know, what is the present situation? And that fell to a multi-year low. What happens oftentimes how we feel is, you know, what we do. And what we do in the United States accounts for about 70 percent of economic activity.
The Conference Board surveys 5,000 consumers, of those 5,000 people surveyed, nearly 50 percent that current business conditions are bad, and that was up from September, less than 8 percent, Richard, said current conditions are good, which is also less than a month earlier.
And furthermore, Americans are even less confident about the employment outlook, nearly half of those surveyed said jobs are hard to get, again, more than in September. And just over 3 percent, 3 percent say jobs are plentiful. Consumers are divided over whether they believe conditions will get better, get worse, or stay the same over the next six months.
But the drop in overall confidence is raising some eyebrows on Wall Street. And the path of least resistance today seems to be down. You know, there is not much action in terms of a rally.
QUEST: Susan Lisovicz at the New York Stock Exchange, thank you.
LISOVICZ: You're welcome, Richard.
ADRIAN FINIGHAN, CNN INTERNATIONAL ANCHOR: Stocks here in Europe, Richard, struggled for direction this session as a banking selloff offset gains in the energy sector. Let me show you what went on today, starting with London's FTSE.
BP was up nearly 5 percent today on upbeat earnings, both Shell and BG Group, that's the natural gas giant, they were both up 1.2 percent. The banks led declines, RBS down more than 8 percent, Lloyds down by more than 6 percent today. That was on the fallout of the break-up of ING that we were telling you about this time yesterday on QUEST MEANS BUSINESS.
Over in Frankfurt, the DAX, financials, not surprisingly, among the weakest there too. Commerzbank down more than 5 percent. Car-makers also fell. BMW was down more than 3 percent. Daimler down more than 2 percent.
The chip-maker Infineon fell by, get this, 7.5 percent. There is speculation today that it has perhaps lost a lucrative contract with Apple.
Into Paris, then, and investors sold off banking shares again there today. Dexia down nearly 6 percent, Societe Generale down more than 3 percent. The drinks-maker Pernod Ricard rose more than 3 percent. Nomura upgraded those particular shares there, which was behind that gain.
And as you heard, BP the top performer London on the FTSE today, even though the company has said that it made nearly $5 billion in the third quarter. That's as half as much as it made this time last year, $10 billion a year ago.
But the numbers came in way ahead of analysts' forecast. BP says that it has been cutting costs and has increased production by 7 percent. And that has helped to minimize losses caused by the drop in oil prices from the record highs of 2008.
Now a major oil discovery in the Gulf of Mexico last month is also fueling hopes that output will rise. All of that helping BP today.
Airline stocks, though, had a pretty rough ride this session as oil prices remained volatile. But, a big chunk of the sector had reason to celebrate today. Star Alliance, the world's largest group of airlines, welcomed its 25th member to the fold today. Continental Airlines completed a world first, leaving one alliance, SkyTeam, to join another.
And as you saw, Richard Quest is at Newark Airport for us today, and he is covering the event and talking to a whole host of CEOs.
And something you didn't say, Richard, when the show started, is that plane behind you, they wheeled it in specially for us, didn't they?
QUEST: They did wheel the plane in specially. I'm told that they haven't delayed any flights for us to be using it. But it was outside in the wet and pouring rain. And now, of course, a very expensive $100 million prop. And we thank them for that.
The decision of Continental to move from SkyTeam to Star Alliance became inevitable after Delta Air Lines merged with Northwest. But for all airlines in the world at the moment, these are very difficult times as the third quarter reporting season shows.
What we really saw was basic weakness in terms of premium demand and no ability necessarily to raise prices. One of the advantages of being here today for the Star Alliance event was I was able to sit and talk with the world's top CEOs.
For instance, Glenn Tilton of United Airlines. United one of the largest carriers in the world, what is he seeing in terms of the market?
(BEGIN VIDEOTAPE)
GLENN TILTON, CHAIRMAN & CEO, UNITED AIRLINES: We're seeing gradual improvement. I mean, on a month-to-month basis, you're seeing sequential improvement. So each month a little better than the one before. So clearly there is some momentum off the bottom. And that's what we're seeing in all markets, a little different one market to the other, Richard, but we are seeing some improvement.
QUEST: Do you -- are you worried, as we're going into winter, that $80 -- $75, $80 a barrel of fuel, is that going to be a concern?
TILTON: I think fuel is always a concern, Richard. But I think that sooner or later it responds to the fundamentals of demand. You can see that the crack spread, the refinery margin is more reflective of genuine demand today than it was back when the real, real escalation took place over a year ago.
QUEST: And what more can the aviation industry or the airline industry do? You've got 8 percent, roughly, cuts in capacity. We've seen consumer confidence numbers today that are pretty horrific. Is there a worry that the next downturn is there?
