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Quest Means Business
Egypt Calls in Reinforcements to Tighten Airport Security; Oil Prices Still Falling. Aired 4-5p ET
Aired December 22, 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, HOST: Bobs for dogs. Best friends ringing the closing bell in New York as trading comes to an end. The Dow Jones was up. It looks like
another triple day - a triple digit rise for the Dow Jones. And that's what you call a barking good gavel to bring trading to a close on Tuesday,
December the 22nd.
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QUEST: Tonight Egypt calls in reinforcements to tighten up airport security. I'll be speaking to the Egyptian Tourism Minister live on this
program.
A couple of down-to-earth billionaires, they may be. Elon Musk lands a rocket just like Jeff Bezos. And oil prices may still be falling and your
plane ticket, not so much.
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I'm Richard Quest. Tonight live from CNN London where, of course, I mean business.
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QUEST: Good evening. We begin tonight nearly two months on from the plane crash that killed hundreds of Russian tourists and Egypt is trying to
reassure the world it is safe to fly in and out of the country's airports.
(BEGIN VIDEO CLIP)
QUEST: The Egyptian government has had a British private consultancy called "Control Risks" to help boost security at the airports. The firm will
review Sharm el-Sheikh, the resort where the Metro Jet flight departed and also Cairo.
In the wake of the crash fears over securities saw countries suspend flights to Egypt. The Russian authorities believe the plane was brought
down by a bomb placed on board by ISIS. Egypt still denies the crash was the result of terrorism.
The country's Civil Aviation Minister said this announcement is about ensuring Egypt is up to international standards.
HOSSAM KAMAL: This type of audit is not something special for Egypt. And we have a lot of audits that happens all over the world and some international
airports. We'd like to know and we would like to be sure that the standards of safety levels at that airport is within the international standards. So
we are going on with the same process here in Egypt.
ANDREAS CARLETON-SMITH, CONTROL RISKS CEO MIDDLE EAST AND NORTH AFRICA. Airports in Egypt have the potential to be of a very high standard. And
tourists should take comfort in the fact that international experts in the form of control risks and other international governments have taken a keen
eye at the security of all these airports and made a long list of recommendations which should be carried out.
(END VIDEO CLIP)
QUEST: In the past two months, international confidence in the country's airports and its safety has deteriorated. U.K. airlines are no longer
flying to Sharm el Sheikh, the British government advises only to travel by air there if it is essential.
And the response in Russia has been even more severe. All flights to Egypt have been suspended and the Russians are advised to stay away from the
country. It's serious and it has economic implications.
Tourism makes up 13% of the Egyptian economy. And Russia and Britain are two of the largest most significant markets. The country's tourism minister
says the fallout for security is costing Egypt more than a quarter of a billion dollars every month.
The minister joins me now from Cairo. Hisham Zaazou joins me. Minister, we -- this -- we've been told that the airports maintained international
standards. So if that is the case, why the necessity for this review, why the necessity to bring control risks?
HISHAM ZAAZOU, EGYPTIAN TOURISM MINISTER: Richard, two things. First is we aspire to change that crisis into an opportunity.
(BEGIN VIDEO CLIP)
ZAAZOU: And we seek the golden standards in airport security. And hence having a third party that has an international name can create that kind of
confidence for everybody and for all of our stake holders in that respect. So that's the reason behind that decision.
(END VIDEO CLIP)
QUEST: What are you expecting or hoping that Control Risks is going to tell you?
ZAAZOU: Well, Control Risks will assess, will review, will monitor, will give advice about equipment, about the training of the personnel at the
airport.
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ZAAZOU: And we are adamant to follow every advice that can put us ahead of the curve. Particularly, Richard, in the wake of the international people
are now suffering from a surge in the threats, level of threats around what had happened in Paris, what happened in California and other parts. We
believe we need to be ahead of that curve. And comfort -- and create the confidence level for our consumers, for people that ware working with
Egypt, for our tourists that are coming in so that we ensure the flow to come back as soon as possible.
