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Quest Means Business
Icahn Backs Down; Mary Barra Salary; US Investors Waiting on Yellen; European Markets Inch Higher; Barclay's Early Results; UK, Netherlands Sue Iceland; Hollande Heads to Washington; Europe Versus US; Flappy App Zapped
Aired February 10, 2014 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(NEW YORK STOCK EXCHANGE CLOSING BELL)
MAX FOSTER, HOST: It is the closing bell on Wall Street, most investors waiting for tomorrow's testimony from Janet Yellen, the new head of the Federal Reserve. It is Monday, the 10th of February.
Backing off the buyback. Carl Icahn ditches his demands.
From app to flap. The creator of a hugely successful game says it made his life a misery.
And the $40 million woman. GM pays its CEO 60 percent more than her predecessor.
I'm Max Foster, this is QUEST MEANS BUSINESS.
Hello to you. The multibillion-dollar battle between Apple and investor Carl Icahn is over. The billionaire investor has ended his months-long campaign to persuade Apple to buy back more of its stock.
Carl Icahn, seen here on the right, has long been a thorn in the side of Apple CEO Tim Cook. He has now ditched his plan after a major advisory firm said it would not support it. He's written to shareholders explaining that Apple is close to fulfilling what he wanted all along.
This marks the end of a battle that's been playing out very publicly, just the way Carl Icahn likes it, on Twitter. Icahn says Apple shares are undervalued and the company ought to take advantage of that. He wanted CEO Tim Cook to spend $50 billion on buying back shares in Apple, saying it will be worth it in the long run.
Key dates include August the 13th last year, Icahn tweeted, "We currently have a large position in Apple. We believe the company to be extremely undervalued. Spoke to Tim Cook today, more to come."
On October the 1st, "Had a cordial dinner with Tim last night. We pushed hard for a $150 billion buyback. We decided to continue dialogue in about three weeks' time."
And things had turned nastier, though, by January the 22nd. Well, Icahn tweeted, "We feel Apple board is doing great disservice to shareholders by not having markedly increased its buyback. In-depth letter to follow soon."
Well, Paul La Monica is assistant managing editor at CNNMoney.com. He joins me now from New York. Paul, certainly Apple has started a buyback program this year. Is that the reason he's pulled back?
PAUL LA MONICA, CNN MONEY ASSISTANT MANAGING EDITOR: I think that's part of it. The fact that Tim Cook did say publicly that Apple is already repurchasing shares may have mollified Icahn a little bit.
But I think the bigger issue is, once ISS came out, and many other large institutional shareholders really not supporting Icahn's plan, I think that was really the nail in the coffin for Icahn, because Icahn doesn't own that much of Apple that he can make a huge difference in pressuring the company to do what he wants.
FOSTER: Has he stepped back altogether now, or is this just a temporary step back, do you think?
LA MONICA: I think, as is often the case with Icahn, if the stock does well, he'll probably stay on the sidelines. He still owns a decent amount of Apple, and I'm sure he'll tweet every time he buys more. But at this point, it really does seem that he's taking Tim Cook at his word about what the company is doing in terms of buying back shares.
And also, the fact that Apple says we know that you want new products. Be patient, there are going to be some new product lines coming out at some point in the near future, because that's one of the biggest criticisms right now on Wall Street, it's been mainly new iPhones and new iPads, and investors want something else, a new category.
FOSTER: It's an interesting part in this story, though, isn't it, this sort of investor activism? Carl Icahn really sort of represents that in many ways, doesn't he? And he's been accused of micro-managing here, which is partly why he has been asked to step back in a way. Do you think it's interesting that he's seen his limits?
LA MONICA: I think so. And this isn't the first time. He definitely has learned when he has been wrong, to his credit. He also not that long ago was pressuring Netflix when it was having some problems to sell out to a larger company.
He thought that the only way for Netflix to really do well was to be aligned with a larger media firm. And that really has not been a good call in hindsight, because Netflix has continued to do well producing its own content. Shares actually hit an all-time high today.
And Icahn, to his credit, he backed off of Reed Hastings and realized that the Netflix CEO had a plan that made more sense than what Icahn wanted.
FOSTER: Meanwhile, Apple still does have this huge mountain of cash, doesn't it? Do you really think that that's changing now that they are going to continue with this buyback program, or do you think they'll step back a bit now that the pressure's off?
LA MONICA: I doubt that they will step back. I think shareholders are happy that they have been repurchasing shares. Shareholders also like the fact that Apple now has a dividend.
The unfortunate problem, though, for Apple is that as I recently pointed out on a video on CNN Money, Apple almost seems to be morphing into IMB. It's a company that's a little bit more staid and mature and boring.
And if all you can really bring to the table are dividends and buybacks and not actual innovation, then guess what? You're really this old-school type of tech stock and not something exciting, like the way that Facebook and Google are right now.
FOSTER: And we just had some information about Mary Barra's new salary details, if we can call it that. What can you tell us about that? This is quite new information, isn't it?
LA MONICA: Yes, what looks very interesting is that the company, I think, was quick to show people that the accusations of Mary Barra getting a significantly lower pay package than her predecessor have not been the case at all, that that's not true.
