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Quest Means Business
Earnings, Stock Market Up; Interview With Southwest CEO
Aired April 21, 2011 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST: Tonight, almost everything is on the up. Earnings and stock markets up, fares at Southwest Airlines are rising, too. I'll be talking to the chief exec.
And the blood pressure is rising over the iPhone. Forget "you've got mail". You're being tracked.
I'm Richard Quest. In the next hour I mean business.
Good evening.
There is something of a tug of war going on with Wall Street. At one end you have glittering company earnings. And at the other end there is simply painful economic news. Modest gains on the Dow. It was higher before a weak manufacturing report, industrial activity also plunged. But the Dow also helped lift rising stocks because of earnings.
Morgan Stanley beat estimates. Apple's earnings nearly doubled. And that is why we are seeing a gain of maybe 25 points. Small gains, to be sure, but the market is higher.
Now, Nokia, which had results, down 1.4 percent, to $500 million; not as bad as expected. The market share fell very sharply. It is down at 26 percent. It was over 41 percent in-some time ago.
But-but, don't forget. Nokia has now just finally and formally signed its deal with Microsoft for the new Windows Phone 7. So, Nokia shares were up some 0.5 a percent in Helsinki.
Banking shares and mining shares were also higher. You see the split markets.
Do beg your pardon.
The Paris, the Zurich, and the Xetra DAX, were all up 0.5 percent. London was down just a tad and a fraction. Vodafone dragged down at the London FTSE.
If you look at the dollar, this is the way the currencies are moving. The pound now at $1.65. The is a very impressive effort by sterling against the dollar. Similarly impressive efforts. And what we are seeing against the dollar is now down around about-the dollar is down around about 8 percent on its levels overall.
Felicia Taylor is in New York and is joining me now.
While we discuss, of course, the Q25 tonight, because the Q25 with results we have plenty that we need to get into. Remember, the rules for the Q25. They get a green chip if they past most of our stringent tests. We give them a red chip if they fall short. Anything in the middle is what is up for debate. And what you get, of course, is a nice view here as to how the earnings season is performing overall. And as you can see, it is even stevens, exactly at the moment, for where we stand.
Let's begin our Q25, Felicia, with General Electric.
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Three out of five on the criteria for GE, so is it a debater? Do you a red or a green?
FELICIA TAYLOR, CNN FINANCIAL CORRESPONDENT: Well, OK, look. I'm on the fence on this one, a little bit more than I think other people are. Profits were up 48 percent, clearly off the charts. But you have to remember where we are coming from. Sales were only up 7 percent, no quarter over quarter growth, the outlook is positive, somewhat upbeat on sales. But they raised the dividend and then came out and said don't expect that pace to continue.
QUEST: Right.
TAYLOR: They is still some concern as to how much, you know, responsibility they might have had in Japan, because they built those-they designed, rather, those reactors. I give it a reluctant green.
QUEST: It's a grudging green; it's a reluctant red, a grudging green.
TAYLOR: Yes.
QUEST: I agree with you.
TAYLOR: Oh, grudging green, whatever.
QUEST: Tut-tut-tut, it is a grudging green, it is, quite clearly. It the Japan effect for it-but it is doing particularly well when you consider what is happening with financial services, coming out of the recession in strong format.
Apple, it is an automatic green for Apple. Because it is four out of five.
TAYLOR: Oh.
QUEST: Do we have anything bad to say about Apple?
TAYLOR: No, absolutely not. Profit doubled, 83 percent rise in sales. The only reason that they didn't sell enough iPads is because they couldn't meet the demand. Their-they didn't have enough supply, rather. This company is great, off the charts. It's no question.
QUEST: Accept, we'll talk more about, perhaps, their tracking problems with their iPhones that might be privacy. That is later in the program.
TAYLOR: Oh, yeah.
QUEST: American Express, it is an automatic green, because four out of five, you know the thing about AmEx, it handled the recession well, it handled the financial crisis well.
TAYLOR: It sure did.
QUEST: And it seems to be handling the recovery even better.
TAYLOR: Profits were up 33 percent, sales up 7 percent. I mean, they did really well in terms of consumer demand, being its stimulated for them. They are doing just fine. AmEx is definitely a green across the board.
QUEST: Morgan Stanley, listen, the stock is up. It only got three out of five. The stock is up, how are you justifying that?
TAYLOR: Well, I don't justify it, to be perfectly honest with you. The stock is up and frankly they did do-not so great when it came to profits. They dropped 43 percent, revenue was up only slightly-actually, I'm sorry-it was down over 7. So, frankly, Morgan Stanley, when it is compared to its peers, doesn't do that well.
Why the stock is up has got to be just some sort of recovery in the financials. I can't explain it.
QUEST: All right. We're giving it a reluctant red. We're going to gloss over Honeywell, it is an automatic green. It got five out of five. McDonald's we have to just pause at. It got none of our criteria. Not one of them. And yet? And yet?
TAYLOR: I know. You know what, I have to tell you that for me this is a reluctant red. Because it didn't meet any of the criteria, you are absolutely right. However, they have strong growth in the Asian markets; 37 percent of their profits come out of the European market. That continued to do well. I think that this is a reluctant red because the outlook for 2011, despite worries about food inflation that they say is cutting into their margins, isn't going to be as severe as some people had thought. I think this company is going through and OK time. And certain banks out there are very positive on this and have it as an overweight. Watch how this company goes toward the end of the year.