TILTON: No, I don't think so. I don't think we're going to see a "W" in terms of the recovery. I think we're going to see a gradual U-shaped recovery. I think it's going to come slowly. But I think when it comes, it is going to be accompanied by a tremendous amount of work that the carriers have done to position themselves to benefit from the recovery.
Tremendous work on the cost side, this Alliance event is a significant one. So tremendous, I think, preparation for the up cycle, because the companies have done a tremendous amount of work including liquidity raises with their balance sheets.
(END VIDEOTAPE)
QUEST: So, that is the view as seen from one of the very large domestic U.S. carriers, Glenn Tilton. The airline, United, has tentacles across the Atlantic and across the Pacific. To get the Pacific perspective, I turned to Chew Choon Seng of Singapore Airlines, an aircraft and airline known for its premium service, but one that has also suffered from difficulties with a drop in demand.
What are they seeing out of Singapore?
(BEGIN VIDEOTAPE)
CHEW CHOON SENG, CEO, SINGAPORE AIRLINES: You're absolutely right, Richard. Demand has stabilized, but it's too early to call a turn and to say whether this recovery is going to be sustained for much longer.
QUEST: On the long haul routes, what more can you do to cut costs? There is not a lot more. You've got these expensive 380s which, I wonder whether you will regret putting into service now. Capacity is difficult to reduce with them.
CHEW: No, the 380 has done very well for us in terms of delivering the promised cost efficiencies. So it is doing its job for us to the extent that we are able to fill the airplanes. And I must say the routes on which we have deployed the aircraft, London to Paris to Tokyo to Sydney, have all been doing well. So the aircraft has been doing its job for us.
Our challenge has been more throughout the rest of the network where the U's (ph) are not holding up.
QUEST: There is very little you can do about that. You either give the seats away, or you let the plane fly empty, which is your preference?
CHEW: Well, that's in the short term, Richard. I think when the demand returns, and as the market firms up and we run higher load factors, then we will start managing the yield up again.
QUEST: Which part of the world do you like the look of most to move capacity into? Clearly some parts just are not -- I mean, trans-Pacific is very, very difficult.
CHEW: Well, right now the strongest market for us China-India still. But the Australia-New Zealand market is very firm as well. And markets in Germany and in France are looking up too.
QUEST: And the bits you don't like?
CHEW: The bits we don't like are at this moment: America, Japan, the U.K.
QUEST: Oil $80 a barrel, what more can you do about that? If that looks like the numbers, $70 to $80 a barrel that you're going to go into the winter at, can you live with that?
CHEW: Yes. I think $80 oil, we've learned to manage it, but if it goes anywhere higher than that, and gets near three digits, then all bets are off, and fuel surcharges will go up again, and -- but I think before we reach that point, Richard, the global economy itself will slow down if oil keeps on going up.
QUEST: No one wants to run -- no one wants to contract their airline. And you've had to do that over the last few years. That was not what you came into the business to do.
CHEW: Absolutely.
QUEST: When do you hope to be able to expand the airline again?
CHEW: Well, when demand returns. When global trade flows stop firming up and unemployment numbers start coming down, that will be the point.
(END VIDEOTAPE)
QUEST: Chew Choon Seng of Singapore Airlines.
In Europe, Lufthansa has been making the news of late. Not content with taking over Swiss, it went for and received Austrian, Brussels, and, of course, now also owns BMI of the U.K. For Wolfgang Mayrhuber, integrating these airlines and at the same time having a cohesion policy is difficult at time of recession.
(BEGIN VIDEOTAPE)
WOLFGANG MAYRHUBER, CEO, LUFTHANSA: Well, I mean, that's the way it is. I think running a company or your own family, you must make sure that you survive in crisis, which we are doing. But at the end of the day, I'm absolutely convinced that mobility is so important for the global societies, for the economy, that the demand will come back again and grow. And we are just at the beginning, I always say (ph).
Currently 70 percent of world traffic is done between Europe's -- Europeans and Americans, but you have only 50 percent of the world population. Here you can imagine how big the opportunities are.
(END VIDEOTAPE)
QUEST: Wolfgang Mayrhuber of Lufthansa.
When we come back at the half past, we'll hear from the chief executive-elect, Jeff Smisek, of Continental Airlines, an in-depth interview in which he questions the role of speculators in the oil market. It is a topical subject, it's QUEST MEANS BUSINESS from Newark.
(COMMERCIAL BREAK)
FINIGHAN: Welcome back. This is QUEST MEANS BUSINESS. In London, I am Adrian Finighan. We'll be back with Richard in Newark, New Jersey, in just over 10 minutes' time. Right now, though, let's get you up to date with the news headlines. Fionnuala Sweeney joins us live from the London newsroom.
FIONNUALA SWEENEY, CNN INTERNATIONAL ANCHOR: Adrian, the U.S. military says eight more soldiers have died on the battlefield in Afghanistan, making October the deadliest month for U.S. troops since the war started in 2001. Two roadside bombs in southern Afghanistan killed the eight service members and an Afghan civilian working with NATO troops.