It looks that Barra will be making, when all is said and done, about 60 percent more than Dan Akerson, who had been the CEO. So I think really what GM was trying to do was just get any criticism of them for possibly underpaying their new CEO out of the way. And it does look as if Mary Barra does not have anything to be worried about in terms of her own personal finances anytime soon.
(LAUGHTER)
FOSTER: Absolutely. OK, Paul, thank you very much, indeed. Zain Asher, meanwhile, is down the road at the New York Stock Exchange. Apple shares rose, but really, it's about tomorrow today, isn't it, Zain?
ZAIN ASHER, CNN BUSINESS CORRESPONDENT: Yes, absolutely. It's all about Janet Yellen. So we didn't really have much of a range today. The markets did see to be holding tight, basically sitting and waiting on Janet Yellen.
She's got her first real appearance tomorrow, first time speaking publicly as chairwoman of the Federal Reserve. It's the semi-annual testimony on monetary policy.
Now, here's the thing investors are going to be watching out for: if she's dovish, if she appears to remain accommodative with QE, basically keeping everything as it is at $65 billion a month, the markets will probably rise.
If, on the other hand, she comes off as hawkish, saying listen, we're not necessarily concerned about the last two months of jobs report, even though they were relatively disappointing, saying that weather was, in fact, a factor, and we're going to keep tapering, markets will probably fall.
Now, you remember, Max, the last time the Fed took another $10 billion off the table, you saw what happened to the markets. Obviously, that was coupled with other factors, like outflow to emerging markets, weak manufacturing data as well. But the markets did sort of ache with pain.
Volume today relatively light, 600 million shares traded. A lot of investors on the sidelines, no one sort of seeing a reason to get in front of this moving train.
And just quickly, earnings-wise, we've got Cisco and CVS reporting earnings this week, 75 percent of the companies that have reported earnings so far has beat on estimates, but a lot of them have also given negative guidance as well, so there are some concerns about hiring in the future, especially this year. Max?
FOSTER: OK, Zain, thank you very much, indeed. Let's take a look at how Europe's stock markets closed today, Yellen a big talking point as well, obviously a global story. Not too much movement today. Stocks inched higher on Monday in many countries following gains in Asia. And news that industrial production declined in France and Italy failed to sour the mood.
Barclay's took the market by surprise, though, on Monday, announcing its 2013 profits a day ahead of schedule. The bank released its numbers after similar figures were published in "The Financial Times." Annual pre- tax profits came in worse than expected and down by a quarter from the year before.
William Cohan is author of "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street." We're going to be speaking to him after this break, hopefully.
(COMMERCIAL BREAK)
FOSTER: Welcome back to you. William Cohan is joining us now. He's the author of "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street." We're talking to him about the Barclays' results today, because it was pretty extraordinary that they were announced in a diary column in "The Financial Times" today.
WILLIAM COHAN, AUTHOR, "HOUSE OF CARDS": Yes, Max. Usually, Wall Street firms make a big production of their earnings releases: press conferences, meetings with analysts, press releases. This, obviously, did not follow that script.
Maybe it was this allegation of stolen information that prompted them. Maybe it was the fact that the results were not as good as analysts were expecting that got them to release it early. It's always a bit odd, though, absolutely right.
FOSTER: That was -- a lot of customer information is said to have been lost over the weekend or compromised. That's the story you're referring to. But it's also off the back of a whole series of negative stories of Barclays misselling as well.
Other banks have suffered in the same way, but it does seem as if the handling of Barclays' affairs is often questioned. And when you've got problems, you need to be able to handle the problems properly in order to retain trust.
COHAN: Well, of course, that's absolutely right. And it's very hard to find a Wall Street firm today, Max, without problems of one sort or another. And it is an art, in terms of how you handle the problems that these banks are having.
Again, I don't know why Antony Jenkins decided to release his earnings in this sort of secretive way without the formal presentation. Maybe that's still coming. It is a bit odd. Let's not forget, they may have missed their earnings, but they still made more than $8 billion of net income in 2013. That's not quite the $18 billion that JPMorgan Chase made, but it's not tin, either.
So, it's not all bad news coming out of Barclays. He's done a lot. I think Antony Jenkins has probably done a lot to preserve and improve Barclays' reputation in the wake of the Bob Diamond scandals and the libor scandals.
There are other investigations going on, of course. He's probably got more work to do at that bank, but I think that at least he has stopped the bleeding and is in a position for the bank to start improving its reputation and perhaps its earnings power.
FOSTER: Some other announcements expected tomorrow. A lot of people focusing on the bonus payments here, and this is another issue that all the banks have. In order to retain the staff, they say, they need to pay these bonuses.
But Barclays, when its stock is suffering, expecting to announce bonuses of more than $3 billion, more than it paid out in 2012. This is a problem for all the banks, though, isn't it? Is there a case to say that the banks that are suffering need to be paying larger bonuses to keep hold of talent?
COHAN: I hear that argument. I don't buy it. First we have to understand that it's in the nature of Wall Street banks to overpay the people who work there. I know, I worked there for 17 years, Max. I know that well. It's nice when it happens, but nevertheless, they do pay more than I think they need to pay.