QUEST: The rules are clear. None out of five, reluctant, it is a red.
Felicia, one quick thought. We have three, six, nine, reds; three, six, nine, 10, 11, greens. We are seeing that the quarter is not as bad as we perhaps had first feared. Quick thought?
TAYLOR: Yes, you know, the thing is that in the beginning we thought that earnings were going to be sort of stellar, up 11 percent. Then things started to look very middling, but right now we are sort of in the thick of it. We have had a healthy number of earnings come out. It seems like things are going on pace. Maybe there is hope that this recovery is taking hold, until you look at numbers like the manufacturing sector. But the market, frankly, is overlooking it completely and only looking at what the companies are doing and how they are weathering through the recovery. So it is not bad.
QUEST: Not bad, Felicia. We'll talk more about this tomorrow. More of our Q25, actually, it is on Monday, more of the Q25. Have a nice long weekend. Felicia Taylor, who is in New York tonight.
Your smart phone may be keep your life on track, but what about it tracking your every move. We'll take a look at the gadgets that are truly with you every step of the way. And who knows, who is following what you are up to?
(COMMERCIAL BREAK)
QUEST: Apple's results may have been stellar, but the iPhone, with 108 million sold worldwide, is making news today for all the wrong reasons. The iPhone makes calls, surfs the net and now, we're learning, that whether you want it or not, it is tracking your every move. Researchers say that the iPhone and 3G connected iPads have been storing information about where you have been all the way back to June 2010, when they had the last upgrade.
Even if GPS is off, you are being tracked, as long as you sync it with a computer. It works out where you are by triangulating the signal strength from nearby mobile phone towers. Once you plug in your phone and you sync it up, the information is transferred over. It is stored in an unencrypted file on your hard drive. The message is somebody can look past it.
Ted Rowlands has been delving through the iPhone's location tracking data. He's live for us in Los Angeles
Ted, when we look at what has happened with the iPhone and this tracking. What is going on? Is this a storm about nothing?
TED ROWLANDS, CNN CORRESPONDENT: Well, it depends on your perspective, Richard. Here is what you are dealing with. This is what it would look like if we had done it with my phone here. This shows where I have basically been over the last year. You can go deeper in and get specific streets, etc cetera. And you can get a time stamp on that. So the question is do you care? Are you in trouble with, maybe a jealous lover in your house? Or maybe someone who is suffering from spousal abuse? Absolutely, you would care. Because this would be something that you wouldn't want people close to you, in that environment, to find out. But the key is this is not being transmitted anywhere. So it would have to be someone in your home, someone with you passwords, someone with access to you device and your computer.
QUEST: All right. But, Ted, hang on a second. I mean, you have obviously looked into this today, how easy is it to get the data, once it is synced? I mean, do you have to look for it? I know there is a piece of software that will bring it up and put it on a map?
ROWLANDS: Yes. Yes, that is what we have here. And it is fairly easy, for a techie it is very easy. For your average person, it is not as easy. You would have to get somebody's phone, synch it up, have their passwords, and then you'd have to run this application to do it.
Quite frankly, it took me a little longer than I was hoping it would take to do it on our computer here. It wouldn't-it is not something that you should be worried about if someone grabs your phone at a bar. Or if you leave your house-
QUEST: No, but hang on-hang on-
ROWLANDS: And you are-yeah?
QUEST: Hang on. Let's just talk about that. If you normally sync your phone, and I realize we are moving into tech-geek speak now.
ROWLANDS: Right.
(LAUGHTER)
QUEST: But if you normally sync your phone on a nightly basis, or weekly basis, does that information automatically go up to the computer?
ROWLANDS: Yes, if you are doing it through iTunes. But you can-you can stop that. In the settings on iTunes, on the main page, it is easy to find. Look for encryption. You want to check that box to encrypt all of that data. There is nothing you can do about it being held on your device, though. That continues to log everywhere you go, every step you take.
QUEST: Ted Rowlands, who is in Los Angeles. And is a little bit more worried tonight, than he was a the beginning of the day.
(LAUGHTER)
ROWLANDS: The good thing-no. My wife doesn't care where I go, so I'm free. I'm OK.
QUEST: That's what he thinks.
All right, Ted, lovely to see you. Thanks very much indeed.
Now, Apple has so far refused to comment. This, of course, raises some big questions about the company.
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It raises questions about privacy. It raises question of trust. Apple isn't alone in the privacy spotlight. Come over here and I will show you exactly what I'm talking about.
If you look, there have been numerous occasions where companies in technology have gone a step too far. Google, with its street view it got information of those cars going round and round. And what did it do with it? Well, that was a big question. Because it also got encrypted information from people's wi-fi devices. Google with Buzz, its social networking site, it took the Gmail contacts, it put them in Buzz, and everybody knew who you were getting in touch with.
And, of course, Facebook, with its revised privacy policy, that lets everybody see what you were up to; who you knew and who your friends were. Facebook had to completely revise its privacy policy
What do you say about this? Lauren Clark, "Epic fail Apple! I'll be getting rid of my "Big Brother" iPhone as soon as my contract expires later this year."
Victor: "Just another reason for me to stick to Androids."
And Alphonso: "I have nothing to hide. Why worry? If you're afraid, well throw out your iPhone."
