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Quest Means Business
Volkswagen Starts Explaining Emissions Fiasco; South Africa's New Finance Minister Sworn in; Interview with Governor of Puerto Rico. Aired 4-5p ET
Aired December 10, 2015 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[16:00:00]
RICHARD QUEST: [Bell ringing] First gain of the week for the Dow Jones, which is the best part of the 90 points. That's 70,578. Canadian Railways
ringing the closing bell with a (inaudible) similar to ours. And, oh, dear, I think there's no doubt that is a wimpy gavel on Thursday the 10th of
December.
(MUSIC PLAYING)
(BEGIN VIDEO CLIP)
QUEST: Tonight it's a chain of errors that spark a scandal. Volkswagen start explaining the emissions fiasco.
South Africa's new finance minister is sworn in and thrown straight into market turmoil. Who is he?
And are commonwealth close to economic collapse. I'll speak to the governor of Puerto Rico.
(END VIDEO CLIP)
I'm Richard Quest back in New York where of course I mean business.
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QUEST: Good evening. A chain of errors. That's how Volkswagen has explained the emissions scandal that put the automakers very future at risk.
(BEGIN VIDEO CLIP)
QUEST: The Company suspended no fewer than nine managers after a huge internal investigation. The carmaker says the probe is going to run well
into next year. And the chief executive Matthias Mueller, has promised to fight and win back trust.
MATTHIAS MUELLER, CHIEF EXECUTIVE, VOLKSWAGEN: (As translated) We're doing everything we can to overcome the present situation. But we will not allow
this crisis to paralyze us. Quite on the contrary, we're using it as a catalyst for change that Volkswagen needs.
(END VIDEO CLIP)
QUEST: Volkswagen has sifted through reams of data. And the car company says senior management is not to blame. Instead, its investigation's
pointing to fundamental problems within VW's culture.
If you join me at the super screens, I'll show you what we're talking about.
(BEGIN VIDEO CLIP)
QUEST: We start by taking a look under the hood of Volkswagen. Now, it all began with misconduct. Volkswagen says it cheated because it wanted to get
into the U.S. diesel market in 2005. And at that time, it couldn't meet the U.S. missions targets and internally various schemes were constructed to
find out ways that it could manage to take advantage of the diesel market.
Then from misconduct came process, failures. When technical fixes to the problem were found, they weren't fully implemented, even though there were
reliable and fairly easy fixes that could have been put in place. And compounding the situation, Volkswagen admits there was a mind-set within
the company that tolerated breaking the rules.
These three things, misconduct, process and this mind-set is what led to Volkswagen's greatest corporate crisis. David Kiley is the author of
"Getting the Bugs Out: The Rise and Fall and Comeback of Volkswagen in America." He's a contributor for Forbes and Automobile magazines joins me
from Detroit.
(END VIDEO CLIP)
QUEST: Good to see you, sir. When they say it is a mind-set, to what are they referring?
DAVID KILEY, AUTHOR, GETTING THE BUGS OUT: THE RISE AND FALL AND COMEBACK OF VOLKSWAGEN IN AMERICA: Well, they're very correct when they describe it
as a mind-set.
(BEGIN VIDEO CLIP)
KILEY: And it really developed over the years under the leadership of Ferdinand Peaic who really governed the company, ran the company, in a
culture of fear. At the same time, his goal was to become the world's biggest carmaker. He assembled an unruly and hard to manage stable of
brands. And this mind-set pervaded the company because people felt like performance, hitting these targets, being threatened frankly on a frequent
basis.
QUEST: Let me jump in here. A mind-set where you're going to cheat is ethically very different from a mind-set of strong or vigorous competition.
(END VIDEO CLIP)
KILEY: Well, the mind-set that it was okay to cheat was that the culture that pervaded the company was hit your targets by all means necessary.
(BEGIN VIDEO CLIP)
KILEY: Or it's your job. And so these -- I have a big problem with the way management described this today. Because first of all, the idea that
managers, senior managers, had no knowledge or responsibility for this is nonsense. Because they carried on this culture that these lower end people,
you know, were sort of working in.
(END VIDEO CLIP)
KILEY: Now, they've also dismissed four or five managers, people who were on the board of management for their individual brands, so the idea that
somehow senior managers or top managers are not involved in this, it doesn't add up. It just does not add up.