They pay between 40 and 50 cents of every dollar of revenue out in the form of compensation to the people who work there. That makes it, generally speaking, a nice place to work, not a great place to invest in because that money belongs to shareholders, and they're giving it away to the people who work there.
They make the argument constantly that they have to pay these people so much or else they'll get up and leave. Maybe once upon a time that was true. It has not been true for five or six years, I don't believe it's true today. I think Wall Street can afford to cut compensation across the board and people won't go anywhere.
FOSTER: William Cohan, appreciate your time. We'll hear a lot more about this as Barclays makes its formal announcement, not the newspaper one, tomorrow. Thank you.
Barclays' stock did close up more than 1 percent today, so people seem to like what they heard in the leak. Those billions of dollars in bonuses, some people reporting as much as $4 billion for 2013.
British and Dutch authorities are suing Iceland's bank guarantee fund. They are seeking more than $4.8 billion as compensation for money lost when the island's banking system collapsed in 2008. The dispute stems from when Landsbanki, one of the country's big three banks, collapsed and was unable to pay British and Dutch depositors of its online lender, Icesave. This figure includes interest and costs over five years.
French president Francois Hollande arrived in the United States to meet President Obama just moments ago. Ahead of a state dinner tomorrow night, the two presidents are playing up the bond between France and the United States.
Presidents Hollande and Obama wrote a joint article, actually, in "The Washington Post" saying, "A decade ago, few would have imagined our two countries working so closely together in so many ways. But in recent years, our alliance has transformed."
Well, President Hollande's three-day stay kicks off with a tour of Thomas Jefferson's estate alongside President Obama. As Brianna Keilar reports, some of the arrangements for this visit have been complicated by developments in Mr. Hollande's personal life.
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BRIANNA KEILAR, CNN SENIOR WHITE HOUSE CORRESPONDENT (voice-over): Flags unfurled, party tent in place. The White House ready for its first state dinner in nearly two years, but they didn't plan on this.
Scandal-plagued French president Francois Hollande comes to Washington with a lot of baggage. Not coming is this woman, Valerie Trierweiler, who was France's first lady until last month.
Never married, the couple of seven years split after a French magazine said it caught Hollande sneaking out of the palace on the back of a scooter for a secret rendez-vous with a much-younger mistress, movie actress Julie Gayet. She's not coming, either.
Hollande says his private life is private, but "l'affaire Hollande" made headlines around the world, lending unusual intrigue to a high-profile White House visit. Three hundred dinner invitations engraved with the former first lady's name had to be scrapped, according to "The New York Times."
And with Hollande coming solo, seating arrangements for the dinner are made delicate at best. Anita McBride helped plan state dinners as Laura Bush's chief of staff.
ANITA MCBRIDE, AMERICAN UNIVERSITY EXECUTIVE IN RESIDENCE: Typically, when you have a foreign -- a guest that's coming that has a spouse, the president and first lady -- our president and first lady would be seated next to the spouse. So, that is something that they'll have to change.
KEILAR: The White House says the romantic drama isn't putting a damper on the visit, and it's not just about the dinner, of course. France is a top US ally, and topics like Syria and Iran are on the table. But at least for now, foreign affairs seem overshadowed by affairs of the heart.
Brianna Keilar, CNN, Washington.
(END VIDEOTAPE)
FOSTER: Well, once the two presidents get down to business, they'll find they share plenty of common ground when it comes to economic policy. President Obama has made income inequality a major focus. President Hollande supported taxing salaries of more than $1.4 million per year at a rate of 75 percent.
Both presidents are struggling in the polls, particularly when it comes to economic issues. The latest CNN/ORC poll shows that more than 60 percent of Americans think economic conditions are poor. President Hollande's opinion rating fell below 20 percent for the first time since his election in 2012. Issues in his personal life and the poor job market were to blame.
And both presidents are struggling with unemployment. President Obama faced disappointing jobs numbers in January. President Hollande is dealing with unemployment at record highs.
Valentijn van Nieuwenhuijzen is head of strategy at ING Investment Management. And it's interesting, isn't it? Because it's a different perspective on France and Washington than there is from London, for example, on Washington right now. In Europe, France is seen as a real problem.
VALENTIJN VAN NIEUWENHUIJZEN, HEAD OF STRATEGY, ING INVESTMENT MANAGEMENT: Yes, it is. It is. And maybe to some extent it's a bit exaggerated in a sense that it's certainly not a country that could lead to a new eruption of crisis in Europe at this point in time.
FOSTER: But it does need to recover for all of Europe to recover.
VAN NIEUWENHUIJZEN: Absolutely. It's a big part of Europe, and together with Italy, you have two very big economies in the middle of the eurozone that are not reforming, they are not regaining competitiveness, they're very slow in pushing through real change. So, they are dragging down the overall European economy, that's for sure. But luckily, there's other parts doing a bit better.
FOSTER: In terms of the relationship with the US, it could be a bit of a solution, couldn't it? Because in the past, it didn't have the perfect diplomatic relationship. But I don't think it's developing over time, so in order to grow the economy, and there is a fascination with France in America a bit, I think. But it's an option, isn't it, to work closer with America as well as Europe?