[16:05:31]
(END VIDEO CLIP)
QUEST: The Metro Jet catastrophe, there is a straightforward disagreement or confusion at the moment. On November the 15th the head of the FSB, the
Russian intelligence agency, tells President Putin they have found traces of explosives from inside the cabin. The preliminary report from the
Egyptian Civil Aviation Authority makes no mention of that and says there's no evidence of terrorism. Which is it, sir?
(BEGIN VIDEO CLIP)
ZAAZOU: No, I think it's more of a confusion. We understand very much the Russian position. The investigation team is an independent team. It's not a
governmental team in that respect. They are moving down the road of this investigation on a technical basis. We are welcoming and we're open to all
scenarios, that's what I understood.
The team has opened -- the investigation team is open for any scenarios. And they are awaiting that anybody would supply them with any evidence if
this evidence is reached by the investigation team. And the credible evidence is there, I believe they mentioned they would put the file to a
close and move it from the technical investigation into a criminal one.
(END VIDEO CLIP)
QUEST: So when we met - when you and I met in London at World Travel Mart, you were very clear about the fact that wherever this investigation goes,
so be it. Is that still the feeling in the higher levels of the Egyptian government? And that if there is unpleasantness because you have to face a
terrorist activity, then frankly, sir, so be it. Is that still the view?
ZAAZOU: 100%, Richard. I reiterate that position of our government.
(BEGIN VIDEO CLIP)
ZAAZOU: We are transparent. We are serious. Whatever comes out of it, we will definitely declare that and we can take whatever comes out of it. We
are very adamant to be very transparent about it in that respect. We'll not be ashamed. We will deal with whatever consequence comes out of that.
(END VIDEO CLIP)
ZAAZOU: And the proof of that is today's announcement of hiring a third party, an international company, international name that is credible enough
for us to move down that road comfortably, to create that kind of confidence level for the whole world that is with Egypt.
QUEST: As we come to an end here, sir, just tell me how badly are you now seeing the effects in the tourism industry? I know before this atrocity you
were looking to almost record numbers of tourism. The Red Sea Resort is your jewel in terms of the beach resorts. So how bad is it?
ZAAZOU: It is quite devastating, Richard. I think we were hardly hit. Sharm el Sheikh received 66% of its business from both the Russian and the U.K.
markets. We lost both markets so it was quite a big blow in that sense.
In terms of the direct losses, it was in the tune of about $280 million U.S. per month. That was the calculation that we did. We're now in the
second month after the crash and that is the kind of loss level that we are suffering.
QUEST: Minister, thank you for joining us. We'll talk more about this, of course, both in happier times when there is good news to report on your
tourism industry. Thank you for joining us from Cairo. Wishing you the season's greetings for the year. Thank you, sir.
Now, we take a look. You'll see it's not just Egypt. This security issue is now being felt across the region.
Particularly if we go north and we cross the border up to Bethlehem, what should be one of the busiest times of the year for tourists is being marred
by clashes between Israelis and Palestinians.
Travel warnings are in place for the region. Locals say Europeans and Americans are staying away. Our correspondent is Oren Liebermann who sent
us this dispatch from Bethlehem.
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[16:10:10]
OREN LIEBERMANN, CNN CORRESPONDENT: Christmas is days away in Bethlehem. The holiday decorations ready in Mangers square. Yet all the action is down
the road. Clashes, once again between Palestinian protestors and Israeli security forces. A near daily occurrence for the last three months.
Now Christmas is caught in the middle. The clashes, the tension hitting the tourism industry at a critical time. Elias Saleh Mchel's gift shop right on
Mangers square, a prime spot for tourists is empty. He is left cleaning up the remnants of a dismal end to the year.
ELIAS SALEH MCHEL, SHOP OWNER: You imagine (inaudible) how this Mangers Square by yourself. Please, you look. Show me group coming. Show me family
coming to the Square.