[16:05:40]
QUEST: OK, all right, and, now, if that's the case, and they say up to nine people or whatever, and they haven't named any names yet, is this heading
to a situation where it will be a few obscure engineers who went rogue and put these things in and everybody forgot about it afterwards?
KILEY: No. First of all, these engineers -- I also dispute the use of the word "rogue." these engineers only acted -- not out of self- -- you know,
aggrandizement, they weren't being paid or bribed to make these mistakes. They felt that they were going to be making their masters happy and were
going to be rewarded no matter how they achieved this.
Now, the culture that would allow this is a sick culture and needs to be taken apart. It needs to be fixed. But I don't hear the right rhetoric. I
don't hear the right words frankly from top management that tells me that they fully understand this, that they have fully made a break with the past
of Ferdinand Peaic and are ready to move on to a better place. I'm just not hearing the right combination of words.
QUEST: David Kiley joining us from the Motor City USA in Detroit, thank you, sir, we appreciate your time, thank you.
South Africans are angry and investors are retreating after a shock change at the top of the country's finance ministry.
It's prompted the #zumamustfall which is trending in South Africa on twitter.
(BEGIN VIDEO CLIP)
QUEST: President Jacob Zuma replaced the respected finance minister and (inaudible) with a virtual unknown, David Van Rooyen. Even the former
governor of South Africa Central Bank isn't sure who the new finance minister actually is.
(Inaudible) has asked the media to stop requesting interviews because, as he says, I don't know him. Now, the effect, you can see of the appointment,
has prompted a sell-off of the rand which fell to record lows against the U.S. dollar.
(END VIDEO CLIP)
CNN's Elani is following the story in Johannesburg. Good evening, Elani.
OK, so the man is appointed, we don't know who he is, we don't know what his policies are, and it's not immediately clear why the former finance
minister was fired. Is that the gist of it?
ELANI GIOKOS, CNN INTERNATIONAL CORRESPONDENT: That's basically it. And this is why, Richard we only -- not only have seen the rand hitting all-
time lows against the dollar but also the banking stocks took a massive knock today.
(BEGIN VIDEO CLIP)
GIOKOS: We lost $8.6 billion worth of market cap within the banking sector which overall lasted around 14%. The message from the market is very clear.
We don't like this decision. And it's not only about this relatively unknown person that now has just been sworn in as the new finance minister
of Africa's most developed country but also the timing of it. Two months ahead of the national budget. At a time where liquidity globally is
relatively low because of the holidays that are coming up.
And as you mentioned, a lot of the high-profile people and also economists are talking about it being a shocking move. A callus move, relatively
irresponsible.
(END VIDEO CLIP)
GIOKOS: And of course nobody knows why this has come to the fore.
QUEST: Why did Zuma do it? What's the back story for the change from (inaudible)
GIOKOS: Well, Nhlanhla Nene has always been very vocal about overspending. He's gone up head to head with some of the big ticket items in South
Africa.
(BEGIN VIDEO CLIP)
GIOKOS: South African Airways, this is one of the big thinks that Nhlanhla Nene rejected last week, a big deal with Airbus saying the country cannot
afford it and of course South African Airways over the years as you know, Richard, has been receiving big bailouts.
(END VIDEO CLIP)
GIOKOS: A big nuclear deal worth a hundred billion dollars and Nhlanhla Nene saying we just don't have the money for it. And this allegedly has
caused quite a lot of tension within the political sphere. And it's said by all the analysts and economists that this basically smells of political
interfering, that the finance ministry was one of the well-run ministries, very respected globally and now it's basically lost all credibility. And
the truth of the matter is David Van Rooyen today had an opportunity to speak to the media. He did very little to allay fears in the investor
community.
[16:10:17]
QUEST: All right so in a word, is the new finance minister considering by the markets and by the financial community in Johannesburg to be competent?
GIOKOS: Right now, I think a lot of people are confused. Some of the messaging that I've received from economists and analysts saying he doesn't
seem very competent because he couldn't keep a mayor job when he had that a couple of years ago. He doesn't have a lot of clout within the finance
ministry. And not a lot of experience either.
So Richard, the gist of it right now, that incompetent definitely comes to mind. And I think it's telling when we look at how the markets have
responded.
QUEST: Elani, thank you very much, keep an eye on this please, come back and report more the moment that market reaction follows through.
A look at the market's overall. U.S. stocks bounced back, three straight days of losses.
(BEGIN VIDEO CLIP)
QUEST: And we get a nice bounce on the Dow. Up 82 points, best part of half a percent. As you can see.
