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Quest Means Business

BA-Iberia Finalizing Merger Deal; Eurozone GDP Growing; Eurostar at 15

Aired November 13, 2009 - 14:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

RICHARD QUEST, CNN INTERNATIONAL ANCHOR: Now boarding, British Airways and Iberia, fasten your seat belts, prepare for takeoff.

Now growing, Europe, officially out of recession.

And now 15 years old, a toast to a decade-and-a-half of the Eurostar.

I'm Richard Quest, it might be Friday, but yes, I still mean business.

Cabin crew, doors to automatic. Good evening. British Airways and Iberia say they are to merge as we forecast on last night's program. Pragmatism is the prevailing headwind for the companies. Today, for instance, the Spanish carrier made a third-quarter loss, and that underlined the need to cut costs.

By joining forces with BA, the two airlines can create Europe's third- largest airline with synergies, they say, in the hundreds of millions of dollars. This raises key questions and we're going to tell you. For instance, who gets what?

Well, first of all, you end up with this interesting company, British Airways and Iberia. National brands are maintained. A complicated structure is put in place, so neither airline loses its routes or its licenses, but of the new TopCo, as it's called, BA gets 55 percent, Iberia gets 45 percent.

You might be tempted to think that it's a bit of a takeover, but remember, BA share price has been well and truly written down, even though BA is the larger of the two carriers. Now the so-called TopCo, this is the controlling company, the group CEO will be Willie Walsh, currently BA's chief executive.

Mr. Walsh would be headquartered in London. The company will be listed on the London Stock Exchange, but it will be registered in Madrid. And if the rules allow, and that's a big if, it will also have a listing in Madrid on the Spanish market.

Board meetings will be held in Spain and all shareholder meetings will be held in Spain too.

This, of course, is what it's really all about. Nearly 600 million dollars, about 400-something million euros of synergy savings. And the way they say that will happen is a third will come from revenue-sharing, from planning, from connectivity and all of those sort of front passenger related things.

The other two-thirds will come from IT accounting, classic synergies. Job losses will probably be inevitable. That's why BA's union is already saying it's going to ballot its various members.

Now there is much still to be done. For instance, the BA's pension problem is still to be sorted out. The regulators on both sides of the Atlantic have to agree, which is why the merger is expected to complete by late 2010. Here is how it could look if and when it gets the go-ahead.

BA and Iberia will fly to more than 205 destinations. And British Airways gets to about 60- or 70-odd destinations, crucially Latin America. Last year the airline carried 60 -- the combined airline total, 62 million passengers. And according to reports, the combined staff of the new airline will be more than 63,000. That's before any synergies.

On Friday, shares in BA were up nearly 1 percent. They had been up nearly 3 percent earlier in the session.

There were many questions to be put to the new group chief executive, Willie Walsh. He had been negotiating this deal for some 16 months. There had been a change at the top of Iberia, when Fernando Conte was replaced by Antonio Vazquez.

So I wanted to know from Mr. Walsh, was it the change at the top at Iberia that made this a done deal.

(BEGIN VIDEOTAPE)

WILLIE WALSH, CEO, BRITISH AIRWAYS: I think there is no doubt that we were helped by the appointment of Antonio Vazquez as the chairman and CEO of Iberia. And that gave renewed focus to the discussions that we were having. And I'm delighted that we've been able to make significant progress since his appointment a few months ago.

QUEST: You stuck to your guns on the 55/45 percent. In fact, you got more perhaps, than you had expected to get. You were down at 53 percent at one stage. So to that extent, it has been a victory for your negotiating position.

WALSH: Well, I think it's a fair deal. I think we come out of this with a deal that we're happy with at British Airways, and that Iberia is happy with. And that's important with any deal. And both parties can walk away at the end of those negotiations and say, we're happy with this.