Joining me on this, Shelly Palmer, in New York.
Shelly, come on!
SHELLY PALMER: How are you, Richard? How are you?
QUEST: Come on. Listen, I'm worried that you know what I'm up to before I know what I'm up to, myself. Shelly-
PALMER: Oddly enough, this is Sturm and Drang for no reason whatsoever. This thing with the iPhone is neither new nor has it ever been a secret. It is actually used in many cases for the smart tiles on the mapping function. It has been there forever. You would have to go look for it. It is nowhere near as detailed or as important as you think it is. It is not being transmitted to Apple. People who are worried about this are trying to find something to be worried about.
QUEST: Now, come on! Come on! No, no, no, you are not getting away with this one tonight, Shelly. Now that there is-
PALMER: Sure.
QUEST: Now there is a piece of software out there, it was one thing when it was a dirty little secret in the phone. But now there is a piece of software out there, that you, your wife, your lover, anybody, can use on your computer.
PALMER: So, if you delve deeply into that, what you will see is it is latitude and longitude, basically of the cell towers, not of you, not of where you were, not of the street address. Actually, Richard, if you were worried about this kind of stuff and the only people who should be worried are people who are in a legal matter where you can subpoena people's records. Now, this is a record that does exist.
So, too, does your credit card receipts from everywhere you have been. And those are exactly where you have been and where you have paid. Privacy-there is a much greater questions we should be asking ourselves right now, which has not a whole lot to do, oddly enough, with what Apple has done on the iPhone. The big question right now is, as a society, are we willing to accept the benefits of location based services at the cost of our, quote, "privacy"? To use a British pronunciation.
QUEST: OK, All right. But on the wider issues, I'm talking, we have Street View with Google, Gmail in Buzz, privacy from Facebook, all these questions, Shelly, take us deep into the realms of where technology and our interaction with them come along.
PALMER: But Richard, there is no reasonable expectation of privacy in the 21st century.
QUEST: Ah!
PALMER: Anyone who thinks that there is, is just kidding themselves. We leave an electronic trail with every single thing we do. Sure the most visible are the big tech companies like Google and Facebook and now Apple.
QUEST: Right.
PALMER: But truthfully? Every time you pay for something with a credit card, every time you go through a toll booth, every security camera is picking you up.
QUEST: Hang on.
PALMER: You are not private. You don't live a private life.
QUEST: No, you may not be private by necessity of the technology, but you don't need the company's involved, Shelly, to be abusing that privilege.
PALMER: By the way, I agree with you there. Apple is not abusing this privilege in anyway. They are using this data-truthfully, I believe, and this is not-I think this is a bug. I think they probably wanted to cull and purge that file, and just somebody didn't do it. I'm not sure because Apple is not taking this data off your phone. And by the way, every location based app that uses your iPhone, needs the last little bit of locations, the last 20 or 30 locations. So, I am completely sure this is a bug, but you bigger question is a very good question.
QUEST: We need to just talk one other issue tonight, Amazon.
PALMER: Sure.
QUEST: Amazon, some of the servers are down and as we are now going to show, there are a few web sites that are ReadIt (ph), for example, and a few others that are now showing cloud-this is Four Square, "We're having technical difficulties." A couple of others. This is a really good indication of what happens in cloud computing land, when the cloud goes coo-coo.
PALMER: So this is a really important point, Richard, and I think people need to understand this. When you have a cloud, it is just like having a service-everybody says, it is just like having a server in a remote location. That is not true. What happens is you create an instance, not to get too geeky-you have create an instance of virtual server and when it goes away, it really goes away.
Now, we're just learning, as IT directors, we are just learning as a technocracy, how to deal with the benefits of cloud computing, and we are learning today what happens when something goes wrong. Cloud computing is not a panacea, in any manner, shape, or form. And by the way, Amazon is the best of this. They are totally best of breed. And today you are seeing, I couldn't go on Four Square to say that I'm here in New York, at CNN. Because Four Square servers are down. Yes, it is a big problem.
QUEST: Ah.
PALMER: And yet it does point the biggest issue in cloud computing.
QUEST: Instead, hopefully, you will Tweet that you have been on this program and raise your numbers and raise mine. Shelly, always wonderful to have you on our program.
PALMER: Thank you so much.
QUEST: Shelly Palmer, joining us from New York.
And you will want to join our debate on this privacy question. Whether you are on iPhone, Android, Windows, whatever, you are, do you feel threatened by the potential for what this tracking, this lack of privacy, that Shelly Palmer was talking about. Is it an inevitability of our technocracy? It is Quest@cnn.com, is our e-mail address. @RichardQuest, is the Twitter address, as always.
In a moment, General Motors hoping for a new start in Europe. The man at the top has big plans for the year ahead. The new chairman on why he's optimistic. QUEST MEANS BUSINESS.
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(COMMERCIAL BREAK)
QUEST: General Motors has reshuffled its boardroom. It installed Nick Reilly as chairman of Opel/Vauxhall. He was the man who steered GM through the fiasco of the failed Opel sale. It began in February 2009. GM first proposed Opel will become an independent from the company. Fast- forward to March 2010, nine months later German Chancellor Angela Merkel began courting investors for a company, as GM headed for bankruptcy. The Canadian company, of course, Magna, agreed to buy Opel. Two months later, well disaster strikes as GM pulls out of the deal. Angela Merkel is furious. You get the idea. It has all got the potential for being a crisis and a mess.