LIEBERMANN: His family has owned this gift shop since 1818. He says this is one of the hardest years he can remember. Sales are down 80% from last
year. A factory that makes the olivewood crafts so popular during the season has had to cut back on hours because of slumping sales and may have
to cut back on working days.
MCHEL: I don't have any Americans or any European person to my store. I didn't make $10 for a week, can you believe that?
LIEBERMANN: Because of the tension and the clashes, the U.S. issued a travel warning last week to the region. It was another blow to an already
sagging tourism industry. It's just a couple days before Christmas here in Manger Square and there should be hundred ifs not thousands of tourists
making this holiday pilgrimage. Instead, take a look around. There's almost nobody here.
Tour guides stand around the church of the nativity waiting for business, but no one here is particularly hopeful.
HISHAM (Inaudible) TOUR GUIDE: Totally bad, we have no tourists to work. We are working - we are coming here to spend time only to talk and to see each
other. Otherwise we have stay at home without work at all.
LIEBERMANN: There is little anyone can do at this point to change the situation in time for Christmas. But hope, hope that next year will bring a
rebirth of tourism.
Oren Liebermann, CNN, Bethlehem.
(END VIDEO CLIP)
QUEST: Another potential outbreak of E-coli is testing the loyalty of Chipotle customers.
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QUEST: And as for Wall Street, investors may already be looking elsewhere for their quick Mexican food fix. It's "Quest Means Business" from London.
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[16:15:04]
QUEST: The Dow has closed up 1%. A gain of 165. Another triple digit move. That is very much the norm. Out of the gate it was up and it never really
looked back. The fate of Wall Street's been closely tied to oil prices of late. And crude has finally stabilized. It actually rose just a percent or
so. Energy stocks rallied and energy stocks, of course, are a major part of the Dow and the Dow rose accordingly.
Not at the best of the day, but not bad. Bearing in mind trading will be extremely thin this week, it being the Christmas holiday week. An important
economic bit of data. U.S. growth in Q 3 was revised downwards just to 2%. It means the economy is likely to fail to hit the 3% growth for the tenth
straight year.
E. Coli fears are back at Chipotle. The Centers for Disease Control in the United States says it's investigating a new rare strain of the bacteria at
the Mexican food chain.
(BEGIN VIDEO CLIP)
QUEST: Wall Street is getting sick only in terms of the stock. Went under $500 a share. It's down 34% from the all-time high in August. And a loss of
some 5% which gives you an idea. But if you see -- if you wanted to know the size and scale of the problem that they are facing, take a look at the
map. And you can see they've had E. Coli in the northwest. They've had Norovirus. Chipotle is trying to recover from outbreaks. An older E. Coli
problem has spread to restaurants in nine states.
Tomatoes have been identified as the culprit after 64 customers were infected with salmonella in Minnesota. And dozens of university were
exposed to Norovirus after eating at Chipotle over in Boston. You get an idea that you've got the salmonella, you've got the Norovirus. All in all,
it's a rather sorry state for the company.
Paul La Monica is in New York and joins me now.
(END VIDEO CLIP)
QUEST: This latest outbreak, the company says, Paul, that it's to some extent further sickness was to be expected. But I didn't quite understand
why.
PAUL LA MONICA, CNN MONEY DIGITAL CORRESPONDENT: Well, I think that what Chipotle has been saying all along is it's going to take some time for the
CDC to identify all the cases related to that original outbreak. To that end, the CDC said yesterday there was one additional case tied to the late
October outbreaks.
(BEGIN VIDEO CLIP)
LA MONICA: Now you've got 53. What's scary here is that the CDC is investigating a potentially different strain in three other states that has
affected only five people so far. But the fact it's a different strain potentially is what really has Wall Street spooked. It does speak to the
problem here that probably this may not be just one ingredient or even one supplier. It could be several and really Wall Street is very sick as you
pointed out of this being a problem that just isn't going away.