And I'm really pleased that we've got there. I think this is a very fair deal. I think we've recognized that it is a genuine merger. I think the result of the discussions that we've had has delivered a structure that will work, and one that will make sure that we play to the strengths of the two airlines.

QUEST: There is an unexploded bomb in the memorandum of understanding, and it is the pension liabilities. Not only are there no guarantees from Iberia and TopCo, it gives Iberia the right the pull out if they're not satisfied on reasonable economic grounds.

Now how are you going to defuse that thing before it goes off? Because you haven't managed to solve it yet?

WALSH: Oh, I think we're very confident. The issue here is not the scale of the deficit, the issue here is the plan that is put in place to address that deficit. And it specifically rates -- relates to the cash that BA will have to pay into the pension funds to address the deficit.

It's very simple, the deficit belongs to British Airways, and will continue to belong to British Airways. It does not belong to Iberia or to the TopCo. And that structure is very clear.

QUEST: The other issue, of course, is anti-trust immunity. Now one suspects that this deal will pass regulatory approval. You wouldn't have gone this far if you didn't think it was going to. But you want to add the third leg on the co-chair and on the anti-trust immunity of American Airlines.

What -- well, where do we stand on that? When are you expecting to hear about it and why are you still so confident?

WALSH: Well, I believe we'll hear from the U.S. Department of Transportation within weeks. I'm very confident, because if you look at the USDOT ruling in relation to the Star Alliance. Everything that is said in relation to Star applies to our application, and I would argue applies plus in terms of our application.

So I'm very confident that we will get approval. The regulators have identified with the Star application that there are significant consumer benefits. And I believe they apply in the case of oneworld as well.

QUEST: This is a well-traveled road, Air France, KLM, Lufthansa Swiss, Lufthansa Austria, what have you learned from those other examples?

WALSH: A very important question, because we have watched and learned from the successes of Air France, KLM, Lufthansa Swiss, and we've also tried to identify where they may have done things better. And one of the things that is very clear to me, and that was absolutely clear in the case of Air France, KLM, is, it's about the culture.

It's about the relationship between the people at the top in both of the airlines. That's what makes it work. If you can get the right culture, if you can get the right atmosphere, if you can get, you know, the right rapport between the people at the top of the businesses, then you're on the road to success.

And that's why I think the relationship that I have with Antonio Vazquez and that we've developed over the last few months makes me confident that we will succeed.

(END VIDEOTAPE)

QUEST: Willie Walsh of British Airways, two of the airlines' rivals greeted the deal with a mixture of sarcasm and concern. Concern from Virgin which says that the merger would increase BA's dominance at Heathrow, 44 percent of takeoff and landing slots this winter. Impossible, according to Virgin, for any other airline to replicate BA's scale.

We can leave it to Ryanair to put the tongue in the cheek and to kick some painful -- Ryanair compared the merger to two drunks trying to prop each other up. It said both British Airways and Iberia have reported large losses, both are facing a winter of industrial action, both charge high fares and fuel surcharges.

Remember what I said to you earlier in the program. One word you didn't hear used today was "takeover." It was a merger equals. There was parity all over the place. Is that how they see it in Madrid? Al Goodman is in Madrid and joins me now.

OK. So the Spanish get registered, the merger of equals. Do the Spanish believe they've been taken over by BA?

AL GOODMAN, CNN MADRID BUREAU CHIEF: Hi, Richard.

No, they don't. And you know, Iberia has been trying to remake itself to compete in the modern airline industry. It has been badly hurt by the low cost airlines bringing in all of these (INAUDIBLE) makers into Spain, which, of course, is one of the world's top three tourist destinations, along with France and the United States.

Iberia just announced it's going to cut by a third the price of the tickets on its Madrid to Barcelona shuttle. Now that was once considered a lucrative, guaranteed cash cow. So Iberia's revenues have been dropping. Iberia is expected to take a loss this year. They see this, no, as coming in with British, that's a company they know.