Jim Boulden asked the new Opel chairman why he thought better times were ahead for the company now.
(BEGIN VIDEOTAPE)
NICK REILLY, PRESIDENT, GM EUROPE: For 2011 things are much, much better than they were last year, or in 2009. In Europe, for example, we increased our forecasts for the market by over 100,000. Just in the last few months things are coming better. There are weak spots, clearly, in Spain and Portugal, but Germany is strengthening, Russia is strengthening. So it is getting better, but it is still not back to anything like the volumes there were in 2007.
JIM BOULDEN, CNN FINANCIAL CORRESPONDENT: So the auto industry, obviously, is a very good barometer for what is happening in the economics, because of the problems in Spain and Portugal?
REILLY: Yes. Yes, it definitely is. And here, if you take the U.K. market for example, the fleet market is starting to pick up a little bit. Businesses seem to be doing better. But the retail market, the individual who is buying a car, still pretty cautious. Obviously, there are cutbacks in everything. There is a lack of confidence.
BOULDEN: One of your bold incentives was a lifetime guarantee for a car, up to 100,000 miles. Has that made a difference? Has that actually, do you think, put people into the showrooms?
REILLY: Yes, the research that we have done since then, really shows that it has had an impact.
BOULDEN: Did you have to convince GM back at in the U.S. that this was the right thing to do? Such a daring move?
REILLY: Actually, I took the decision with our team here.
BOULDEN: Oh, OK?
REILLY: And then went and told them what we were going to do.
(LAUGHTER)
BOULDEN: I am just wondering, if you think, GM was very close to selling Vauxhall/Opel. I mean, you are going to tell me it was the right decision to keep it. But what is the evidence that it was the right decision to keep Vauxhall and Opel?
REILLY: Yes, I first of all, you have to understand that GM never actually wanted to sell Opel and Vauxhall.
BOULDEN: Yes, OK.
REILLY: They were forced to because of the bankruptcy in the U.S. and they couldn't take any money out of the U.S. And Opel and Vauxhall were suffering badly at that time.
BOULDEN: Right?
REILLY: In a crisis.
BOULDEN: Yes, OK.
REILLY: When they came through bankruptcy in the U.S. they had a much stronger balance sheet, a new board of directors. And they said is this the right thing to do? And clearly it was not. And they were able, then, to finance keeping the company. We since then have had to turn the company-turn Vauxhall and Opel around. That's what we are working on and have been working on.
BOULDEN: So, no evidence in the U.S. that they wish they had gotten rid of it then?
REILLY: No, not as far as I know.
(LAUGHTER)
BOULDEN: During the height of the economic crisis there was a worry that this plant could shut. There were worries about other plans for some of your competitors in the U.K. And then we all heard that maybe the parts supplies would go under. How bad did it get? And did those parts suppliers survive, and that does help you? Do you have enough parts suppliers in the U.K.?
REILLY: No, I don't have enough parts suppliers in the U.K. But I don't think that is a result of the crisis, the recent crisis. That is a result of back in the `70s, `80s, and `90s, there was no strategic plan to keep manufacturing in this country and we gave up a huge amount. And it is easy to give it up. It is more difficult to get it back. But I'm encouraged by what the government is trying to do in order to get manufacturing back, because I really believe we need a balanced economy. So, we are very supportive of that.
BOULDEN: I think it is probably fair to say the unions have been extremely flexible with Vauxhall, here in the U.K. I'm sure you would agree with that. Do you expect that flexibility to continue, or do you think that as things improve that you are going to go back to maybe having a bit more contentious times with the unions.
REILLY: No, I don't think so. Our relationships with our unions is extremely good. Not just in the last couple of years when there have been threats of job losses, etc cetera. But it has been improving and improving over the last 20 years.
Yes, it has been tough in the last couple of years and hopefully it gets a little bit better. But I don't expect either the management of the union to change their approach of working together.
(END VIDEOTAPE)
QUEST: That is Nick Reilly talking to Jim Boulden the Opel plant.
Now, consumers packing into the Shanghai auto show this week, are getting their first look at some 75 new vehicles. Many are made by foreign manufacturers and made in China. As our Asia Business Editor Eunice Yoon reports the new models are specifically designed to coincide with the latest Chinese consumer trends.
(BEGIN VIDEOTAPE)
EUNICE YOON, CNN ASIA BUSINESS EDITOR: I'm Eunice Yoon at the Shanghai Auto Show. China is the world's largest auto market, and carmakers the world over want to be here. So they are showing off their latest and greatest designs and launching several world premiers.
GM's Chevrolet Malibu made its worldwide debut. This is General Motors' first global midsize sedan. It looks a little bit sportier. And has actually borrowed the style of the Camaro. It is also much more fuel efficient, which should go over well, when it rolls out in China later this year.
Fuel efficiency is a key trend at the show. The Volkswagen Beetle is outfitted with the company's most fuel efficient engines to date. The design steps away from the iconic look. It is a little bit roomier, it is bigger, more masculine. It appeals to a wider demographic, which is what the company hopes to do, here, in China.
As for luxury brands, BMW is a long-time favorite here. Like the others, the Germany company is playing up its environmental consciousness. It has unveiled this new plug in hybrid and the M5 Sedan, which is going to be built in China, for the Chinese market.