VAN NIEUWENHUIJZEN: Well, obviously there is. And I think that the last speech that Hollande gave where he started talking more supply-side economics rather than traditional more demand-side economics, which is associated with socialists, I think was maybe a first step in that direction. And maybe he can get some guidance from Obama in that direction further.
And that will probably change the perception in France if he really delivers. But I think that is key. So far, it's just nice words and some tentative moves in the right direction. You need to deliver if you really want to get better polls and better economic results.
FOSTER: A lot of people looking ahead to Janet Yellen's comments tomorrow. The whole world, really, watching that. Again, an example of why the US economy is so fundamental to the global economy.
VAN NIEUWENHUIJZEN: Well, that's very obvious. I mean, we've all seen last year what's the whole debate about the Fed tapering and a change of direction there could do to global markets. Again, a lot of the turmoil in emerging markets in the first couple of weeks of this year. So everybody, not only within the US, but everybody globally is focusing on this.
And I think very different from the politicians, this will be an exercise of really trying to not say too much and really trying to not give any signal of changing course. She wants to be seen as somebody that continues on Ben Bernanke's path.
FOSTER: She's got her own language, though, hasn't she? But people like you are going to be poring over every single word. And she's got to introduce her own language at some point, but I guess now is not the right time.
VAN NIEUWENHUIJZEN: Well, it is absolutely one of her key topics, communication. She has been chairing the communication effort in the Fed to improve that, and now she will progress. But that's not at the first one or two meetings. This is something probably for the medium-term.
She will spend more time in creating, if possible, even more transparency on the directional Fed policy. But in the near-term, she will try to keep calm and guide us through this calmly --
FOSTER: Carry on.
VAN NIEUWENHUIJZEN: Yes.
FOSTER: Valentijn, thank you very much, indeed.
Now, in a flap over Flappy Bird. Why the success of this mobile game has caused its creator to quit.
(COMMERCIAL BREAK)
FOSTER: One of the year's most popular mobile games has had its wings clipped. Flappy Bird has soared to the top of the iTunes and Android download charts until it was removed by its developer. The hundreds of thousands of people who downloaded it can still play the game, but it can no longer be available to new users.
Samuel Burke joins us now from New York with more, because Samuel, the most interesting part of this is why he quit.
SAMUEL BURKE, CNN BUSINESS CORRESPONDENT: Yes, but let's do first things first, Max. If there's one thing we've learned out of all this, having a bird in your game can make it absolutely successful, whether it's Angry Birds or Flappy Bird. But this bird has taken off for now.
It was a relatively simple game to play, and I think that's what made it so popular. Let me just show you. If you just drag your finger like this, you were able to just take these little guys through the pipes, and that's why so many people were downloading it. In fact, they say that actually 50 million downloads occurred with this app, Max.
And the founder of the app, who comes from Vietnam, says that he was making $50,000 a day in ad revenue. Little ads were popping up. But then, all of the sudden, after having the number one app on the charts, he tweeted this message over the weekend: "I'm sorry, Flappy Bird users. 22 hours from now, I will take Flappy Bird down. I cannot take this anymore," he said.
Now, a lot of people thought it was just a publicity stunt, Max, that he wouldn't take it down. But the app is gone. He really did take it down. So only people who had downloaded it before can use it, and now it's no longer there. But he's still collecting what he says is $50,000 a day because the as revenues still coming in from those people who still have the app, Max.
FOSTER: When he says he can't take it anymore, what's he talking about?
BURKE: Well, a lot of people suspected that maybe he was getting pressure from Nintendo, for example, because a lot of people said it looked very similar to Nintendo. But we talked to Nintendo today, and they said no such thing. In fact, let me show you what they said.
The said, "We can confirm that Nintendo did not contact the creator of this game. We also did not seek its removal from the marketplace." But other people said maybe it looked very similar to other games.
But it just seems like for now he just couldn't take the pressure of the spotlight of being the number one app in the world. He actually tweeted this message later on: "It is not anything related to legal issues," referring maybe to Nintendo, there, "I just cannot keep it anymore," he said.
And he also tweeted this next message: "I also don't sell Flappy Bird. Please don't ask." So apparently a lot of people are looking to him to try and sell this app.
But the interesting thing here, Max, is that this app founder actually has a number of apps that are in the top ten on the apps charts. Other games that are very simple to use. So this guy clearly has a knack for knowing what people like and how to waste a lot of people's time, because people just say that they would lose hours to these apps.
So, his other apps are still up. He's still getting the revenue from this app. And I have a feeling this is not the last we've heard of this app maker.
FOSTER: Well, he's a bit of genius, isn't he? He's got this knack for making huge amounts of money with these things? Very simple. But Samuel, thank you very much, indeed.
Swiss voters want to reduce the number of migrants who make it into their country. The EU isn't pleased, though. Our interview with a politician whose party pushed the proposal next.
(COMMERCIAL BREAK)
FOSTER: Welcome back, I'm Max Foster in London. These are the top news headlines we're following for you this hour.