They've already got a stake in British. They're going to get into a big, giant airline. And they're going to expect all of those kinds of cost-savings. So they feel they're getting a good deal out of this -- Richard.

QUEST: Yes, but they must feel a little -- I don't want to push the point, but they must feel -- the press there must be a little bit aggrieved. The headquarters is in London, Willie Walsh is the top man. Admittedly Antonio Vazquez is -- becomes the chairman. So when all is said and done, where does Iberia see its role in this in the future? Is it just Latin America do you think?

GOODMAN: They see that they're going to get better growth out of their Madrid Airport. They say, look, Heathrow is pretty full right now. Unless Heathrow gets a third runway, there is not much room for growth at British's hub up at Heathrow.

Whereas Madrid Airport, you were just here recently, that big gleaming Terminal 4 and that new runway out there, they see big growth. They say, we fly to Latin American and British flies to North America and to Asia. So this is a deal that will work.

If there is any concern here, Richard, it's really about the unions and where are the jobs going to be sliced off. And so there is concern there.

QUEST: Al Goodman, many thanks. And, Al, do come back. As this merger comes together, we want to talk more to you about this in the future. Al Goodman, (INAUDIBLE) in Madrid.

So comprehensive coverage on that story of the day. Now for more news, Max Foster is at the CNN news desk.

MAX FOSTER, CNN INTERNATIONAL ANCHOR: Richard, the U.S. attorney general says five Guantanamo Bay detainees accused of plotting the 9/11 terror attacks will be tried in a civilian court. That includes admitted mastermind, Khalid Sheikh Mohammed. And the five will be tried in New York, the venue outrages some Republicans who say it gives the defendants access to U.S. constitutional rights they wouldn't have in a military court.

U.S. President Barack Obama is currently in Japan, the first stop on his week-long Asian trip. Some back in the U.S. accuse the president of taking too long to announce just how he plans to proceed with the war in Afghanistan. Mr. Obama says he'll take the time he needs to get it right. He says his policy will focus on protecting the U.S. from terrorist networks.

Thirty-five people are reported missing after a series of explosions rocked this military arms depot in western Russia today. Officials say the blast and fire began whilst munitions were being destroyed. There are unconfirmed reports that two people were killed. The provincial governor says at least 10 people were hurt and thousands living nearby had to leave their homes.

Early snowstorms have killed at least 21 people since Monday in northern and central China. Almost 10 centimeters fell in some areas in a single day. Thousands of buildings have simply collapsed under the weight. The storm has wreaked havoc in Beijing which isn't used to such heavy snow. It is not equipped to deal with it.

Those are the headlines, Richard. Back to you.

QUEST: We thank you for that, Max Foster, at the CNN news desk.

Now, the end of the recession as we knew it. From the easternmost edge of Europe all the way to the west coast of Ireland, the numbers are going north. We'll explain the Eurozone in a moment.

(COMMERCIAL BREAK)

QUEST: Welcome back. It has been a long year. Europe's economy though is now officially out of recession. New figures show that the 16 countries using the euro, the Eurozone, as you can see from here, from the west up there all the way north, right the way down, for the -- has expanded by 0.4 percent in the third quarter.

Some individual countries are doing much better. Germany, the region's largest economy, grew by 0.7 percent. France's economy enjoyed its second straight quarter of growth by expanding by 0.3 percent. For the whole E.U., including the countries that don't use the euro, that's known as E.U. 27, growth came in at 0.2 percent. That's the way the map looks.

Now, we've got be quick on this show, earlier today, Neville Hill joined me, European economist at Credit Suisse. And I asked him which numbers he found most interesting and why.

(BEGIN VIDEOTAPE)

NEVILLE HILL, CREDIT SUISSE: I think the German number is probably the most interesting, the way you saw German GDP rise, you know, at an annualized rate of close to 3 percent in the third quarter after having grown surprisingly in the second quarter.