There is a lot of excitement among car companies and consumers. Three out of four car customers are first-time buyers and nearly all of them pay in cash.
(END VIDEOTAPE)
QUEST: For a moment I thought Eunice was going to drape herself over the bonnet of one of those cars before we were finished, the Shanghai Auto Show.
When we come back in just a moment, the trial of Raj Rajaratnam is coming to an end. We will have the details of what the jury has been hearing in closing arguments. Maggie Lake is in New York, after the break.
(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.
This is CNN. And on this network, the news always comes first.
U.S. Secretary of State Hillary Clinton is asking for patience with NATO's campaign in Libya. She says Western air support is helping Libyan rebels hold their own. But she says it's too soon to tell how the opposition will take advantage of the opportunities. The Libyan rebels are reporting a victory today when they say they've seized control of a key border crossing into Tunisia. It could help the rebels gain access to the city of Nalut, which is under siege from Moammar Gadhafi's forces.
The Haitian musician, Michel Martelly, is singing a new tune. On May the 14th, he'll be inaugurated as the new president of his country. On Wednesday, Haiti's electoral council officially declared him the winner of last month's runoff election.
The natural habitat along the U.S. Gulf Coast will get at least $1 billion more from BP. Wednesday marked a year since the explosion on the oil rig that killed 11 workers and poured nearly five million barrels of crude into the Gulf of Mexico. The U.S. government helped negotiate the post-spill restoration deal.
Now, we'll continue talking about BP because BP has chosen the one year anniversary of the Macondo oil spill to begin firing off its lawsuits in all directions. It's filed lawsuits against three previous partners who are now going to be legal adversaries. In the library, you'll see exactly what I'm talking about.
These are the companies that have felt the blast of BP's lawyers. And one can only imagine what the fees will be all around.
Let's begin with the big one, Transocean. Transocean actually owned the Deepwater Horizon rig. BP says that Transocean missed critical sound - - signs. Transocean has filed a countersuit against BP. They say BP's action is desperate and they said that the -- on Wednesday was not the only oil spill adversary, but there was the deadline that was coming up, of course. BP is looking for full costs.
This is an interesting one -- Halliburton. Halliburton cemented the well. Now, BP claims Halliburton's refusing to accept blame because of frothy cement or some things that were put in the cement that shouldn't have been. Anyway, the argument is detailed and legal.
All three companies -- Hali -- Transocean, Halliburton and BP -- took share of the report in the Congressional report. The companies pointed the fingers of -- at each other.
Then you've got Cameron International. Cameron made the blowout preventer. BP said its design was faulty. But this is the interesting bit. Your -- your enemy may also be your friend. BP signed a long-term contract with Cameron just last month.
It shows the complexity of what's taking place.
We're joined now by the former chief of environmental crimes at the U.S. Justice Department.
He's David Uhlmann, who currently runs the environmental law and policy program at the University of Michigan, joining me now from Ann Arbor in Michigan.
This is fascinating.
This is going to be long, detailed and expensive, isn't it?
DAVID UHLMANN, FORMER CHIEF OF ENVIRONMENTAL CRIMES, U.S. JUSTICE DEPARTMENT: This is a law firm lawyer's dream. These are large multinational companies with billions of dollars of assets who are all fighting amongst themselves. And that's going to make a lot of lawyers very busy and, no doubt, very happy.
QUEST: All right, so, as I understand it, essentially, the argument is going to come down to who was in control, who had the right to tell somebody else what to do and who then had to follow the instructions.
UHLMANN: Well, yes and no. I mean there is -- you know, the reality on these deep water drilling platforms is that the well owner -- in this case, BP -- is the one that calls most of the shots. But they don't call all the shots. It was Transocean's rig and Transocean, ultimately, is responsible for what happens with its rig.
It was Halliburton's cement job. And as you pointed out in the lead, it was Cameron's blowout preventer.
So there's a degree to which there is plenty of blame to go around for what happened in the Gulf oil spill.
QUEST: And that's exactly what the Congressional report said and the president's commission report said, didn't it?
It went into detail and it did point out that each one of these companies does bear some responsibility.
So why are they not able to get around a table and negotiate rather than litigate?
UHLMANN: Well, it's certainly the case that there's plenty of room for negotiation here. But oftentimes, we have litigation before we have negotiation. And -- and the reality for BP is that they've already paid tens of billions of dollars for their share of responsibility for the Gulf oil spill. And nobody else has paid a penny.
And I think, you know, BP wants some company. They don't want to shoulder all of the financial liability by themselves. And so they're going after their partners.
QUEST: David, this is a dreadfully unfair question, but I'm going to ask it anyway, because I know everyone is talking about the law.
Would you expect -- and you can plead the Fifth -- but would you expect, when all is said and done, that all these other companies do end up chipping in something to the costs of the -- to the damages at the end?
UHLMANN: It's actually a great question. And, you know, what I expect is they may contribute at the margins. But there's a couple of things going on here.
I mean one certainly is what we were talking about. BP is certainly looking for help and they don't want to be the one sharing all the financial responsibility for this spill.
But another part of what's going on is that other companies are coming after BP. Transocean in particular is saying that BP has to indemnify them for all of their costs...
QUEST: Right.