In fact, the best of the day was just after luncheon, but it drifted off towards the close. Energy stocks led the rebound after days of being
hammered amid sinking commodity prices.
Across in London, Glencore shares were higher by some 7%. The mining firm has announced further plans to reduce its debt.
The German stocks ended flat even though Volkswagen shares jumped on the firm's investigation update.
(END VIDEO CLIP)
QUEST: When we come back, Argentina has a new President. We know that much. Now the policies have to be put into place.
(BEGIN VIDEO CLIP)
QUEST: We're going to discuss what those policies are and where was the former President at the swearing in of the new one? Its Quest Means
Business, good evening.
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(END VIDEO CLIP)
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QUEST: Argentina has a new President and hopefully, according to the markets, will lead the economy back from the brink of default.
(BEGIN VIDEO CLIP)
QUEST: Mauricio Macri was sworn in on Thursday. Somewhat surprisingly the outgoing President Christina Fernandez de Kirchner did not attend.
[16:15:00]
QUEST: The new President showed his dancing skills again. He seems to like dancing. He's vowed to slash the country's high inflation and increase
prosperity. The Central Bank Governor Alejandro Vanoli resigned on Wednesday so it looks like it's going to be a clean sweep. At least for the
President to actually make the changes that he seeks.
(END VIDEO CLIP)
QUEST: Alberto Ramos is Head of Latin American Research at Goldman Sachs joins me now. Good to see you sir.
ALBERTO RAMOS, HEAD LATIN AMERICAN RESEARCH, GOLDMAN SACHS: Good to see you.
QUEST: First of all so the new President -- the old President didn't go to the swearing in of the new President. A little bit unusual perhaps.
RAMOS: It is, but it shows you how polarized the country is politically and socially. And it also shows you know the difficulties that the new
administration will have to establish minimum governability conditions to implement the new policies that are needed to fix the economy.
QUEST: Now the new President almost from the get-go had said he was going to fire the Central Bank governor. So the Central Bank governor has fallen
before he was fired.
RAMOS: That's right, I mean, he wants his own people to implement his own economic vision which is quite different from the policies that were
implemented in the past that are bias towards (inaudible) and intervention so he needs - (inaudible) minister of finance and the Central Bank to
implement a new set of policies.
QUEST: Right, but does this politicize the Central Bank even more than it was already politicized?
Getting rid of - I mean you know one can't imagine Janet Yellen resigning just because the new President takes term over next year. She might not get
renewed but she wouldn't resign.
RAMOS: I mean the policies and the economic philosophies are so different, that it would be quite different to instill confidence with the same set of
factors that implemented a number of policies that he's trying to dismantle.
QUEST: So give me hard policies that he is going to implement that's different from last time. Because obviously he has to rein in a deficit. He
has to support the currency, he has to create an austerity. But he can't -- but in doing so, avoid driving the economy even further into a deeper
recession.
(BEGIN VIDEO CLIP)
RAMOS: That's right, that's the main challenge. He's inheriting a legacy of an economy with very large imbalances that need to be fixed. Inflation is
running at 25%. The economy's not growing. The budget is 7% monetized by the Central Bank. The Central Bank has no reserves. And still they need to
fix the issue with the holdouts. What can he do? He needs to re-value. You know the currency needs to move. The currency's way too overvalued.
(END VIDEO CLIP)
RAMOS: He needs to reduce the budget deficit. He needs to tighten fiscal and monetary policy. He needs to integrate Argentina into the international
capital markets.
QUEST: But where do you start? All right, so you start with the bigger thy neighbor devaluation of your currency. You start by raising interest rates
or you tighten the monetary policy. You start by cutting back. So de facto, Alberto you're going to have a long and deep further recession in Argentina
as this oil tank turns around.
RAMOS: It's quite possible but it's unavoidable. There is no other alternative to this, we have to deal with this legacy of imbalances. If you
don't deal with them today it's going to be a lot costlier later on from an economic standpoint, from a social standpoint to delay the adjustment that
the economy needs.
QUEST: And in a word, do you think having just elected him, the Argentinean people are prepared for the financial misery of austerity?
RAMOS: I think they have to. There is no alternative to it.
QUEST: That's the word. Thank you very much indeed, good to see you, thank you very much indeed.
Now, when we come back in just a moment, the chief executive of Qatar Airways joins me. Akbar El Baca is here, he'll be with me in the
(inaudible) Good to see you, sir, and we'll be discussing where Qatar stands.