And you know, that for me is a clear sign that the global economy is recovering, and Germany is such a sensitive economy to the rest of the world, and the fact that Germany seems to have been the strongest economy in Europe over the summer I think is a very encouraging sign, indeed, that, you know, we're pulling out of recession.

QUEST: Except one has to then work out, was that merely rebuilding of inventories? Was it just pent-up demand? Or was it sustainable, durable growth?

HILL: I think at the moment, it's too much to ask for, sort of sustainable, durable growth. And the numbers, you know, we've just had a deep recession, the economy is snapping back. But I think, you know, what we really need at this stage is just growth to get the engine started again, you know, to get the labor market growing. And that's what we've got.

But, yes, I mean, I don't think it's -- you know, we're not at the stage yet where inventories are starting to be rebuilt. I think, you know, it's more a case that companies are running down inventories a bit less than they were in previous quarters. And that's a very good sign, because it means there is still, you know, extra juice left in the tank for that surge.

But you know, it looks as if, you know, quite a lot of German growth and French growth came from exports. So, you know, the recovery in Asia in particular seems to be helping.

QUEST: The dollar into all of this, I'm intrinsically suspicious whenever the currencies become a key story, because they're either up or they're down, they're in or they're out, they're good or they're bad. But the general tenor seems to be that the dollar -- the tension does now need to be thawed to it.

HILL: I think it does to an extent. I think the main issue is though that, you know, that's something that has got to be dealt with through Asia rather than, you know, with the euro. I think the problem for policy- makers in Europe is that, you know, the economy is doing pretty well.

You know, in general, parts of it haven't had a too bad recession like France. And, you know, the ECB is perhaps slightly more worried about the inflation risks than other central banks. And of course, in the absence of any sort of shift in Asian currencies, the currency that's really going to bear the strain of dollar weakness is going to be the euro.

QUEST: Let's talk -- then again, as we look across the Eurozone, we know that within the Eurozone there will be difference in strengths and weaknesses. But as long as Eurozone is growing, then that obviously can be of only benefit to, say, for example, the U.K. as it gasps its way out of recession.

HILL: Yes. I think that's completely right. I mean, within the euro area, you know, you're right to point out there are some weak spots. And I think Spain and Ireland are those. And they're going to remain in difficultly I think for some time. I mean, yes, rising tide will lift all boats. But yes, I think this is a good sign for the U.K. economy as well.

QUEST: All right. Traffic lights time now. We have the set of traffic lights. End of the week, red, amber, or green? On the U.K. -- on the Eurozone/France and Germany numbers, what do you think we should be looking at?

HILL: I think we should be looking at green to be honest. I think, you know, it's -- you know, we won't be looking back from this. I think it's straightforward into recovery.

QUEST: A green to end the week. That's a cheerful note. Many thanks, indeed, Neville.

HILL: Thank you.

(END VIDEOTAPE)

QUEST: Now we are expecting, of course, in the weeks and months ahead we're going to see many more of these greens. That's a very bright green, I have to say, for a Friday evening. Those numbers cheered up some traders in Europe. In London, the FTSE closed at its highest level in more than a year. The market was pleased with the news of the BA-Iberia deal.

Gainers included (INAUDIBLE), luxury goods group, shares were up more than 6 percent in Paris. And it all helped boost other luxury shares around the region.

To update you on the market open and doing business, now New York has been fascinating...

(RINGS BELL)

... over the last week. We had some good days, a bit of a slippage yesterday, but back again, up over 86 points, 10,283, nearly 1 percent. And I think we'll talk more about why this is, what is happening. Is it consolidation or are we on the way to another buy spree?

China is out in front when it comes to growth, that much of which you are well aware, possibly up to 8 percent growth, 9 percent in the years ahead. President Hu Jintao says the country is not ready to be in the global driving seat yet, in a moment.

(COMMERCIAL BREAK)

QUEST: Welcome back. Asia is leading the world out of recession according to business leaders. The gathering at the Asia-Pacific Economic Cooperation summit, also known as APEC, which is taking place this year in Singapore.