UHLMANN: -- and BP doesn't want to pay out anymore than it already has.
QUEST: But one thing is certain, the lawyers will get rich.
David, we thank you for that and we thank you for joining us from the University of Michigan in Ann Arbor.
We'll talk more about this in the future.
The statement is pretty simple -- the government's case is a fiction. Now, those are the words of the lawyer defending the former hedge fund manager, Raj Rajaratnam. The defense and prosecution teams are now in the final hours. It's been a seven week trial against the former boss of Galleon. And it's the biggest Wall Street or insider trading case in a generation.
I warned Maggie Lake that she was going to be standing outside, so she'd better have coffee and sandwiches close at hand.
It's a nice day for you. You don't need to do anything there
But, Maggie, we've had the prosecution's initial close. We've had defense.
Has prosecution spoken again?
Has the judge sent the jury out yet?
MAGGIE LAKE, CNN BUSINESS CORRESPONDENT: Yes, no. The prosecution is going to get one more go at a rebuttal. We expect it to be a rather short one. The defense is actually back at it again. Both of these sort of closing arguments very lengthy. You mentioned the word fiction and that's right. That's really the focus of the defense today. All day long, they've been talking to the jury really with two main points. One is attacking the credibility of the government witnesses. We knew they were going to do that. Remember, a lot of the witnesses, the key witnesses, have pled guilty and are cooperating in exchange for a lesser sentence. So that is really pro forma for a defense lawyer to attack that.
The other argument is a really interesting one and that's the fiction that you -- that you talked about. John Dowd addressing the jury all day long, saying, listen, this prosecution, they live in a -- in sort of ancient times...
QUEST: Oh, ah...
LAKE: -- when public information was released through a press release. That's not how it works anymore, pointing out, as you well know, Richard, that people get stock information from all sorts of venues -- social media, Twitter, blogs...
QUEST: Well...
LAKE: -- as well as traditional media outlets.
So in that environment, what constitutes public information?
This is a really interesting question. And remember, you just have to plant a seed of doubt in the mind of a jury...
QUEST: Sure...
LAKE: So that's what he's been hard at work today doing.
QUEST: Sure. But they've still got that overriding problem, the defense, of the tapes. They've still got to convince the jury...
LAKE: Right.
QUEST: -- not to give the weight of the evidence of the tapes.
LAKE: That's exactly right. And this is, again, why these tapes are going to prove so critical. This is why, in the past, the government has had a hard time getting convictions in insider trading, because this is exactly what happens.
The defense gets up there and says, wait a minute, how do you really know this was inside information?
Was it really a conspiracy?
This time...
QUEST: All right...
LAKE: -- they've got to go against tapes where they've got very clear dialogue addressing this. So it's going to be -- it's going to be really difficult. The defense is doing its best to try to break that down. But that's what the jury is going to be in there going over, the tapes versus this idea of was it really public. That's going to be what's central.
And remember -- I keep saying this -- a criminal case must be guilty beyond a reasonable doubt.
QUEST: Oh, yes, yes, yes, yes, yes, yes.
LAKE: A big difference from civil.
QUEST: Right. Absolutely.
Finally, as you look at the jury, are the -- do you -- this is an impossible question. This is the sort of question the judge would kick out before we'd even been asked it -- Maggie, does it look like the jury is keeping up with the argument?
LAKE: Richard, you have -- we have no way of knowing. And that's why it's always -- a lot of people are going to handicap this, saying the government looks like they have a really strong case, but you just never know when it comes to a jury, especially when you're talking about financial issues, whether or not they've been falling -- following along, how they feel about this.
QUEST: All right...
LAKE: We just absolutely do not know right now.
QUEST: I figured as much. It was worth a try. I thought maybe one of them had fallen asleep or something.
Maggie Lake, who is in New York.
We thank you for that.
From football to footwear, we've got the most colorful shoes money can buy. After the break, the Crocs boss wants to do more than just clogs.
Will you make me a nice pair of brogues?
(COMMERCIAL BREAK)
QUEST: Now, one piece of news that just happened a short while ago. President Obama has said on Thursday the U.S. attorney general is now assembling a team to root out any fraud and manipulation in the oil markets that might be attributing to -- or contributing to higher U.S. gasoline prices. According to Mr. Obama, there's no silver bullet that can bring down gas prices right now, but the team will look out for fraud and manipulation.
You can bet your bottom dollar that we'll be following that one in the days ahead.
You either love them or you hate them -- the Crocs. And they are some of the most recognizable shoes out there.
The company is planning on branching out from the clogs that inspire such strong feelings. It's sending 100,000 shoes to Japan to help with relief efforts after last month's disaster.
Last week, I asked the chief executive, John McCarvel, about that.
(BEGIN VIDEOTAPE)
JOHN MCCARVEL, PRESIDENT AND CEO, CROCS: We have a very strong business in Japan for the last five years and a strong connection with the people there. Last year, we did about $110 million. We have 22 of our own stores and about 150s (ph) down.
And we just feel like this is the right thing. We have a Crocs Cares initiative inside of Crocs. We've given away 2.7 million pairs of shoes globally to causes like this. And we just feel it's the right thing to do.
QUEST: This is the signature product.
MCCARVEL: And the original.
QUEST: The original. Love it, hate it, ubiquitous. But it's not your bread and butter, to that extent.