(END VIDEO CLIP)
QUEST: You're left with a conclusion either it's extremely bad luck or they have a very serious health issue in terms of their cleanliness and hygiene.
Which is it, do you think?
LA MONICA: I think it probably is a case of bad luck in some respects. I mean, the Norovirus, that's something that is happening all the time.
(BEGIN VIDEO CLIP)
LA MONICA: Well not all the time, but you hear about it every now and then on cruise ships and other public places. That definitely seemed to be just
an ugly coincidence.
The E. Coli outbreak, what's really scary is that no one know, the CDC, Chipotle, they don't know what the cause is just yet. And as it keeps
expanding to more and more states, you have to wonder even the die-hard loyal burrito bowl loving customers of Chipotle, they're probably going to
stay away. And the company has admitted as much already. They said sales are going to plunge in the fourth quarter.
(END VIDEO CLIP)
QUEST: Paul La Monica will probably not be having Chipotle for his seasonal festive greetings lunch.
LA MONICA: Feast of seven fishes for me on Thursday, Richard.
QUEST: A feast of seven fishes. There we are. Paul La Monica, we wish you well.
LA MONICA: Thank you, sir.
QUEST: Thank you.
When we come back, they are still attempting to find just how many people were caught in the landslide in Shenzhen.
(BEGIN VIDEO CLIP)
QUEST: The death toll rises. People are still trying to find loved ones. And the reasoning behind the landfall, the (inaudible) but they're behind
from basically overbuilding. In a moment.
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[16:22:14]
QUEST: Rescue crews in China are still desperately trying to reach survivors. 2 days after a massive landslide swept through an industrial
park in the southern city of Shenzhen. Chinese state television says the likelihood of finding survivors is growing more remote.
(BEGIN VIDEO CLIP)
QUEST: Hours ago crews they pulled out the first body from the rubble. 76 people remain missing. The officials say the disaster happened when a huge
pile of construction waste from an over-full dump site collapsed and it buried 33 buildings.
SHEN WENYUAN, CHIEF OF STAFF, SHENZHEN FIRE DEPARTMENT: (As translated) First we need to locate the constructions to draw out the positions where
the constructions collapsed. Secondly, search for vital signals. Use sniffer dogs and light sensors to accurately search for lives. Thirdly,
rescuers and machinery are adopted to excavate and dismantle to search for lives.
(END VIDEO CLIP)
QUEST: That is the practicality of what has to be done. Of course the reality is trying to save lives, trying to find loved ones, and trying to
rescue or at least recover bodies.
CNN's Matt Rivers spoke to a 6-year-old boy who's waiting for news about his parents.
(BEGIN VIDEO CLIP)
MATT RIVERS, CNN CORRESPONDENT: The landslide was incredibly sudden striking with tremendous power. It toppled buildings and swallowed dozens
of people inside. Days later, only a handful of people have been rescued.
Hong Li-Bao's parents are amongst those still trapped. 6 years old he stoically wipes away quiet tears. For now his aunt and 16-year-old brother
are looking after him. They all went to the scene on Monday.
UNIDENTIFIED FEMALE: (As translated) When I asked him to leave, he simply wouldn't go. He said even if someone gave him all the money in the world,
all he'd want are his parents.
RIVERS: Chinese state media said it was a 20-story pile of earth and construction debris that collapsed. But as rescue crews continue their
difficult work searching through rubble more than ten meters high, the looming question, who is at fault for all of this.
State media reports have placed blame on both poor construction management and a lack of usable dump sites in the area. But this is just the latest
deadly accident in China this year. On New Year's eve, 36 people died in a stampede in Shanghai. Officials later admitted they weren't prepared to
handle the crowds. In June, more than 430 people drowned after a river boat sailed into a storm. And in August there was this. A massive chemical
explosion in the port city of Tianjin after authorities say a company illegally stored combustible chemicals in a residential area, more than 160
people died.