Baghdad is still reeling from Sunday's twin suicide bombs that left 155 people dead. Iraqi officials released this new video. The violence pushed Baghdad officials to ask for the resignation of the leaders of security forces in the city. An al Qaeda-linked group has claimed responsibility for the bombings.
A French court has convicted the Church of Scientology of fraud and ordered it to pay more than $900,000 in fines. A spokesman says the verdict amounts to a modern inquisition and threatens the freedom of religion in France. The church plans to appeal. Prosecutors say the group used commercial harassment against recruits, among other tactics.
NASA will try again on Wednesday morning to launch its next generation Ares rocket. High winds forced NASA to scrub the Tuesday launch. It's designed to replace the aging space shuttle fleet. Critics say the project should be canceled, arguing private companies can handle missions to low- Earth orbit. The test will cost more than $400 million.
And those are the headlines. Adrian, back to you in the studio.
FINIGHAN: Fionnuala, many thanks.
In just a moment, a tasty treat designed to tempt China. How one American is using apples and candy in his bid to sweeten trade ties. We'll be right back.
(COMMERCIAL BREAK)
FINIGHAN: Hello, again.
India is beginning to make its way towards the exit. Central bankers are taking the first steps towards tightening the money supply and rolling back a little of the extraordinary support that they've been giving the economy during the global downturn.
Policy-makers are telling lenders to hang on to more of their cash in government bonds in order to soak up excess liquidity from the banking system. They're worried that too much extra cash could aggravate inflation and damage the recovery.
The bank is keeping interest rates on hold for now, saying that the economy isn't ready for a boost in borrowing costs just yet. But analysts now expect rates will rise in the coming months. Investors weren't at all pleased at the prospect of higher borrowing costs either. India's benchmark index ended the day more than 2 percent lower.
Well, a little earlier today, I spoke with Laura Tyson, professor of business and economics at the University of California. I asked her which route she thinks governments need to take on the road to recovery.
(BEGIN VIDEOTAPE)
LAURA TYSON, PROFESSOR OF BUSINESS & ECONOMICS, U.C.-BERKELEY: Well, I think -- I've been impressed by the conversation in the U.S. is now focusing on not a stimulus but really, are there measures that we can either extend in the existing stimulus package or add to it that focus primarily on jobs?
Because what is happening in the U.S., and it is happening in countries in Europe as well, is that we're seeing signs of recovery in output, but we are certainly not seeing the signs of recovery in employment. In fact, the unemployment numbers in the U.S. keep rising.
So we're in a jobless and weak recovery. What can governments do to help boost job creation, or to help those who are unemployed? In the U.S., unemployment compensation benefits will soon run out. So extending those is a very important thing to do.
At the same point, next week President Obama is going to have a jobs summit to talk with business and labor and other leaders about, well, what can we do? Should we do more, for example, with tax relief? That's one thing that people have suggested. Should we do more with infrastructure spending?
The focus is very much on jobs. It's not financial stabilization. It's not recovery of output. It's job creation.
FINIGHAN: Should we even be having these conversations now about what else needs to be done? I mean, would a second stimulus package back in the summer have put us on a firmer footing today?
TYSON: No, you know, the truth is, we are in a situation where it is very hard to forecast. The global economy plummeted more dramatically than expected in the first half of this 2009. And now it seems to be recovering a little bit, more than expected.
We have a huge amount of government support, not just we, but countries around the world propping up the economy right now, unprecedented amounts of monetary and fiscal support. It's very, very hard to judge the strength of private demand.
What I have argued is we should think about additional jobs measures, but that are triggered. That either go on or off automatically depending upon what happens to the progress of the unemployment rate.
We have to be honest about the fact that we are in an uncertain economic situation. Even back in August, what I was saying is, you know, you have to do a lot of scenario-planning in this environment because you don't know which scenario you're going to end up with.
You could see that right now in the fact that there are some observers who worry about inflation, and some who worry about deflation. Well, they can't both be correct. So where is the U.S. economy and the global economy? A lot of uncertainty. I like the idea of triggers.
FINIGHAN: Yes, absolutely. That's a pretty neat idea. But, I mean, sooner or later, this stimulus is going to have to be withdrawn.
TYSON: In the U.S., where you have an unemployment rate creeping up towards 10 percent and a significant amount of un-utilized capacity, the challenge is really a very different challenge. I think one of the things policy-makers need to do, certainly the central banks are doing this, the central banks have really laid out a plan for how they will withdraw support from the system gradually when they see any signs of price upticks that are unwanted when they see that employment is beginning to improve.
With fiscal policy, what you can do is really have a plan to temporarily allow it to die out, which is what the current stimulus does, it dies out through next year and into 2011. But if we added anything else, like an additional jobs bill component, again, you could trigger it and you could terminate it. And I think that's really -- it is a balancing act.