MCCARVEL: Not anymore, though it used to be. Today, only about 30 percent of what we sell is that ubiquitous, you know, iconic colorful shoe that comes in 5,000 different colors, whichever one offends you, you know, we -- we make.
QUEST: You've just said it. You have just said whichever one offends you. So you have made the point that some people love them and some people hate them.
MCCARVEL: Well, that's true. I remember the first time I wore that shoe home. We were living in Singapore at the time.
And my wife's, you know, reaction to that shoe was oh, my goodness, what is that?
So it did -- it did have a very polarizing effect. But, you know, we -- we had a campaign early on that was "Ugly Can Be Beautiful." We're a little bit self-effacing. Don't take yourself, you know, too seriously in the process. And, you know, that's what it was. It was an iconic product that launched the brand.
QUEST: To have dropped this point, the branding of something, the -- the message that any product, any consumer product gives, is as important these days, isn't it?
Or do you...
MCCARVEL: It is.
QUEST: Or do you think it's...
MCCARVEL: No, it is. And I think, you know, our products has always been about fun, lightweight, comfortable products that you can wear on your feet. You know, so much of the world today has changed away from suit and tie into a more casual work environment. And so casual footwear goes with that shift to a more casual working environment.
QUEST: But you -- I don't see anything in this selection in brogues (ph).
MCCARVEL: No. But I'm much more comfortable wearing my shoes than you are wearing yours.
QUEST: So you're not going to make me one pair of Crocs with brogues?
MCCARVEL: I don't think so. Probably not as long as I'm here. Maybe some day.
(END VIDEO TAPE)
QUEST: I'm not holding me breath waiting for a pair of Crocs in brogues.
Southwest Airlines felt some pain in the first quarter. Bullied by the high price of fuel, the carrier's chairman and chief executive will join me in a moment to discuss (ph) the planning and battle, the future results and the merger with AirTran.
(COMMERCIAL BREAK)
QUEST: Running an airline is always a difficult business and certainly the financial markets don't always love the shares. Southwest tonight having a bit of a problem. The stock is down a bit after the low fare leader said higher fuel prices gave it a hard time in Q1. Southwest's profits came in at $5 million, down from $11 million a year earlier.
Mounting fuel costs pushed the carrier's expenses up by 16 percent.
The battle plan -- the airline's chairman and chief executive is Gary Kelly, who joins me now from the headquarters in Dallas in Texas.
Gary, let's -- let's look at this fuel crisis, because many airline CEOs tell me that is what it is, if prices stay here or go higher.
Is it a crisis?
GARY KELLY, CHAIRMAN & CEO, SOUTHWEST AIRLINES: Well, it's a problem. Obviously, you can tell by our first quarter results that we're managing it well. If you take out special items, our earnings were right in line with where we were a year ago. So 26.5 percent increases in our fuel cost per gallon and we were able to cover that with very strong revenue momentum.
So the problem is -- is, as you point out, Richard, is really where it's gone now into the second quarter. So we're looking at even higher year-over-year cost increases...
QUEST: Right.
KELLY: -- in the second quarter. And yes, that's absolutely a concern. But at this point, we believe we'll continue to be profitable all year long. We're going to continue to work on the revenue initiatives that we have underway. The ones that we've put into place over the last three to four years are working extraordinarily well.
QUEST: Right.
KELLY: And we think we have a very bright future here at Southwest Airlines.
QUEST: You -- you've got the merger with AirTran coming through, which is expected to complete and to close in May.
Look, as we look at the airline industry in the U.S., it is going to become a battle between -- on -- surely on pricing grounds or between airlines that passengers love?
And the one thing about Southwest, of course, is that passengers do like your -- your airline.
KELLY: Well, and I'm -- I'm glad to hear you say that. And we work very hard to earn that from our customers every day and -- and never take that for granted. So I've got the -- the luxury of having 35,000 family members here at Southwest Airlines that -- that work very hard and believe the same thing.
So I think it's value. I think what Southwest offers...
QUEST: Right.
KELLY: -- is low fares in addition to very good customer service and that's what Americans want. And we're going to hopefully, provide that to more and more Americans as time goes by.
QUEST: You've got to keep your eye on the ball with this merger with AirTran, haven't you, though, because mergers have a -- particularly in the airline industry -- they have a phenomenal ability to destroy shareholder value, to get costs up out -- and out of the way and before you know where you are, that tight fist is gone.
KELLY: There's a lot of details. There's a lot of complexity. And it does argue to go about it in a measured way. And that's why I think that it's so important that it not be undertaken unless a company is prepared. And I feel like we're very well prepared, a strong leadership team. We've got a low cost structure, excellent operation, outstanding customer service and a very strong balance sheet.
QUEST: Right.
KELLY: So we're -- we're ready for that. And AirTran is a great operation, as well. So it's not as if it's broken and needs to be fixed.
QUEST: I think you...
KELLY: It's about a 20 to 25 percent expansion.
QUEST: Which, of course, managing is very difficult.
Let's just talk, if we may, this problem with air traffic controllers falling asleep in the United States, I'm aware, you know, you have one case, you have another. Suddenly it looks like an epidemic. It's relatively small numbers. But it is causing concern, isn't it?
KELLY: Well, I just applaud the FAA's leadership to address the issue. It's all playing out in a very public way. Safety is our number one priority. We -- we obviously work very closely with the FAA. And anything that they can do to make our air traffic control system safer, I - - I fully support.