UN envoy Lakhdar Brahimi began a second round of Syrian peace talks today. He says he'll meet with both teams of negotiators separately until the two sides can establish some more common ground. In the meantime, both factions have agreed to extend the humanitarian pause in Homs to help evacuate civilians and get desperately-needed aid into the besieged city.
New video has emerged of the moment Abu Anas al-Libi was captured by US special forces last October. Al-Libi is an alleged al Qaeda operative linked to the bombings of US embassies in Kenya and Tanzania back in 1998. He was captured in Tripoli on the street outside his home on October the 5th as he returned from morning prayers.
Sixteen flood warnings are in place across the south of England as more vicious storms are expected over the coming days. Weeks of torrential rain have sent the Thames and other rivers spilling over their banks. The southwest has been hardest-hit.
A Danish zoo says staff members have been getting death threats after it put down a healthy giraffe on Sunday. Animal rights activists are outraged over the killing, which the zoo says was necessary to prevent inbreeding.
After spending more than a year drifting on a small boat in the Pacific Ocean, Jose Salvador has finished his first leg of his trip home. He traveled from the Marshall Islands to Hawaii on his way to a small village in northern El Salvador.
Europe says there will be consequences -- economic consequences -- to Switzerland after voters there backed immigration quotas. Just over half voted in favor of a referendum to place new limits on the numbers of foreigners living and working in the country. Switzerland isn't in the E.U., but workers from France, Germany and other countries commute there every day. Luxembourg's foreign minister criticized the result --
(BEGIN VIDEOCLIP)
JEAN ASSELBORN, LUXEMBURG'S FOREIGN MINISTER, VIA TRANSLATOR: This will have consequences, this is clear. We can't sell out the citizens' freedom of movement, we can't have privileged access to the European Union's internal market on one hand, and limit freedom of movement on the other hand. Both are linked, this is clear.
(END VIDEOCLIP)
FOSTER: -- while the European Commission says it goes against the principle of free movement of people between the E.U. and Switzerland. The Swiss government now has three years to turn the quota proposal into law. In that time, it'll have to renegotiate a deal struck with Brussels in 2007 that allows E.U. citizens free access to the Swiss labor markets. Now, foreigners make up a quarter of Switzerland's workforce and 20 percent of its population. The immigrants community there is dominated by Albanians, Bosnians and Turks. Most were denied a vote in the referendum because of the difficulty of becoming a Swiss citizen. The Swiss Bankers Association which represents the likes of UBS and Credit Suisse said it regretted the outcome of the votes. The Employers Federation says it creates uncertainty and could hit foreign investment into Switzerland.
Well, the proposal was put forward by the right wing Swiss Peoples Party. Earlier I spoke to Luzi Stamm, a politician with the SVP. I asked if this move was bad for Swiss business.
(BEGIN VIDEOCLIP)
LUZI STAMM, POLITICIAN, SWISS PEOPLES PARTY (SVP), VIA TRANSLATOR: Free immigration and open markets free trades are two totally different things. Any other country -- Australia, New Zealand, Canada, United States, you name it -- and it makes a difference between open markets and immigration. And we are not part of the European Union, so I think it is normal that we have our own immigrant laws.
(END VIDEOCLIP)
FOSTER: The pact with the E.U. in relation to immigration was signed as a package, wasn't it? And the European Union are very much pointing to that today -- the European Commission rather -- and they say they're going to examine the implications for its relations with Switzerland. Those details on immigration are part of a wider package you've got with the European Union. You may lose that fundamental open relationship with the E.U. because of this one change on immigration law.
STAMM: The problem is that everybody underestimated the development. Nobody could foresee this mass immigration we have at the present time -- much higher than anywhere else. And I think it is normal that we keep all the other agreements like transport, like common development, et cetera across the border, good friendship with our neighbors. But the free immigration -- that is something totally different. We should renegotiate this.
FOSTER: But you're saying that, but the European Commission's saying you can't do that. You can't just pick and choose from the agreements you already have with them.
STAMM: That's very strange because open markets, it's not a pick and choose. It is the question whether the European Union can impose their immigration laws to outside countries. And this to me sounds very strange. If they insist we only do business with you if you accept our rules as far as immigration is concerned, that to me seems very strange.
FOSTER: Take one of your biggest industries -- banking. The Swiss Banking Association today has expressed some concerns saying explanatory and constructive talks with the E.U. are needed urgently. They're very worried about the impact on trade of this move.
STAMM: I understand this but this is no problem because if you take any part of Switzerland, if you take the farmers, if you take the hospitals who need workers from abroad, if you need the industry And you can always make them come without having the same rules as the European Union. Why should an outside country who has -- which has -- the luck to be relatively wealthy accept the same problems as Germany has, as France has, as Great Britain has with immigration which is always connected with negative sides.
(END VIDEOCLIP)
FOSTER: Luzi Stamm talking to me from Switzerland. Well, it's being called the end of Australia's auto manufacturing industry. Toyota is the latest carmaker to shut down its operations there. More in a moment.