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(END VIDEO CLIP)
(COMMERCIAL BREAK)
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[16:21:05]
QUEST: Qatar Airways has launched its new global campaign in New York.
(BEGIN VIDEO CLIP)
QUEST: The celebrations kicked off on Wednesday and here you have it. Qatar Airways became the first commercial airline to land an Airbus A-350 in the
United States. The A-350 of course is the new medium to long range aircraft from Airbus and Qatar airways is the first to do so.
The chief executive of Qatar Airways Akbar Al Baker is with me now. Chief, good to see you, sir.
AKBAR AL BAKER, CHIEF EXECUTIVE, QATAR AIRWAYS: Thank you.
QUEST: You have brought the 350 into the U.S. You are expanding Los Angeles, Atlanta, Boston, at a time when the U.S. Carriers are basically
still claiming the Gulf three are subsidized and it's not a level playing field.
Now without getting totally into the issues because we've talked about that quite a lot on this program, I mean, it's sort of rubbing salt into their
wounds, isn't it, when you expand in the U.S.?
AL BAKER: Not necessarily. We always had a plan to expand in the USA. That is the American three that have created all this dust into the air. We were
going to do this anyway. Our agreement between us and the United States allows us to expand and operate freely into the country and this is exactly
what we're doing.
QUEST: Have you had any indication from the U.S. side about how they're going to decide the Gulf Three versus the U.S. Three?
AL BAKER: No, we have done our filing. We have explained our position. And I think what I can see that this whole issue is losing steam. We are
waiting for the administration to come back and tell us what they want from us and we are going to fully cooperate with them.
QUEST: United Airlines has been the latest U.S. carrier to pull out from flying to the Gulf. This week it announced it was no longer going to fly
Washington to Dubai. Delta announced it was also pulling out from Dubai. And the reason they give is, we can't compete against subsidized airlines
who are now running to New York and Washington and, you know, increasing capacity on these routes.
AL BAKER: Actually, they are not withdrawing because they don't have business, they are withdrawing because no passengers of high quality want
to travel with them because they have such a hopeless product.
You know, when you compare their product with our product, we are head and shoulders above theirs. And this is what they are withdrawing. If you go to
see Delta and United with their old airplanes, with zero ownership cost, filling their airplanes with passengers, I find it very difficult to see
why they are not making money, unless it is to put pressure on the government because the government is imminently going to decide on this,
that they are withdrawing and it is not good for the Gulf carriers to come here.
QUEST: You're also being attacked by the E.U. and the E.U. is now of course looking into the whole question again. Do you think the E.U. is going to
make measures that the Americans will not?
AL BAKER: I don't think so. The E.U. will not go that way because, again, this whole issues that have been created is to support their (inaudible)
partners in Europe. This is a very well-coordinated fight against Gulf carriers between the European and the American carriers.
QUEST: Somebody is going to go for them though. Somebody -- there will be a chink in the armor eventually surely because there's a lot of anger in
Europe about this.
Al BAKER: With the public, there is no anger at all. The public want us there. They want us to compete and they want us really to raise the bar on
the product that the American carriers - sorry the European carriers are providing to them. And I don't think this will go too far. I don't think
the American -- sorry, I don't think that the British government, the Italian government and many other governments in the E.U. will support this
fight.
QUEST: We saw an example of the difference in aviation policy today. The British government delaying, once again, a decision on Heathrow. Said it
would be by the end of the year, now says it's not until the middle of next year. By then, you'd have built a new terminal and a new runway.
[16:25:09]
Al BAKER: Yes I know. This is, again, too much democracy sometimes. You know Heathrow requires the third runway very badly and I think it is in the
interest - in the economic interest and the public interest of the United Kingdom to allow the third runway.
QUEST: Right. And you're an investor of course in AIG, 10%, I think you own of AIG, therefore, you have an invested interest on a new runway at
Heathrow.
AL BAKER: Well, my interest --
QUEST: And you also -- I just remembered, you have an interest in Heathrow.
AL BAKER: Yes, but it is our interest both, in the interest of the economy and in our business interest for us to have a third runway so that not only
the airport will progress but also our investment in AIG will progress.
QUEST: We must turn to another issue. Donald Trump's comments saying at least on a temporary basis he would ban Muslims from traveling into the
United States. As a carrier from a Muslim country, what's your initial thoughts and reactions on that?