I do not want to say that the challenges confronting policy-makers are easy right now, they are very hard.
(END VIDEOTAPE)
FINIGHAN: Very interesting. And we'll be hearing from Laura Tyson a little later in the program when she comes back to talk about the gender pay gap around the world.
Well, Asia's main markets ended the Tuesday session sharply lower today. Mining and energy stocks fell as metal and oil prices slipped. The Nikkei in Tokyo shed nearly 1.5 percent. The Hang Seng dropped around 2 percent in Hong Kong. And the Shanghai Composite was the day's biggest loser. It was down nearly 3 percent today.
Well, on a visit to China's manufacturing heartland, America's commerce secretary has called for stricter copyright and trademark rules. Eunice Yoon spoke to him about trade relations and playing by the rules.
(BEGIN VIDEOTAPE)
EUNICE YOON, CNN INTERNATIONAL CORRESPONDENT (voice-over): U.S. Commerce Secretary Gary Locke never considered himself much of a pitchman, but today in China, he is one.
The former Washington governor is hard-selling American products at this Sam's Club in Guangzhou.
GARY LOCKE, COMMERCE SECRETARY: Including Washington State apples and Almond Roca candy, which is a candy that I can eat all day long.
YOON: The Chinese-American politician's pitch is part of a visit designed to reinforce a shaky economic bond between Washington and Beijing.
LOCKE: Here is an opportunity for China to work with the United States to become the leaders of the world.
YOON (on camera): Is a trade war coming?
LOCKE: No, not at all. Not at all. The president and I very much believe in free trade. But that also means fair trade. And to have a really good trading system, you have to have rules.
YOON: Do you think that China is a fair trading partner?
LOCKE: As the trading relationship matures, with any country, there will always be more disputes, and sometimes they are very technical. But you know, when you look at the relationships between, let's say, brothers and sisters, the relationship when you're really small and young might be very, very simplistic. But as the families and the children get older, they get into more complicated issues.
YOON (voice-over): The global economic crisis has raised tensions over the trade imbalance between the two nations. So far this year, for every $5 of goods sent from China to the U.S., only $1 has gone the other way.
(on camera): This is an American product section. Everything sold here is food. These are apples from Washington, oranges from Florida, but the vast majority of the goods sold at retailers like this come from China.
How do you get more Chinese people to buy American products?
LOCKE: Well, I think there is a great hunger and thirst for American products, whether consumer products, cosmetics, to medicines, and of course, technology. China has done so much to modernize, to raise the standard of living for its Chinese -- for its people. And American companies offer so much by way of products and services.
YOON: How does this strategy of selling products to Chinese consumers help the American worker? And beyond that, how does it address trade imbalances?
LOCKE: Whether it's medical devices, water pollution control devices to clean water, all of these things create jobs for American companies, American workers, and also raise the standard of living for people around the world. That's the type of mutually beneficial trade that I wish to pursue.
YOON (voice-over): A message he hopes the Chinese will take home.
Eunice Yoon, CNN, Guangzhou.
(END VIDEOTAPE)
FINIGHAN: All right. Coming up on QUEST MEANS BUSINESS, we're back in New Jersey with the man himself, Richard.
QUEST: Indeed. When we return, should oil speculation be restricted? Should there be rules against the damage that it can do in industry? One airline chief executive believes speculation is doing more harm perhaps than good.
QUEST MEANS BUSINESS returns in just a moment.
(COMMERCIAL BREAK)
FINIGHAN: Welcome back.
Live from CNN, This is QUEST MEANS BUSINESS in London.
I'm Adrian Finighan.
QUEST: And at Newark International Liberty Airport, I'm Richard Quest.
As you've already heard on this program, ask any airline CEO and they don't think things are getting better, they sort of couch it in terms that things aren't getting any worse. Which, for an industry that this year will lose $11 billion, is an achievement in itself.
The reason I'm at Newark is because today, Continental Airlines became the first major carrier to switch alliances from SkyTeam to Star Alliance.
I sat down with the president and chief operating officer, Jeff Smisek. He was about to become the chief executive officer from January the 1st of next year.
Once again the question, if things aren't getting worse, are they getting better?
(BEGIN VIDEOTAPE)
JESS SMISEK, INCOMING CEO, CONTINENTAL AIRLINES: Well, you know, when you fly an airline, Richard, and you're in coach -- I know it's probably rare for you -- but when you are in coach, what do you pray for the most?
You pray for an upgrade. Well, at Continental, we wanted to upgrade, too. We're upgrading alliances. We're upgrading from our former alliance to the best alliance, the biggest alliance, the oldest alliance, the most technologically advanced alliance in the world, the Star Alliance. And we're really pleased to be able to do that.
QUEST: What was wrong with the old one?
Why couldn't you stay where you were?
Why was it necessary to ditch Delta and its partners and go across to United?