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FOSTER: Every other Monday we (inaudible) executive innovators -- top industry leaders and visionaries from around the world. Today meet Christopher Luxon, CEO of Air New Zealand. He led the airline to double its profits in 2013. And while he says innovation is one of his company's core values, he also thinks the industry is sometimes stuck in the past. Patricia Wu has more.
(BEGIN VIDEOCLIP)
PATRICIA WU, JOURNALIST AND CO-ANCHOR OF "CNN NEWSROOM, LIVE FROM HONG KONG" SHOW: It's a small airline with a global reputation. Perhaps you know it best from its economy cabin's sky couch which earned the nick name "Cuddle Class." Or maybe you've seen its quirky safety videos including the latest one starring Golden Girl Betty White.
BETTY WHITE, ACTRESS: So, this is safety old school style.
Male: There you go. Like this.
Male 2: What do you know? You're young enough to be my grandson.
Male: I am your grandson.
CHRISTOPHER LUXON, AIR NEW ZEALAND CEO: Yes, well I think the aviation industry isn't particularly (inaudible) if I'm really honest with you. I think it's very fixated on the aircraft and the supply side of it. But it actually doesn't get very focused on actually -- meeting the needs of customers and creating demand.
WU: Christopher Luxon has led Air New Zealand for just over a year.
LUXON: All right, the big, big difference is that we realize why fly people not planes.
WU: An industry outsider with almost two decades of experience at consumer giant Unilever, Luxon's strategy has been to place renewed emphasis on growth and profitability, without losing sight of what he calls Air New Zealand's core business.
LUXON: If you don't understand what the needs of your customer are, that's a big, big problem. And in fact, every business that's always its way it's because it's lost the voice of the customer inside the business.
WU: At the airline's Customer Innovation and Collaboration Center in Auckland, Luxon shows off a model cabin of the Boeing 787-9 Dreamliner which it will be first in the world to fly later this year.
LUXON: In our economy cabin you've got your own touch screen and inflight entertainment. You can order food and drinks from here.
WU: Luxon says innovating when it comes to the passenger experience has allowed Air New Zealand to consistently win industry awards along much larger players in the region. The airline has just 20 wide-body passenger aircraft currently in service, compared with 62 at Qantas and 100 at Singapore Airlines. Luxon recently struck a partnership with Singapore Airlines to code share and share revenue on the Auckland/Changi route, subject to approval by regulators.
LUXON: Yes, the one piece of the market that we really don't have solved in our network sense was really the southeast Asian markets.
WU: He says the deal works in part because the airlines are in the same league when it comes to the passenger experience.
LUXON: While we've got different brands, we've got very similar (inaudible) product quality.
WU: And while Luxon says there's always room for improvement, he admits that translating every new idea into dollars isn't always easy.
LUXON: And it really is quite (inaudible for us), and so the way in which tickets are sold essentially hasn't changed over the last 40 years. So that's been the challenge or the limiting factor in the innovation.
WU: Patricia Wu, CNN Hong Kong.
(END VIDEOCLIP)
FOSTER: Now, Mitsubishi, General Motors, Ford and now Toyota. The Japanese automaker is the latest major carmaker to end its operations in Australia. Toyota says it'll shut it factories there by the end of 2017. The company says 2,500 jobs will be lost in that move. And Toyota's president actually traveled to Melbourne to announce the news himself.
(BEGIN VIDEOCLIP)
TONY ABBOTT, AUSTRALIAN PRIME MINISTER, VIA TRANSLATOR: When I think about what kind of anxieties our employees may have hearing this decision about their future. It is extremely heartbreaking, and because of that, I wanted to come here directly for myself and speak in my own words.
(END VIDEOCLIP)
FOSTER: General Motors made a similar announcement in December. The U.S. auto giant says it'll close its Holden operations in Australia by the end of 2017. That move means nearly 3,000 jobs will go. Just like other car manufacturers, Toyota says a strong Aussie dollar and high production costs have hit the operations there. Its pullout effectively ends Australia's auto manufacturing industry. But the Australian prime minister Tony Abbott is remaining defiant.
(BEGIN VIDEOCLIP)
TONY ABBOTT, AUSTRALIAN PRIME MINISTER: The important thing is to remember that while some businesses close, other businesses open. While some jobs end, other jobs start.
(END VIDEOCLIP)
FOSTER: Tony Abbott. Now coming up, we'll take you back to a small nightclub where the Beatles got their start. No, it's not quite the Cavern Club, just not far away.
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FOSTER: Flooding here in the U.K. has become so bad that some politicians are calling on the government to divert foreign aid to flood relief. Weeks of heavy rain and wild winds have flooded rivers and burst their banks. CNN's national correspondent Matthew Chance reports on the desperate race to limit the devastation.
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MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT BASED IN LONDON: Not a lake or a sea but a disaster in the heart of the English countryside. They're no strangers to flooding here, but nothing like this -- not since records began. Well it's been the wettest month for 248 years in this part of Britain, and climbing up this hill overlooking this part of Somerset in the southwest of the country, you get a really amazing perspective of the impact that's had. Take a look over here. All of this land the Environment Agency here says -- 26 square miles of it -- has been inundated with flood water from the rainfalls. It's having a huge economic consequence, and the local communities are really feeling the impact.