[16:25:10]
And now this, a manmade landslide. It's not clear yet if it could have been prevented. But people in Shenzhen did report problems to local authorities
according to state media. The pain of this disaster clear on the faces of these two brothers potentially orphaned.
UNIDENTIFIED MALE: I simply cannot accept this is true. We are not prepared for this.
RIVERS: From his little brother, simpler words. I just want my parents back, (Li-Bao) says. But as the hours and days go by the chances of a
reunion grow faint.
Matt Rivers, CNN, Shenzhen, China.
(END VIDEO CLIP)
QUEST: We'll have more Quest Means Business in a moment.
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QUEST: Hello. I'm Richard Quest. Of course there's more "Quest Means Business" in a moment. But one of the founders of Skype shows us his vision
for the future of online delivery. And the Chief Executive of HBO reveals how his channel will survive the streaming revolution.
This is CNN. On the network where the news always comes first.
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QUEST: New video from Iraqi state television shows government troops on the offensive against ISIS in the strategic city of Ramadi. They're trying to
retake the center of the city where officials say ISIS is using civilians as human shields.
Afghan forces are struggling to hold back a Taliban assault in southern Helmand province. A police official says the militants have taken over most
of Sangin District which is on a key supply route to the parts of the Province. The United Kingdom has sent a small contingent of troops to the
area as advisers.
More than a million migrants have now entered Europe in 2015. The refugee agencies say the vast majority of them have made the dangerous journey by
sea.
At a meeting with his Lebanese counterpart in Beirut, the Italian Prime Minister Matteo Renzi warned leaders could not afford to ignore this
crisis.
(BEGIN VIDEOCLIP)
MATTEO RENZI, ITALIAN PRIME MINISTER, VIA INTERPRETER: To put the matter into perspective, a country such as Lebanon which is 15 times smaller than
Italy, is hosting a number of refugees ten times higher than the number of Italy is hosting.
We shouldn't pretend that this isn't happening. We have to work more and better to resolve the problem for the root of its cause.
We need to create in Syria and Africa, from Eritrea to other countries at risk, the right conditions to overcome this extraordinary crisis that we
are going through.
(END VIDEOCLIP)
QUEST: Egypt trying to assure the world it's safe to travel there after two months after the crash of the Metrojet flight 9268.
The Egyptian government's hired a British private consultancy known as Control Risks to help boost security in its airports.
Speaking to me a few moments ago the Egyptian tourism minister said this move was proof of the government's commitment to be clear and candid.
(BEGIN VIDEOCLIP)
HISHAM ZAZOU, EGYPTIAN TOURISM MINISTER: We are transparent, we are serious. Whatever comes out of it, we will definitely declare that and we
can take whatever comes out of it.
We are very adamant to be very transparent about it in that respect. We'll not be ashamed, we will deal with whatever consequences comes out of that.
(END VIDEOCLIP)
QUEST: A small coastal town in Southern Spain is celebrating a life- changing victory. These are the residents from Roquetas de Mar, and not surprisingly they're celebrating.
They have won $700 million in Spain's giant lottery at this time of the year. The lottery of course is known as "El Gordo."
(BEGIN VIDEOCLIP)
(CHILDREN SINGING)
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QUEST: It's the top prize in the annual Christmas drawing . It will pay out a total of $2.5 billion in prize money across Spain.
If at first you don't succeed, try, try, try again. You know the idea. Well if you keep trying long enough, (RINGS BELL) this happens.
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(CHEERS)
(ROCKET LANDING)
ANNOUNCER: (Inaudible) has landed. Landing operators do procedure (ph) -
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QUEST: Elan Musk's SpaceX finally guided a reusable rocket safely back to earth after Monday's liftoff. It comes following three failed attempts.