SMISEK: We could have stayed in Sky Team if we had wished to. The problem with SkyTeam is once Delta and Northwest merged, we became the junior partner. And, moreover, we compete quite a bit with Delta in the Northeast. We compete with them in flows to -- to Latin America. Whereas with the large -- with a large U.S. airline, United, that we're allied with right now -- actually, we're not competitors. Other than hub to hub routes, we're not competitors. So we offer a broad scope domestically, and, of course, with the power of Lufthansa and A&A and many other first class carriers, we now have a huge globalizable part.
QUEST: That all makes sense up to a point. But I still come back to this idea, why, then, not just simply merge the United?
SMISEK: Well, as you know, we had another opportunity to merge with United back in April of 2008 and we decided not to do that. We had a lot of issues with the I.T. With technology integration, with aircraft integration and certainly integrating our cultures. And the financial markets were a little thin back then and, of course, they only subsequently degraded an enormous amount toward the end of that year.
QUEST: Is there an inevitability that, at some point, you will have to merge or you will merge with United?
SMISEK: No. There's no inevitability at all. Absolutely not. I think that there is, obviously, a possibility that we will merge someday. There's no question about that. We're -- currently, we're taking a look at how Delta is doing their merger.
Are they outperforming us?
To date, absolutely not. But we're going to take a very close look at Delta. And if they begin to financially outperform us, then we also have to consider our competitive response. But so far, I can't say in any way that they're outperforming us.
QUEST: So you're -- you're not threading the door, but you're not walking through it?
SMISEK: That is correct.
QUEST: Let's talk about the markets and how things are looking at the moment in the aviation industry. Now, until just about every CEO I've met in the industry said they've never seen it as bad, nobody could have predicted it. It's been a -- a truly bloody 18 months, two years.
I suspect you would agree?
SMISEK: It's been very ugly, yes.
QUEST: Nothing like you've ever seen before?
SMISEK: Nothing like we've seen since 9/11.
QUEST: Are you seeing any shifting change?
SMISEK: Change in what regard?
QUEST: Things getting better.
SMISEK: Well, we're seeing some early indications of that, but it's - - you know, a lot of people talked about green shoots pretty early on. Those people's green shoots, I think, were fertilized with something I'm not going to say on the camera.
But I -- I think what we are seeing now is some of our corporate customers are beginning to -- beginning to loosen some of their most draconian travel restrictions, which will be good, ultimately, in 2010, as the business travelers, hopefully, will begin to return.
QUEST: You see, that's the point. I'm hearing time and again from chiefs saying things aren't getting any worse and we may be starting to see the signs. But nobody is actually saying we're seeing the signs.
SMISEK: Because we're not seeing the signs. We're seeing indications of them. We're seeing a flattening out. That is, we're not seeing any continuing degradation, but we're not seeing any kind of significant improvement in business travels -- business travel today, as we -- and, of course, we hope to see it in the future, but I can't say we're seeing it right now.
QUEST: If oil stays over $80 a barrel, how much damage does that do, do you think?
SMISEK: Well, you know, I'm not sure that oil at any level does damage. The industry simply adjusts by capacity and pricing. What hurts the industry and ultimately hurts the -- the consumers that rely on the industry is the -- the huge volatility of oil.
So, if you told me oil would be $120 a barrel, I'd be OK with that. We'd be a smaller airline. All airlines would be smaller. There would be less capacity. There would be much higher prices. But we'd be just fine, we'd just be a smaller business. If you tell me oil is going to be at $60, we'll be a larger business.
What we get killed by are the violent swings through speculation of the oil prices. That's really harmful for us.
QUEST: And you believe it is speculation?
SMISEK: I think -- I think a component is speculation, for sure, yes.
QUEST: As you look at the industry, as we go into the winter, with oil up at $80, slow, sluggish growth in developed countries, even by any measure, are you worried that it's going to be a particularly bloody winter?
SMISEK: Well, I think it will be a long and tough winter. If you're asking do I think from -- from our knothole we're going to see numbers of carriers declare bankruptcy, I think not. If you take a look at the cash position, certainly from the U.S. carriers and the -- and the recent thawing of the capital markets, I'm not concerned. I'm certainly not concerned from Continental's perspective. And even amongst my competitors, I don't imagine there will be anybody going in the tank this winter.
(END VIDEOTAPE)
QUEST: Jeff Smisek, the chief -- the chief executive elect of Continental Airlines -- Adrian, it always used to be said, if you want to make a small fortune, just take a look fortune and buy an airline. That probably is just as true, if not more so, today.
FINIGHAN: Yes.
Look at you, like a kid in a sweet shop today. You wouldn't think that aviation is one of your passions. It's been a great day for you today. What, you've had something like 26 CEOs at your disposal today.
If you had to put it all together in a pot, how would you sum up their -- their outlook?
How does the land lie for the airline industry?