The World Bank president, Bob Zoellick, has been talking about the Chinese and U.S. currencies, and stressed the need for flexibility in the currency markets.

(BEGIN VIDEO CLIP)

ROBERT ZOELLICK, PRESIDENT, WORLD BANK: It's important to have flexibility in your currencies. And one of the dangers that I was alluding to is that if you do have the renminbi linked to the dollar, and the dollar has been losing value, well, that actually puts the renminbi in a more competitive position than other currencies in the region.

(END VIDEO CLIP)

QUEST: The issues over what is happening with the relationship between the U.S. dollar and the Chinese renminbi has been the big talking point. As the dollar has devalued, because of the link, so the Chinese currency has gone along with it.

The Chinese premier, talking at a news conference, discussed really what he saw as China's role in the world, and in particular whether China was able to pick up the slack. Our Andrew Stevens in Singapore.

(BEGIN VIDEOTAPE)

ANDREW STEVENS, CNN INTERNATIONAL CORRESPONDENT: There is no doubt that China is the brightest spot on the global economic landscape at the moment. So there was plenty of anticipation for the speech by the Chinese premier, Hu Jintao, about just exactly what was happening and how he saw the Chinese economy.

And those looking for an upbeat president may have been just a little disappointed. Mr. Hu made a strong emphasis on the work that is being done internally to try and restructure the Chinese economy, to get away from that dependence on exports. But he was also very clear that China is in no way yet ready to pick up the mantel of the driver of the world's economy.

HU JINTAO, CHINESE PREMIER (through translator): We are clearly aware, however, that China remains the world's largest developing country. The difficulties and the problems that we face in development are rarely seen in any other part of the world in terms of their scale and complexity.

We still have a long way to go before we can build in a comprehensive way a moderately prosperous society of a higher level that will benefit the more than 1 billion Chinese people, and then achieve basic modernization and to bring common prosperity to all our people.

STEVENS: Mr. Hu there talking about what still needs to be done in the Chinese economy, making the point that it is still very much a developing economy, not a developed economy like Western Europe or like the United States.

Another big topic here in APEC involving China is interest rates and exchange rates in particular. When is China going to allow its currency, the renminbi, to float higher against the U.S. dollar? It has been pressure growing on China from not just the U.S., but some of its trading partners here in Asia. They say the renminbi is just too low, which is killing their exports.

Well, the Chinese premier didn't address that issue, which was telling. He spoke about trade, he spoke about protectionism, but he kept well away from anything to do with exchange rates. The message there perhaps, we're going to do it when we're good and ready and we're not going to be pressured into it.

Attention now, of course, turns to the arrival of the U.S. president, Barack Obama, on his first visit to Asia. A lot of people very interested to hear what he has to say about perhaps renewing the U.S. ties with this economic powerhouse.

Andrew Stevens, CNN, Singapore.

(END VIDEOTAPE)

QUEST: When we come back, many people think banks should not be artificially propped up by the government. When a bank chief executive also agrees and says his firm is no exception, we need to hear more.

(COMMERCIAL BREAK)

QUEST: Hello, good evening. I'm Richard Quest. QUEST MEANS BUSINESS, this is CNN.

The markets in New York are having a strong session. The Dow Jones up 72, nearly a point, 10,269 is how the session looks. The head of JPMorgan Chase says Washington, by that, the U.S. administration, should not artificially prop up banks that don't perform. And that includes his own.

Maggie Lake joins me now from New York. It's almost like the reverse of Turkeys voting for Christmas. Would he have said that -- you know, would he have said that six months ago when they were getting the money -- well, you know what I mean.

MAGGIE LAKE, CNN INTERNATIONAL CORRESPONDENT: Yes, probably, because you can say that when you think you're not one of them that would have failed. Maybe the only one that would have, Richard. But I also think Jamie Dimon widely acknowledges being a very savvy guy, maybe gets the PR disaster that is happening in the world of finance and is sort of trying to get out in front of that, the problem and the discussion.