AL BAKER: I think his statements have been misplaced. He is not realizing what he is mentioning is detriment to his own interest in the election. At
the same time, he is trying to gain political mileage out of these statements.
He's also not realizing he has investments in Muslim countries and he will not be welcome there anymore. So I think what he's saying is not in the
best interests of the relationship between him and the Muslim world.
QUEST: Now you've quoted -- You're quoted as saying you know you've met him, he's been a friend of yours. But what are you hearing in countries
from other Muslim CEOs, from other people in region, about their sort of gut reaction on this?
(BEGIN VIDEO CLIP)
AL BAKER: I didn't have time to get reactions of other people but I can see the reaction of the Muslim.
(END VIDEO CLIP)
AL BAKER: I have taken offense to this, and especially when it is coming out from a friend of mine. I didn't expect him to be so naive to make such
statements.
QUEST: And as this political process continues throughout 2016, do you worry that this head of steam grows or it evaporates and we get back to
more normal politics?
AL BAKER: I think there will be a lot more important issues for him. You know he's already getting a lot of negative reaction from even very pro and
very right wing politicians. So I think it will die down eventually and people will think about more important issues now that is now facing the
United States.
QUEST: It's a nice new plane the 350. Thank you for coming on the program tonight. Good to see you, Sir.
AL BAKER: Thank you.
QUEST: Thank you very much. When we come back, we turn our attention in the second part of "Quest Means Business" to a commonwealth that is pretty
much bankrupt, that won't be able to pay the bills, and now is asking Washington for massive help. It's Puerto Rico and the Governor of Puerto
Rico is on Quest Means Business after the break.
(COMMERCIAL BREAK)
PAULA NEWTON, CNN INTERNATIONAL CORRESPONDENT: Hello, Richard Quest and there is more "Quest Means Business" in just a moment when the governor of
Puerto Rico tells me the island could face an humanitarian crisis without help from the United States.
And the head of IATA tells me some airports need a significant tightening up on security.
We'll have all that and more. Of course this is CNN and on this network the news always comes first.
Geneva in Switzerland is on high alert. A source is telling CNN security services are searching for five suspects who are related to the Paris
attacks.
Police are out in force and security at the U.N.'s headquarters in the city has been increased.
Donald Trump's postponed his trip to Israel a day after the Israeli Prime Minister Benjamin Netanyahu condemned Trump's calls to ban all Muslims from
the U.S.
The Republican presidential candidate says he will now meet Mr. Netanyahu if he becomes the U.S. president.
Speaking to CNN, Mr. Trump said his plan to ban all Muslims from the U.S. is more important than any of his business ventures and support of unnamed
figures in the Middle East.
(BEGIN VIDEOCLIP)
DONALD TRUMP, U.S. REPUBLICAN PRESIDENTIAL CANDIDATE: I'm doing good for the Muslims. What I'm doing now is far more important than any particular
business I have in the Middle East.
I'm doing a favor. I was just called by one of the most important people of the Middle East and just said to me, `Donald, you have done a tremendous
service to the Muslims' because we're making - nobody wants to talk about it.
Everybody wants to be so politically correct - oh, let everybody come in. We have a problem and the problem has to be solved.
UNIDENTIFIED CNN CORRESPONDENT: Yes.
TRUMP: And when that problem is solved, it's going to be a much happier world.
(END VIDEOCLIP)
QUEST: The national office of U.S. Muslim Group has been evacuated in Washington. The Council of American Islamic Relations said it received a
foreign substance in the mail.
The group says while it receives hate messages on a daily basis, it found the latest incident to be a frightening development.
The 2015 Nobel Peace Prize has been formally awarded to the Tunisian National Dialogue Quartet. (Inaudible) says the group won for its decisive
contribution to help build Tunisian democracy.
The quartet created a new process toward political peace when their nation was on the brink of civil war. The Nobel Committee says it hopes those
efforts will keep growing.
(BEGIN VIDEOCLIP)
KACI KULLMANN FIVE, CHAIR, NORWEGIAN NOBEL COMMITTEE 2015: We hope that this diploma will inspire the Quartet and all positive forces in Tunisia to
continue their shared search for peaceful forward-looking solutions around the negotiation table for the good of the nation.
(END VIDEOCLIP)
QUEST: The governor of Puerto Rico says the United States faces a humanitarian crisis under its own flag if Congress does not act soon.