Are they seeing any green shoots ahead?
QUEST: No. No, they're not. The green shoots is just a word -- if you say green shoots to the airline chief executives here, they will just basically roll over in laughter. They will tell you, they are just glad that things aren't getting any worse.
I'll give you one example. One airline saw revenue drop year on year -- revenue drop year on year 20 percent. Now, that is just about unheard of. And when you think that these items cost the best part of a couple of hundred million dollars, they're capital intensive, they were bought years in advance, they've got to be paid for, sometimes with borrowed money or leased money, you just start to understand they are just glad things aren't getting any worse.
What they do believe, Adrian, is that if they've made the cost cuttings now and taken the right strategic decisions, well, it won't just be the aircraft that will lift off when the recovery comes around.
FINIGHAN: Absolutely.
Richard, many thanks, indeed.
Richard Quest live at Newark, New Jersey.
And QUEST MEANS BUSINESS continues.
Ronald McDonald is boxing up his burgers and waving good-bye. There will be no more golden arches in Iceland. We'll tell you why McDonald's is shipping out, next.
(COMMERCIAL BREAK)
FINIGHAN: Our apologies to anyone watching in Iceland tonight, who soon won't be able to get their hands on one of these, if you're as fond of the milkshakes as I am. The ultimate low-cost eatery has become too expensive to run in crisis-stricken Iceland. McDonald's is closing its three branches in the country for good after the local currency, the krona, plummeted, setting prices soaring. The krona has stabilized since its collapse last October, but it's still half the value it was in January 2008.
Now, in McDonald's terms, that means the Big Mac now sells for the equivalent of $5.29 in Iceland, compared to $3.54 in the U.S. and just $2.19 in Australia.
Well, CNN's Jim Boulden was in Iceland during its financial collapse last year. He joins me now to get some perspective on this latest casualty of the crisis.
And we have to say, it's not McDonald's that is pulling out, it's the franchisee who's decided it's just too tough to do business there, yes?
JIM BOULDEN, CNN CORRESPONDENT: Yes. He actually has to -- he has to import a lot of his goods from -- from Germany. He's not able to source locally as a franchisee. And so his costs went up as the currency went down against the euro, very simple.
He said he would have had to raise the price of the Big Mac an enormous amount of money, so he chose not to continue.
However, McDonald's has said very clearly they're also not going to look for somebody else right now...
FINIGHAN: Right.
BOULDEN: . to also run the franchise. And so that tells you what McDonald's thinks of the Iceland economy at this moment. The -- this chap says he will reopen these -- these burger joints, sourcing locally. So, he thinks that will help him bring his prices down.
FINIGHAN: So, I don't suppose (INAUDIBLE) it -- it wouldn't matter whether he was selling McDonald's or...
BOULDEN: No.
FINIGHAN: ...whether he was selling widgets in a widget factory...
BOULDEN: Yes.
FINIGHAN: ...if he was having to buy raw materials from elsewhere, he'd be in the same mess.
I mean what does that tell us, then, about what people are going through in Iceland right now?
BOULDEN: This is exactly what happened last October, when the government -- the economy collapsed. The government had to rescue the three banks. It's because so many people there took out mortgages in euros.
However, of course, it's not part of the European Union yet -- trying to be. And obviously not a member of the Euroland (ph) (INAUDIBLE). It could not control what happened. When the economy started to collapse and the currency collapsed, everything went crazy, because they actually have to, obviously, import so much into this tiny island.
FINIGHAN: Wow!
BOULDEN: And so it just shows you what's happening. Inflation, 10 percent. Still, interest rates are at 12 percent. If you think America...
FINIGHAN: Wow!
BOULDEN: If you think of what it's like for the rest of the world, Iceland...
FINIGHAN: Yes.
BOULDEN: Nothing that's happening in the rest of the world is what's happening in Iceland.
FINIGHAN: Yes. I read a -- a quote from a guy, the franchisee, somewhere today. And he said that -- that importing onions to go on top of the burger was as expensive as -- as buying champagne was a few years ago.
I mean, how does Iceland get out of this mess?
Is there any way out?
BOULDEN: Well, they've got a $10 billion loan from the IMF. They are still -- they seem to be very close to having an agreement with the U.K. government and the Dutch government over what these -- these savings accounts.
You remember how many people had put their money...
FINIGHAN: Yes.
BOULDEN: . into Iceland savings accounts?
Now, a lot of them have gotten their money back from the U.K. government and the Dutch government, if they lived in those countries. Now, those two governments want their money back from Iceland.
FINIGHAN: Yes.
BOULDEN: Iceland has gone to the IMF. Iceland, if they can make nice on this deal, they hope to get more IMF loans.
FINIGHAN: And you said they're hoping to be part of the -- the E.U.
BOULDEN: Yes.
FINIGHAN: I mean they didn't want to be until things...