He is saying, yes, you're all right, you're absolutely right. Things should not be -- no institution bank should be too big to fail. But he is making a distinction, and he doesn't want them to limit the size of the bank or put any controls on what type of business they're in. Instead he says what should happen is you should find a way that you make sure that we fail in an orderly manner. And the reason, he says, of course, is to protect customers.

In an op-ed he wrote in The Washington Post today, he said the goal should be a regulatory system that allows financial institutions to meet the needs of customers, read that, do it -- any kind of business we want to do, while ensuring that even the biggest bank can be allowed to fail in a way that does not put taxpayers at risk.

The other interesting thing here, Richard, is a lot of these negotiations by bankers about how, you know, regulation should happen have been happening behind closed doors. You know, what should be done? They are making their case, pressing, lobbying behind closed doors. However, Jamie Dimon sort of taking a different tack here and writing an op-ed.

So he obviously feels like the need to go more public with this, put his face to some of the arguments he wants to make, again, so that they can have a little bit of control what is happening and not just get all of these regulations sort of hoisted upon them. We'll see if he -- if anyone heard his call today.

QUEST: I also wonder wont he might be more at the forefront of making this P.R. move because, of course, he does own a very large retail bank, Chase -- Chase is on every corner.

LAKE: Correct.

QUEST: And therefore, (INAUDIBLE). But anyway, we'll put that to one side for a moment.

Banks have been hit not only by bailouts and taxpayer anger, but they continue to be hit left, right and center in some very unusual ways.

LAKE: That's right. And -- and you're absolutely right, the two are tied together. You're right, Jamie Dimon has a big retail arm. And -- and they're really the folks that are feeling some of this creeping regulation already starting to take place. And, in fact, you know, one of the rules just passed -- and, interestingly, it was done by the Fed, not by Congress. Congress has got all sorts of, you know, bills and legislation they're drafting about how to start to crack down on some of the practices, protect the consumer.

The Fed didn't even wait, it just said right, we're changing the rules. You can't charge for overdrafts unless customers voluntarily sign on for that type of protection.

And there is a reason. There's a lot of concerns about the fees that are being charged here and how they're impacting people in this recession.

Take a look at these numbers. They're pretty staggering. Bank overdraft fees have been going up substantially. You know, they're trying -- these banks are trying to get their balance sheets buffed up and they're doing it by some of these fees.

2009 projected $2.6 billion. Look at how much that moved -- more than doubled just from 2004. Another reason everyone's so concerned about this, both Congress and regulators, in terms of how much of a chunk this takes away from consumer spending. Overdraft fees -- and this was astonishing. People spent more on that than they did on books, postage, even food, Richard.

So clearly in this recession, certainly the politicians taking a look at this. The Fed also looking at the writing on the wall, getting out in front of it and changing the rules for banks.

So regulation is coming. It's already happening.

QUEST: We will not even go into the topic this week of fees if you're late paying your credit card -- Maggie...

LAKE: Oh.

QUEST: No, Maggie, my blood pressure can't take it. It's Friday. We've got to leave it on that particular one on its own. Not that I'm always (INAUDIBLE), but you know what I mean, you forget sometimes. Sometimes you just forget.

LAKE: Yes. Yes.

QUEST: Maggie, thank you very much.

LAKE: That's right.

QUEST: You've started me off. I didn't want to.

All right, listen, when we come back in a moment, planes, trains and automobiles -- we've had the planes, there aren't any automobiles, but we are on the trains. It's the Eurostar -- 15 years. All aboard.

(COMMERCIAL BREAK)

QUEST: Eurostar, the train service between England and France is 15 years old. It's a high speed rail service which provides direct connection between the countries. You can now hop on a train in Paris and be sipping tea in London in a little over two hours. This was when they inaugurated the service. That's the queen. Whether she -- definitely she went to the first one. I think she just cut a ribbon.