In a bid to drain the fields and roads, thousands of gallons of rainwater are being pumped into already swollen rivers. For many residents, it's a desperate race to save their homes. All right, well we've got access to one of the houses that has been severely affected by the flooding. You can see, the water is absolutely everywhere. The owner of the property, Dave Donaldson here, he's been building up the flood defenses as best he can to try and protect the rest of his home from the floodwater, but you know, it's a scene of real devastation. How does it feel seeing your home destroyed like this?
DAVE DONALDSON, FLOOD VICTIM: Um, well, yes, it's quite upsetting really. But we've just got to deal with it. That's the thing. We got no choice.
CHANCE: How much damage do you think has been done to your house in the past few weeks?
DONALDSON: Well, don't know. It's never happened before. Me son's disabled. That's his bed on the pallet there. The (inaudible) came to take him out with a special four-wheel drive.
CHANCE: Outside, an army of volunteers is shoring up the flood defenses, including eight workers like Ravinder Singh of the British-based Khalsa Aid agency normally deployed in disaster zones overseas. How unusual is it for your agency to be called out to help people in Britain?
RAVINDER SINGH, KHALSA AID: Highly unusual. Actually matter of fact we've never really done anything before in Britain, and we, like other agencies, psychologically switched off -- you know, they don't need anything, they'll be fine. And when I've heard some of the callers on the radio station a few days ago saying where are the aid agencies that appeal to us for international aid? And that really struck home.
CHANCE: And forecasters predict more floods are indeed on the way as Britain's relentless rainstorms look set to continue. Matthew Chance, CNN Somerset, England.
(END VIDEOCLIP)
FOSTER: Well Tom Sater is at the Weather Center and Tom reports that midweek it could get a lot worse -- the tens -- you know, dangerously close to London as well.
TOM SATER, METEOROLOGIST FOR CNN INTERNATIONAL: Yes, they're getting close to the 2003 levels on the temps, and I hate to be the bearer of bad news, Max, but we've got a storm system moving in now that'll continue through Tuesday, we've got one on the heels of that for Wednesday, and even a stronger one that's going to be moving in for the weekend on Saturday. It's just relentless. You know, it's one thing to look at the thousands of hectares of farmland that are submerged because we know the problems that that can bring. But now it's getting too close to home when thousands of homes are submerged. And of course the risk of life and property are at its highest level.
This is just one area -- of course down in the Somerset area -- we see problems of course in Dorset as well. And now of course in the London area, right along the Thames River Valley -- we talk about the cold air being trapped up of course around the Arctic, and this is all part of this pattern. Again, every once in a while cold air likes we've seen in the U.S. plunges southward. This becomes the train track, the Jetstream. If you follow it across the Atlantic, it continues its same path. So even though it's the cold air in the North American continent, it's the relentless stream of storm systems.
How many have we had since December 1st? Forty, 41, 42? Look at this -- these are puffins on the coast of France. There are reports of 5,000 birds that have died and half of them are puffins because they are too tired. They're exhausted, they can't fail the gale winds that are up and down along the coast here. Look at how long this elongated frontal system -- everything that's connected to these little areas of low pressure. So you don't have to have the center of the storm system move through the U.K., which we are, but you're also seeing the effects right along these frontal systems with the high surfs, the winds -- hurricane-force winds -- and if the year's cold enough, we're going to get some snow with this.
Here's a little bit of a spin that's moving off. Here's the beginning of the next storm system that'll be with us on Tuesday. Watch what happens here. Tuesday, here comes one on Wednesday -- notice how tightly wound this is. There's a stronger one for the weekend as mentioned. And each one of these produces those strong winds. Here's a look at what the U.K.'s Environmental Agency is projecting as far as the flood watches and the warnings and of course the severe flood alerts. We have them now. What we do not want to see is red as you get into Monday and Tuesday. So we know this is going to be a prolonged event.
Here the River Thames -- there are 16 severe flood warnings. Fourteen of those 16 are right in this general area between these two red triangles. Now, what we're watching here is even though a lot of this is out from the extreme metro area and a lot of its farmland, once the Thames breaks it -- bursts it's banks, it's just continuing to inundate communities after community. So again, this is what we're watching. And when you get into some areas such as this, as Matthew Chance has been reporting on, you actually bring it home and see what is going on here. The pattern has got to change. We're going now into the second and a half month of this. As you look at the rainfall totals for the next four to five days, we're talking 50 -- I mean, this is two inches of rain again to two and a half off (Fort Corg). A thousand homes are submerged in Ireland as well.
Let's try to shift gears a little bit. Into the U.S. where the cold air, as mentioned -- remember at the beginning of our weathercast, all the way down to the south and now we're going to see what is going to be the second major southern winter storm where watches and warnings and advisories are posted, and again, it's for the Atlanta metro area. That of course, 2,000 stranded vehicles just a week ago, and now we're looking at significant icing along with some accumulation of snow. Now, the accumulation of snow may be greater than we had two weeks ago, but this is going to be an ice event. Are they going to be ready, because this is the significant icing we're watching. I mean, look at this -- you're getting well over 1 and 1/2 centimeters, so we're hoping that the ice trucks, Max, will be prepared. This one, however is being towed. Why on earth are they being towed? They haven't -- they haven't even been used here. And parts of North American, the southern part in Atlanta. We're hoping this one along with the others are ready to go for this event in the U.S. But the bigger problem right now -- that flooding that we're seeing across the U.K. Hang in there.