Alejandro Garcia Padilla is in Washington where he met lawmakers and said his government is out of cash. Puerto Rico has at least $70 billion in
debts.
And I asked the governor if Puerto Rico would be able to make a crucial billion-dollar bond payment on the first day of next year.
(BEGIN VIDEOCLIP)
ALEJANDRO GARCIA PADILLA, GOVERNOR OF THE COMMONWEALTH OF PUERTO RICO: It will be very hard to do that payment. It will be almost impossible.
[16:35:01] And let me put this very clear - we are out of cash. We have been able to meet our creditors up to now through what Senator Blumenthal
very eloquently described as fiscal gymnastic.
There's no more tricks. We have been moving money from one pocket to the other just to put money together to pay. The January 1st and then the May
payment are humongous.
And, again, this will be a humanitarian crisis under the flag of the United States very soon if Congress do not act now. We need Congress to act and
to avoid this and it will cost zero to the United States.
It will be very, very, very hard, very difficult to find a way to do that payment on January 1st.
QUEST: Do you think lawmakers in Washington where you are now appreciate that? Or to use the saying do you think you're the boy - the governor if
you like - who's crying wolf?
PADILLA: Every day we add as we explained to them that this is mathematic, this is not politics, this is a real crisis and they can do something to
tackle this issue, to end this issue once and for all.
And Puerto Rico's is doing its part. We have been able to put together a five-year fiscal plan.
And we are probing the deals down there that allow that to happen. We are tackling the crime rate, we are tackling unemployment rate but we need this
because if not we will go back to the bottom again.
QUEST: There are now two proposals - two bills of different complexions, both from Republicans, one from House, one from Senate.
One gives you Chapter 9 and not much more financial assistance, the other gives you financial assistance but doesn't give you Chapter 9 bankruptcy.
So, between a rock - between the proverbial rock in a hard place, which of those two plans do you like if you only get those two?
PADILLA: We appreciate that for the lawmakers here are trying to - making and trying to help us, to give us the tools to address the fiscal crisis
that we are (inaudible) here in Puerto Rico.
But let me tell you, we need a bill that help us to tackle the problem, not to kick the can.
And both in Senate and the House, we really appreciate now that they - with those bills are showing that they are able to do something that for them is
important and they realize the importance and the urgency to address this.
But we need to take those bills as the beginning of our conversation.
QUEST: As I understand it, though, the Chapter 9 provision would not allow a restructuring of the vast majority of the debt that's got Puerto Rico
into problems -
PADILLA: You're right.
QUEST: So Chapter 9 on its own is not going to do it. What then can they offer you that will do it?
PADILLA: A new structure that allowed Puerto Rico to address the issue and to solve the issue. If we just kick the can then it will be painful, it
would create a humanitarian crisis in months.
This is something is very close in time.
(END VIDEOCLIP)
QUEST: That's the governor of Puerto Rico. After the break, the head of IATA, the airline association. Now the world's airlines are expected to
make money in 2015 and 16 - just not a lot of it.
We'll explain how much they are making and we'll look at the security issues facing global aviation.
Tony Tyler is after the break. "Quest Means Business" (RINGS BELL).
(COMMERCIAL BREAK)
[16:41:47] QUEST: This year the big three U.S. carriers have changed their air mile programs. They've all - American Airlines will do so early next
year and move from a mileage based-scheme to a revenue cost-based scheme - the amount you pay for the ticket depends on how many miles you get
The changes continue. American Airlines today announced a premium economy seats. That's just some of the changes that have dominated air travel in
2015.
(BEGIN VIDEOCLIP)
RANDY PETERSEN, FREQUENT FLYER GURU: You got some of the world's largest frequent flyer programs going to a revenue model. What's that mean?
The idea is that it is what it is. Do not buy a more expensive ticket to earn more miles. Repeat after me, do not buy a more expensive ticket to
earn more frequent flyer miles in 2015. Do not.
QUEST: Why not?
PETERSEN: Because you're flying into what the airlines want you to do. It's OK to earn fewer miles on a cheap ticket because interestingly enough
through all these changes, you'll still be able to find cheap awards out there.
QUEST: So you do expect the European carriers to move to a revenue-based model?
PETERSEN: I cross my heart and know that they will. And over the next two years you'll see start to tremble (ph) out throughout the rest of the
airline industry revenue-based frequent flyer programs.