Its success is shown in its passenger numbers. More than 100 million people have traveled on the Eurostar since it began. It has been, in many ways, one of the great successes of the travel industry. It all began on the 14th of November, 1994. The service linked the U.K. to France and to Belgium.

Now, they always knew it was going to be popular. But I met the chief executive of Eurostar, Richard Brown. And I wanted to know, with all this in mind, Eurostar is 15 years old -- what's next?

(BEGIN VIDEO CLIP)

RICHARD BROWN, CHIEF EXECUTIVE, EUROSTAR: It's actually about us as - - as the -- as the railway operators, carriers, helping passengers overcome what they -- they see as a bit of a hurdle -- having to change trains in a strange country. It's a new experience, a bit daunting.

I can well understand why people wouldn't naturally think of it straight off. We have to help them do that. We're looking at ways to do that. I -- I think we'll see significant further changes in travel behavior over the next five or 10 years.

QUEST: I'm going to take me life in me hands with this one.

You have a monopoly for -- on these routes, don't you, effectively, now?

You are the predominant carrier between these cities. The airlines run them, but they run them mainly for loss fee to flights.

BROWN: I'm sure the airlines wouldn't go on flying if they were losing money on those flights.

No, we don't actually have a monopoly, because there are actually a lot more flights, still, than there are train journeys. So there's still plenty of choice for passengers. And as from January of next year in Europe, the European international passenger train market is being opened up to competition. And we are expecting other train operators to want to come along and operate services in parallel to us.

So we don't see ourselves as a monopoly at all. We ourselves -- see ourselves as having to win the affection and loyalty of passengers continuously.

QUEST: You've got the network, you've got the trains, you've been running it for 15 years.

Who is going to come in here and take you on?

BROWN: All right, well, we know two companies who have already, if you like, thrown their hat in the ring. Deutsche Bahn, which is the German state railway, have said that they'd love to and want to run trains to London in the future. And we know that Air France in France, if you like - - on the basis that more people are traveling by train than plane, if you can't beat them, join then -- they see high speed train for short haul travel in Europe as the future. And they have said that they want to run trains through to London.

So there's two people working on this already.

QUEST: When it opened, did you ever think it would be this successful?

BROWN: When it opened I was working in the midlands of England and -- and didn't think hard about it. I think we have exceeded people's expectations, bringing the two countries closer together. We've carried over 100 million passengers now in our first 15 years and we look -- look forward to carrying 100 million in -- in a much shorter time going forward.

So I -- I think it's been hugely successful in our passengers' eyes, yes.

(END VIDEO TAPE)

QUEST: It is the ability to go from city center to city center, in many ways, beating the airlines, obviously, on time, that has allowed Eurostar to get this 75 percent of market share. That would be enviable for any other company in any other areas. The number of services have just simply gone up. There are more than 19 services a day on the particular route.

But the fares -- although there are leisure fares as cheap as $100 between Paris and London, by and large, the big problem, of course, has been those expensive business fares and business premier. Tickets overall have been up some 6 percent. The business premier bit has been down very heavily.

It's causing Eurostar to want to think about what they're going to do next if people are prepared to pay many hundreds of euros to go on a short train journey.

(BEGIN VIDEOTAPE)

BROWN: Business travel generally, the whole market, is significantly down -- I mean 20 percent or more down. It's even more down with the airlines. So we've actually increased our share of that market. But a lot of businesses have just cut back on the amount of travel in total...

QUEST: And when...

BROWN: ...as you would expect in the recession.

QUEST: Right. But when you talk about where you're going to travel on the train, on one level, the ability to justify going in the premium carriages has gone now. People are being told you don't do that, you go standard.