FOSTER: Yes, we're standing by on it. Thank you very much indeed, Tom. Now, today marks half a century since the legendary British rock band, the Beatles made their U.S. debut on the Ed Sullivan Show.
(BEGIN VIDEOCLIP)
(MUSIC) BEATLES, ROCK BAND: Hey Jude, don't make it bad, take a sad song and make it better. Remember to let her into your heart, then you can start to make it better.
FOSTER: And on Sunday, Paul McCartney and Ringo Starr perform together at a CBS broadcast to mark their anniversary. Now, America -- they've adopted the Beatles but they were made here in the U.K. -- in Liverpool specifically and just a few years before they hit the States. The boys were practicing hard in a friend's basement. Our Jim Boulden paid a visit to the Casbah.
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JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: In 1959 the mother of two teenage boys, (Mona Best), decided to open a rock and roll coffee house in the basement of her large home outside Liverpool. She called it the Casbah. She needed a house band and booked the Les Stewart Quartet as her son Roag Best remembers.
ROAG BEST, THE CASBAH CLUB: Unfortunately, or fortunately as times proves now, Les Stewart, eight weeks before the club's due to open, refuses to play the Casbah -- he doesn't want to play here.
BOULDEN: Two of the quartet still wanted the gig -- Ken Brown and George Harrison.
BEST: George comes to the rescue because he's got two friends he used to be in a group with and they're not doing anything. He's sure they'll jump at this opportunity which they did.
BOULDEN: And they are?
BEST: John Lennon and Paul McCartney.
BOULDEN: So, opening night, August 29th, 1959, the boys known as The Quarrymen played the Casbah. By 1961, they were known as the Beatles. With Mona's eldest son Pete Best as the drummer. So, as the story goes, the Beatles last played here at the Casbah in June of 1962, and Pete Best was still the drummer. Mona Best paid them 15 pounds in total for the night. And after that night, Mona closed the Casbah, to the surprise of everyone.
BEST: She was heavily pregnant with me. And she also felt that her job was done. The Beatles were on the way.
BOULDEN: On their way out of Liverpool for good. And surprisingly, Liverpool moved on from the Beatles.
BEST: Into the 80's, the Beatles are still being ignored, and then for some reason, at some point in the 80s, the penny dropped. We shouldn't ignore this.
BOULDEN: The Best family cleared at the basement.
BEST: Stars on the ceiling were put up by John, Paul, George, Pete, Stuart Sutcliffe, Ken Brown --
BOULDEN: And Roag Best felt the place where the Beatles played before the Cavern Club needed to be on the map.
BEST: It's almost like the Casbah played no parts, and if we don't stand up and be counted, it's going to go down in history that it really didn't play a part.
BOULDEN: So now it's open as a tourist attraction. The old piano back in place.
BEST: It's been played by the Beatles hundreds upon hundreds of times. It doesn't play anymore. When the Casbah closed, my father thought it'd be a wonderful idea to gut the inside and turn it into a piano bar. Which devalued it by about 350 thousand pounds.
BOULDEN: Roag Best's father, Neil Aspinall, rose from being the Beatles' first driver to road manager to head of Apple Corps, the band's company. He was also Mona's boyfriend when her son Pete Best was replaced by Ringo Starr in August 1962. Neil thought of quitting.
BEST: At which the whole family said to him, "Don't do that. The Beatles are on their way." We've got one casualty, we don't need another. Stick with them, and he did.
BOULDEN: Aspinall's place in Beatles history is firmly cemented. His son Roag wants his mother Mona and her coffee club firmly part of that history as well. Jim Boulden, CNN West Darby, England.
(END VIDEOCLIP)
FOSTER: Coming up -- how actress Amy Adams was unwittingly dragged into a PR stunt. (Inaudible).
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FOSTER: Now, the Valentino fashion label thought they had a priceless marketing opportunity when they saw actress Amy Adams stepping out with their new handbag design. They sent an e-mail blast promoting it all over the place. Now, the trouble was, the American Hustle star was attending Oscar winner Philip Seymour Hoffman's wake at the time. Furthermore, Amy Adams doesn't have a relationship with Valentino. So eating some humble pie, Valentino said, "We were not aware the photograph was taken while she was attending the wake of Philip Seymour Hoffman. It was an innocent mistake and we apologize to Ms. Adams who wasn't aware, or part of, our PR efforts." So, there's a lesson in PR and the social media age.
Time for a final check on Wall Street before we go. U.S. stocks ended Monday -- little changes, investors really looked ahead to the new Fed chair Janet Yellen's testimony. That's happening tomorrow, the world is watching -- the Dow only inched up eight points. It was in the red for most of the day, it just inched higher right at the very end of Monday's trade. But tomorrow will be the interesting day. That is "Quest Means Business." Thank you for watching. I'm Max Foster in London.
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