QUEST: One year on, his words still rings true. American Airlines recently became the last of the big three U.S. carriers to move to the
revenue-based system.
To pull together the strands of travel trends we've looked at over the course of 2015, I visited the travel think tank, Skift where the co-founder
Jason Clampet is minding the data.
The idea of the revenue-based mileage earning came in. Have they been a success?
JASON CLAMPET, CO-FOUNDER, SKIFT: Forty percent of people it's benefiting are those who are doing high revenue tickets, business travel tickets,
short-haul flights - basically your business traveler who you want to be loyal.
About 15 percent it's kind of indifferent to and about 45 percent it hurts.
QUEST: Is this a trend that will continue to go global?
CLAMPET: We saw some of the first hints globally from international carriers. Cathay did things a few months ago, B.A. had done things, you
know, earlier in the year.
So it is kind of a ripple effect going back and forth in both directions.
QUEST: Lufthansa introduced a 16 euro charge for those using the global distribution systems - the main computers for reservations.
Nobody else followed.
CLAMPET: All the airlines have wanted to try this. They want to take control from the GDS's, they don't want to have to pay those distribution
fees.
They also have a feeling that if they control the passenger experience from the time of booking to being onboard to leaving, they can upsell them
better ways.
We're seeing though that Lufthansa isn't being completely silly about it. You know, they have a deal with Google.
So if you go through Google's booking engine, you're actually flying directly from Lufthansa and they waive the fee.
That's not something you'll see on Expedia or from a corporate travel agent.
(END VIDEOCLIP)
QUEST: Some of the changes that are taking place.
[16:45:00] Now the British government has delayed making a decision on the airport expansion of Heathrow until at least next summer.
The government has said it would decide by the end of this year on the recommendations of the Airport Commission on whether to expand Heathrow
with a third runway or add a second runway to Gatwick Airport.
Now the government says it needs more time to measure the environment concerns. Basically it's kick the can down to the middle of next year.
Business leaders are not happy. The chief executive of IHG which owns British Airways, Willie Walsh. Willie says, "To further delay a decision
shows that party politics takes precedence over what is the best for the economy."
When it comes to aviation, the International Air Transport Association, IATA, expects record net profits for airlines in 2016 despite recent terror
attacks in tourist destinations.
The reasons they're doing better -- lower fuel prices, better capacity maintenance and of course an increase in global economic growth.
But just look - they say that share profits will be about 5.1 percent. They say low oil prices help along with performances in the Eurozone.
But where is the money made? Well this is the forecast for the profit per passenger.
The United States still leading the world -- $21.44 per passenger expected to be made in the U.S. - or in North America. Europe comes in number two
at $8.80, Middle East $7.97 - that's the Gulf carriers, Asia very competitive at the moment and you can see those lower prices reflected in
the lower profits.
Africa, a loss of 93 cents for every passenger. I put all of these numbers to Tony Tyler, the director general of IATA and I asked him what on earth
to make of an industry where the profit is just 5 percent.
(BEGIN VIDEOCLIP)
TONY TYLER, DIRECTOR GENERAL, IATA: The U.S. industry has restructured significantly in recent years. The airlines have become much more
efficient, they're using their aircraft more, they're filling them better and they are - they've done a lot to get to grips with their cost base.
And we're seeing finally the results of that come through in some better financial results for the U.S. market in particular.
QUEST: If you take the U.S. as an example at say 100 percent of a structural change, how far more does the rest of the global industry have
to go, do you think?
TYLER: Well if you look at Europe, some of the airlines in Europe have restructured, gone through the pain already. Others are still going
through the pain.
If you look at the big three in Europe, it's true to say I think that IAG went through their pain a little bit earlier than the Air France-KLM group
and the Lufthansa group.
And of course other smaller airlines in Europe are still finding life very difficult.
The level of fuel prices though are helping everybody, giving having - buying time for everybody to do this kind of work and of course that is
exactly well along the carriers are now doing - restructure themselves, you know, mending the roof while the sun is shining.
QUEST: The security situation continues to be a serious worry. Obviously Metrojet raised - Metrojet raised issues and problems that we thought have
been put to rest, didn't we?
TYLER: Certainly, from all accounts, it was an explosive device but how that device got on board needs to be clearly identified and then considered
and measures certainly need to be taken.
There's no doubt in much of the world airports are very, very secure but there must exist and there do exist places where security needs to be
significantly tightened up.