BOULDEN: Not until this.
FINIGHAN: ...until things started to go wrong.
BOULDEN: Yes.
FINIGHAN: I mean how many hoops do they have to jump through now to - - to get into the E.U....
BOULDEN: Yes.
FINIGHAN: ...and -- and what help can they get from the E.U.?
BOULDEN: I mean...
FINIGHAN: I suppose it's a -- it's a conundrum, isn't it?
BOULDEN: Every -- yes. I think what they decided is it's better to be a close friend of the European Union, inside the camp, not outside the camp. They liked being outside the camp for a very long time.
FINIGHAN: Yes.
BOULDEN: They're very close to Russia, for instance, not geographically but -- but they are, as -- as a country.
But they decided that they've got to get into -- to the European Union, at least the majority of the people do. And I think that's what's going to help them over the long run, so they don't have another banking crises. Because the Nordic countries went through this in the '90s. Iceland didn't learn a lesson from it. Their banks were terrible. Sweden and Norway, they learned lessons then and now they're hoping and have been using those lessons to help the Icelandic banks.
FINIGHAN: All right, Jim, many thanks, indeed.
And thanks for the (INAUDIBLE).
(CROSSTALK)
FINIGHAN: Did you have -- did you...
BOULDEN: I've had mine already.
FINIGHAN: What did you have?
What did you...
BOULDEN: The chicken.
FINIGHAN: The what?
BOULDEN: The chicken.
FINIGHAN: The chicken. OK. Right.
Guillermo is -- is with us at the CNN World Weather Center.
We're going to be talking about the pay gap, the gender pay gap. I promised you that Laura Tyson will be back in -- in just a few moments.
But I mean you're lucky there, in your -- in your building in Atlanta, you have all those fast food outlets...
GUILLERMO ARDUINO, CNN METEOROLOGIST: No. Yes, but we don't have McDonald's...
FINIGHAN: ...just downstairs. No, but you don't need it. You've got some wonderful fast food outlets down there.
ARDUINO: Well...
FINIGHAN: Some of the delicious things, like nachos. Wonderful.
ARDUINO: Yes. I think that everything from a distance looks much better. I can go to the control room and get a list of complaints about the quality of the food down here.
FINIGHAN: Oh, OK.
ARDUINO: All right. Let me tell you one thing, I'm going to get complaints, also, in terms of weather. Because yesterday I told you that it was going to be nice in England, blah, blah, blah. It's still not bad, but we are going to see more clouds in here. And, actually, you are right under the clouds right now, because we are seeing that system go through.
I think that the next two days are going to be better. It's going to be warmer. The pattern continues to be the same, Adrian. We have the warmer conditions, even above average, on the western side, and that includes England. And then the cooler than average conditions here for the east and the persistent rains into Turkey, now Syria and Iran. That system that went through the southeastern parts of Europe keeps moving to the Middle East right now.
Now, poor Scotland, because we are getting a lot of bad weather over there. Northern Ireland, the same thing. England doesn't appear to be that bad. But we see clouds here and look at the temps, 20 practically, the low temperature of the day -- 12, 13, no complaints. It looks pretty good to me. And we have some clouds. Also, the winds are going to be there. That hasn't changed.
Look at the comparison of some cities here in the west with the east. Stockholm, in the dead of winter, at 5, the high of the day; 10 in Kiev for Wednesday; Paris, 17; Madrid, 25; London, 18. I wouldn't complain if I were in the west.
Now we see Dublin with windy conditions. Elsewhere, it appears to be fine. Nothing in the way of delays at airports, weather-induced. We may see volume problems, but that's about it.
Look at Germany. Look at Switzerland, Austria looking fine. And then come the east. And here is where the problems are. In the next two days, Cyprus is going to see bad weather. Also, it's going to improve a little bit in Antayla and westward, all the way into Bodrum and Marmaris. But then the east, Adana, those sections into the Jerusalem area here in Israel is where we will see the bad weather.
And then our eyes are on the Philippines. Again, we have to emphasize that Mirinae, this tropical storm, appears to be heading for the Philippines. Everything is conducive for development, that is to say the waters in the Pacific Ocean are pretty warm. We don't have winds in the higher level that would destabilize the organization of this cyclone. It promises to be a significant typhoon. You see three days from now, we may have it on Luzon again. That's pretty bad because of the recent history with the Philippines.
Now, the winds are picking up, also, in Taipei and in Hong Kong. In the States -- and this is it. This is us here, underneath all this mess, into Tennessee, Kentucky and the Northeast with bad weather. And then to the west, we're going to see snow storms now descending, especially into the Denver area. Look at Denver, the high of 3 degrees.
Europe, what are you complaining about?
Look at that. New York with rain showers. Atlanta, delays because of foggy conditions. Denver with snow.
But let's look at it the -- from a positive angle. We're going to see the chance to go skiing there in Colorado.
Who doesn't want to do it this winter?