BROWN: Some companies are saying that to their employees, but not all. I mean you'd be surprised the number of companies who still believe it's worthwhile for their executives, if you like, to -- to travel in reasonable comfort, have a bit of a meal, maybe a drink on the way home in the evening so they can relax.

But, yes, there has been some down trading and we're looking at what's the long-term implications of that. Do we...

QUEST: Right.

BROWN: Do we need to change our mix of services and products on board to react to that?

QUEST: So, as you look at your trend, what do you think you're going to do?

Come on, give me a sneak preview before anybody else.

What are you going to do in terms of how you're going to change?

BROWN: Well, what we're actually doing is we -- earlier this year, we appointed Pininfarina, who are very well known Italian designers, the designer of the Ferrari car, actually. So it's probably what their best known for. They are looking at the whole of our interiors, how we revamp them and -- and refresh them for the next 10 years or so.

QUEST: You're not going to tell me, are you, what your strategic plan is in terms of business, pleasure and -- are you?

BROWN: We -- we don't have, genuinely, a strategic plan and -- and view yet, because we're at the -- we're at the trough of a recession. A number of corporates have come to us and say we're now coming back, we're relaxing our travel policy. I think it's too early to tell how the business travel market is going to evolve over the next two or three years. What we're looking at is, if you like, some what if questions -- if it did this, what would we do?

(END VIDEO TAPE)

QUEST: And the extraordinary thing about the whole Eurostar thing is they all said back then, 15 years ago, what if?

It was -- it goes back to Napoleon, the first idea of building a tunnel under the Channel. They did it. And now it's all over the queen 15 years ago.

OK, turning our attention to your weekend weather, severe storms developing in the British Isles and France, winds that are simply blisteringly cold and brutal.

Guillermo is at the World Weather Center -- Guillermo, when the rain fell today -- well, you know the rest.

GUILLERMO ARDUINO, CNN METEOROLOGIST: Yes, I know. And it was falling horizontally, right?

And you know what?

Especially, it's like a hurricane, because the winds are close to 120 kilometers per hour, and that's the strength of a hurricane.

Where?

In these areas here. It's a succession of low pressure centers we have in there and in Normandy and in Britannia, in France. So we are expecting some more intense winds.

I'm going to give you a little bit of a sampling of the numbers that we're dealing with. But remember, this area here is the worst. So 26 kilometers per hour right now in London, 30 in Amsterdam and 28 in Copenhagen. You see how it's spreading all the way into the north.

Now, it's going to continue. And Saturday probably is the worst of all days, because that's when the low goes here -- well, those -- several low pressure centers are going through.

Look at what's going on, especially minutes ago. Like 15 minutes ago, we recorded close to 110 kilometers per hour in these locales here close to land. And -- so it is pretty brutal and it it's going to continue. Look at the severe storms, the same areas; also in Ireland, into parts of France.

So we are seeing damage over there, no doubt about it. And delays, especially for all those operations. If you hear about friends that are going through the British -- or into the British Isles through the English Channel or the North Sea with some ships, probably they will be late or delayed because of the conditions that we're dealing with at the moment.

High threat, especially for England; into France, as well.

Needless to say, into Galatia, the same thing. We're talking about Alcaronia (ph), Lurue (ph), Ponte Vedra (ph) with bad weather.

And temperature wise, we're not dealing -- we're not doing badly, but remember that we have the wind factor that is going to make these temps feel much colder.

But Madrid is holding up at 18, pretty nice. Athens, the same thing. Single digits in the north. It feels very cold, indeed, and delays all over.

London here at the top of the chart with that forecast.

Have a nice weekend, if you can -- Richard.

QUEST: Thank you, Guillermo.

I wish the same to you.

And try and stay dry. That will be object here in London.

And that is QUEST MEANS BUSINESS for this week.

Thank you for your time, your company and your attention.

I'm Richard Quest in London.

Whatever you're up to in the hours ahead, I do hope it's profitable.

"MARKETPLACE MIDDLE EAST" is next.

I'll see you next week.

END