That includes inside of security. So the screening and the management of the workforce at a lot of airports needs to be tightened up and no doubt
that is going to be one of the consequences of the - of this - outrage.
QUEST: Two areas that you looked at during the course of the year specifically. The first of course, continuing to fly over war zones.
Obviously issue was raised by MH17 but followed out obviously by events in Syria and other parts of the region.
And then there was also the report and the decisions following MH370 - the tracking of aircraft. Are you satisfied, Tony, that neither of those
events could happen again?
TYLER: It's important that governments recognize they have responsibilities here. The airlines are good at making risk management
decisions but they need the information to base it on.
[16:50:00] And the governments have a clear responsibility there. They need to live up to that responsibility and not trying to hide behind any
other institution like ICAO or anything else.
This is a government role very importantly.
(END VIDEOCLIP)
QUEST: Tony Tyler of IATA. As we continue our evening menu of business and economics, we have lobster. We're in Maine where businesses are
worried that climate change could put them in hot water.
Only after you've enjoyed a highlight as we "Make, Create, Innovate."
(COMMERCIAL BREAK)
QUEST: "Quest Means Business." Partly cloudy with a warm front that will lift on Friday. This is the live view of Maine that we have and the warmer
weather is posing a challenge to fisherman.
Just this week they were banned from catching shrimp for one more year with scientists warning stocks are in danger from higher temperatures.
As Claire Sebastian now found out, climate change is a formidable problem for a city already grappling with strict quotas and rules.
(BEGIN VIDEOCLIP)
CLAIRE SEBASTIAN, CNN PRODUCER: From the moment you enter Portland, it's clear life here revolves around fishing.
From the souvenir shops, to the restaurants, to the 200-year-old lighthouse standing guard over the harbor.
Well fishing towns like Portland are used to ups and downs. This says the mayor for the last four years, is a time of particular concern.
MICHAEL BRENNAN, FORMER PORTLAND, MAINE MAYOR: We've had a very strong lobster industry for a number of years and that continues to be the case.
I'm more worried about the recent research that is showing a (fact) of climate change on the Gulf of Maine and on the ground fish industry.
When the ground fish industry starts to be challenged, it has a ripple effect across the economy because we have restaurants, we have spas, we
have a fish exchange, we have all other parts of the economy that are affected by that.
SEBASTIAN: At Becky's Diner, a favorite breakfast spot for local fisherman, they're noticing the change.
KATIE (ph) MADISON (ph), MANAGER, BECKY'S DINER: We do still have the, you know, the really familiar folk that I recognize and the names I recognize
from when I was little. But a lot of the guys have moved along.
SEBASTIAN: Becky's is doing its part to support the community simply by being there, persevering like the fishermen themselves.
What time do you open?
MADISON (ph): Four a.m. Every morning at 4 a.m. That's the mentality that I think a lot of fishermen and other workers in the community have,
you know.
[16:55:08] Keep going no matter how many regulations and rules they put on you.
SEBASTIAN: The menu here has barely changed in 25 years and the haddock chowder is as popular as ever.
Half a mile along the waterfront top chef Sam Hayward who owns three upscale restaurants in Portland, is trying a different tack.
SAM HAYWARD, CHEF AND RESTAURANT OWNER: (Inaudible) this with our muscle until now.
SEBASTIAN: His chef de cuisine Nate Nadeau cooks up a new menu every day and the ingredients are carefully chosen.
Here in Portland, fine dining is not just about having the best ingredients with the finest cooking skills. It's also crucially important that what
you use is sustainable.
Today's oven-braised Gulf of Maine hake they hope fits that bill.
HAYWARD: It's relatively abundant or so the stock assessments tell us out in the Gulf of Maine and Georges Bank. I hope this kind of practice will
help preserve Portland's fishing industry.
As I say, these are our neighbors and friends so we're deeply concerned about the future of the fisheries in the Gulf of Maine.
SEBASTIAN: This is not just about safeguarding jobs or revenues. This is about preserving Portland's identity, something this entire community
depends on.
Claire Sebastian, CNN in Portland, Maine.
(END VIDEOCLIP)
QUEST: And we'll have a "Profitable Moment" after the break.
(COMMERCIAL BREAK)
QUEST: A very short "Profitable Moment" for you tonight because remember that's "Quest Means Business" for tonight.
I'm Richard Quest in New York. Whatever you're up to in the hours ahead, (RINGS BELL) I hope it's profitable. And we'll do it again tomorrow.
END