QUEST: Gary, a final question. I've asked you this before. I'm going to keep asking you until you bring one of your planes across the Atlantic.
When are you going to fly your first people to London?
KELLY: You know, I love your country. I love your city. And, you know, maybe one of these days, we can have Southwest service there. But in the meantime, we've got a lot of work to do here in -- in the colonies and...
(LAUGHTER)
KELLY: -- we've become the number one airline here in America and -- and so that's what we're built to serve. And we -- we've got our hands full here for a while.
QUEST: All right, Gary.
Lovely to have you on the program.
We much appreciate your time, as always.
Good to see you.
Gary Kelly from -- from Dallas in Texas.
A busy program, as you can tell -- nonstop, in fact.
Guillermo is at the World Weather Center -- Guillermo, if you -- at this point in the proceedings, if you cannot tell me April the 29th -- we're going to go through this every day.
(LAUGHTER)
GUILLERMO ARDUINO, CNN METEOROLOGIST: OK. Let me give it a try. I think it's going to be fine. You see, we have the high pressure there in control. Actually, the exception is here in the west in Spain and Portugal, because everything else, it's fine. You see, look at the Netherlands. Look at Britain, especially England. I think that Scotland there, we want some clouds. But in general, things are pretty nice.
And in the south, this is where things are not that nice, but still very warm.
And the movement of the weather systems and this here, the moving away of this high pressure center is allowing the low, the bad weather, to come into Spain, Portugal and the Pyrenees section.
So we are going to see some storms there in two days, probably here in Tunis, San Remo, Cannes. So the French and the Italian Riviera with some bad weather. But at the same time, that high, though, is moving away. It's allowing for the nice weather to pop into Istanbul. That actually is cold compared to what we have been seeing lately.
And you see severe wind gusts and large jail -- large hail possibly there, too. The same thing continues in Spain and Portugal for one more day, at least. But all of the airports are fine. Copenhagen, Zurich, Vienna, Munich, Frankfurt it's looking OK. We're not seeing significant delays in here. London not at all. Things are fine. Amsterdam and Dublin, Brussels, fine.
When we go to Iberia is where we have problems here, Barcelona. You see Madrid with clouds. But Berlin, Milan -- a little bit of a break for Germany, in fact. And we see that in the contour colors in here. It's lighter, so it's much better. It's 23 degrees. The forecast for Berlin for Friday, the same temperature for London. So looking fine.
Madrid, 16. Usually we see the opposite. But now, because of that high pressure, that pattern, that's what's going on.
Also, if you are in Hong Kong watching right now, like 3:00 in the morning, but we see OK conditions. High pressure there, as well. And Vietnam looking OK.
In the States is where the problems continue. But I must say, Richard, it's much better than what we saw yesterday (ph)...
QUEST: Oh, all right...
ARDUINO: -- and the days before. We had some issues that I reported on Tuesday here, tornadic activity; also some snow. And those systems are fizzling out. The situation is improving greatly -- back to you.
QUEST: Guillermo, many thanks, indeed.
If they are in Hong Kong watching at this hour, at five to 3:00 in the morning, they're either seriously jetlagged off a flight or need to see the doctor to get something...
ARDUINO: Your fans.
QUEST: Ah, well, there we are, you know. So don't think you can get around just because you've been nice.
We'll talk to you tomorrow.
ARDUINO: Yes.
QUEST: All right, Guillermo.
Many thanks, indeed.
Money can't always buy success. Lionel Messy (ph) is the world's best paid footballer, but he couldn't lead Barcelona to victory in the King's Cup final last night. They lost 1-0 to Real Madrid. His can -- his team at least claimed one victory. They pay their rivals more money than anybody else. But that didn't make any difference. According to a sporting intelligence survey, Barca (ph) and Real, which we know are two of the top sport teams in the sport for weekly salaries. They have knocked the New York Yankees off the top spot. The Spanish giants spent more than $15 million combined every week -- $15 million.
Now, last night, the price went up a bit for Real Madrid. They were celebrating. You must have seen this video. It's so delicious, we have to show it to you again. One of the players wasn't paid enough to avoid a little accident with the trophy. Have a look. Look closely.
Sergio Ramos (ph) was holding the trophy above his head as the team partied greatly around the Spanish capital. And then, yes, he drops it from the top of the open-dropped bus. And whoosh, under the wheels of the bus it went. The bus couldn't stop from crushing it.
How do you explain that afterwards?
All right, a Profitable Moment after the break.
(COMMERCIAL BREAK)
QUEST: Tonight, we brought you two stories that show the conflicts in our technical world. Apple's iPhone tracking where you go, Amazon's servers failed, meaning cloud computing disappeared.
There's no obvious connection between these two events, save for the increasing importance that we have on computers and the gadgets of our daily lives. We need to rethink the way we look at technology, recognizing it's the cornerstone of commerce.
But, frankly, we are foolish if we place unbridled trust in technology and the companies that create them. Remember, Plan A is usually guaranteed to fail. Real life is built on Plan B.
And that's QUEST MEANS BUSINESS for tonight.
I'm Richard Quest in London.
Whatever you're up to in the hours ahead, I do hope it's profitable.
"PIERS MORGAN TONIGHT" is after your news headlines.
END