You can go there right now.
Stay with us.
I'm done, but after the break, Adrian Finighan with more QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
FINIGHAN: All right, back to Iceland. Its economy may be in tatters, but when it comes to gender equality, Iceland is breaking new ground. According to the World Economic Forum's Global Gender Gap Index -- it measures how well countries are doing on dividing up resources and opportunities between the sexes and closing the gap between men and women, which, let's face it, exists everywhere.
Iceland now the best place in the world for women's work in the workplace, with the smallest gender gap. And, in fact, Nordic countries complete the top four slots on the gender list. Second was Finland; third was Norway; fourth was Sweden.
By contrast, at the bottom of the list, most Middle Eastern countries featuring far below the global average. Yemen occupies the last place of the 134 countries in the rankings. The UK, the U.S. and Germany have all slipped back in the rankings. The U.K. slipped two places, to number 15. Germany fell one place, to 12. And the U.S. dropped three places, to 31. That's mainly due to the lack of political participation for women.
As I said, I spoke to Laura Tyson earlier in the show about this particular issue. She's one of the coauthors of the Global Gender Gap Report.
And I asked her just how important is it and why.
(BEGIN VIDEOTAPE)
LAURA TYSON, PROFESSOR, UNIVERSITY OF CALIFORNIA: Well, we tried to measure how countries are performing in achieving parity -- gender parity on very important dimensions -- health, education, economic performance and politics.
It's important because countries around the world are now paying attention to this report. They're at -- the leaders are asking themselves how can they do better. They're looking at countries at their comparable development level and comparable regional location that are performing a lot better than they.
We've shown a correlation between gender parity and accomplishment and competitiveness and growth. So I think it's very important for leaders around the world to try to do more to achieve parity. And that will improve their economic performance.
FINIGHAN: And I suppose that this is the first time the report has shown the impact upon -- of the financial crisis upon women.
TYSON: Well, truthfully, the report only has a few glimmers of that. I honestly think we will see that much more clearly, if there is an impact, on -- in next year's report, because we are constrained by the data. We try very hard to get comparable data. We have 134 countries that we collect date from now. And the data actually comes in pretty much between about 2006 and 2008, the most recent data available.
So there's only a little bit of 2008 in there. And, as you know, the global financial crisis and the descent of the global economy into recession really happened at the end of 2008.
All we can really see right now is greater variability in labor force participation rates. But, actually, it shows up for men and women and you would expect that. There's a lot of movement in the labor force. So the parity -- the gender parity effects are not yet evident.
We've made a lot of hypotheses. We're going to look through the year and next year we'll move forward on what we found.
FINIGHAN: The report puts countries into -- into rankings. A couple of -- a couple of surprises come out, out of this. The U.S. has slipped a little this year. Japan's ranking improved, but it's still way down, at, what, number 75. Italy, the worst performer in Europe, at number 72.
For goodness sake, these are G8 nations.
TYSON: Well, we do look at a number of things. So let me just take one of the countries, the U.S. since here I am sitting in the U.S.
The U.S. doesn't do very well on political parity. And what -- and it's not a perfect measure. Again, we have to try to measure across countries for which there is data for all the 134 countries. We measure representation at the president or prime minister level. We measure participation at the parliament level and at the ministerial level.
The U.S. actually, that's its weakest ranking there. And other countries have made more progress. You see weakness in that ranking in Italy, as well. In Japan, the economy opportunity and advancement number, which is something that Japan is working on right now -- and, by the way, the report -- previous reports have encouraged them to do more to try to improve the opportunities for women in the economic sphere.
FINIGHAN: It's very interesting.
Laura Tyson there making her second appearance on QUEST MEANS BUSINESS tonight, talking about that report, which she coauthored, on the gender gap around the world.
We'll be talking about a gap in confidence -- consumer confidence in particular, in the United States, in just a moment, when we update you on the market numbers and the news headlines.
Stay with us.
(COMMERCIAL BREAK)
FINIGHAN: So, on the markets, European stocks struggled to find a firm footing this session. Energy stocks lifted London's FTSE 100 above the red line, despite a slump today in the banking sector. Automakers down in Paris and Frankfurt. Tumbling metal prices weighing on companies there.
Only Zurich's SMI managed to get a boost today. That was from pharmaceutical stocks.
And on Wall Street, a bit more than a hour left on trading time there. The gains being pared by an alarming decline in consumer confidence that I was telling you about, refuting worries about the health of the economy and the state of the American consumer. The Dow Jones now is up, though, just a little. It's 12 points higher.
That will just about do it, you know, for QUEST MEANS BUSINESS for this Tuesday.
I'm Adrian Finighan in London.
Christiane Amanpour is next on CNN, after the headlines from the I Desk with Isha.
I'll see you again tomorrow for another QUEST MEANS BUSINESS.
Let me go finish this now.
Bye.
END