The ability to recycle was a big step forward in making space travel cheaper. Musk tweeted stunning pictures of the landing whilst Amazon chief
Jeff Bezos who has his own recyclable craft responded with a slightly scarred caustic tweet.
His Blue Origins rocket managed to land last month. Only his fifth tweet ever. "Welcome to the club," he said.
CNN's aviation analyst is Miles O'Brien. He joins me via Skype from Florida.
Miles, I watched it, it's a tremendous achievement. But now of course they have to be able to repeat it and do so multiple times.
MILES O'BRIEN, CNN AVIATION ANALYST: That is where the devil lies of course, Richard. Reusability is the holy grail of space.
NASA wanted to do it with the space shuttle - never got close to any sort of cost savings with a million separate parts and only partially reusable.
In this case, a fully intact first stage landing gently without having to be fished out of the water, repacked, refurbished has the potential - the
potential - to offer great cost savings.
But you have to start thinking more like Henry Ford and the assembly line than NASA.
QUEST: Now, when I watch it, and it is a sort of Heath Robinson type of approach the way this thing comes down, the legs come out, the thing lands
and stands.
Why not just put parachutes on it so that it does a gentle sort of drifting down landing? Wouldn't that just be easier?
[16:35:08] O'BRIEN: Well, a lot of it is about precision and a lot about it is about a nice, gentle landing.
Even with parachutes, you still need retro rockets to retard the impact of landing on the ground or in the water.
And so what this does is it preserves the merchandise as it were a lot better than you would if you just used parachutes.
And ultimately this is an idea that we need to master if we're ever really going to get serious about going to Mars for example.
Last I checked, Richard, no runways, no airports on Mars.
QUEST: Now, I think you're right and I haven't seen any - I haven't any plans to build any either.
But, Miles, between Musk and Bezos, who's leading this race. And from your knowledge of it, is it - is their rivalry good natured or is there - are
they sort of jibing at each other in a rather acidic way?
O'BRIEN: I think it's as good-natured as it can be among Type A billionaires. You know, it's interesting how Jeff Bezos, he's been on
Twitter for one month, five tweets. He's already learned how to troll. He is a quick learner for sure.
I do think they are a little bit apple and orange. Elon Musk has been going at this for a longer period of time and is flying to low earth orbit.
Takes about eight times the energy to get to low earth orbit compared to a suborbital flight which is what Jeff Bezos and Blue Origin have done so
far.
Not to minimize his accomplishment a month ago, he did in fact land a craft in a vertical manner in the same way. Less altitude, smaller craft, but
still not an easy accomplishment. It's like balancing a broom pole on your nose.
QUEST: Which I'd pay good money to watch you attempt to do -
O'BRIEN: (LAUGHTER).
QUEST: -- for charity. But finally, Miles, NASA - I could already feel a viewer about to join in and say, `All right, put the money up, Quest.' But
NASA - where does NASA sit in all of this?
Because the sort of thing that both SpaceX and Blue Origin and to some extent Virgin Galactic are doing, they're doing the yeoman-like work that
NASA used to do.
Where does NASA rest in all of these different organizations?
O'BRIEN: You hit on the exact point. NASA has done its best and has done a pretty good job of stepping out of the business of going to low earth
orbit and below.
We solved that problem - that's not where our space agency should be. By stepping out, they've allowed some rather audacious billionaires to get
into the business and see if they can actually make a run at making some money doing this, and that's the way it should be.
In do so in theory, this frees up time, resources, energy from NASA to do what it should do which is push the envelope beyond the horizon and go to
Mars.
Right now we don't have the funding at NASA to do that but we should keep pushing them at - in that - direction.
And getting them out of the business of low earth orbit is a big part of it.
(END VIDEOCLIP)
QUEST: From Vero Beach in Florida, Miles O'Brien. Have a lovely holiday weekend, Miles. Thank you.
Now, if SpaceX hopes to make regular cargo deliveries at the International Space Station, here on earth deliveries are getting their own technological
overhaul.
Samuel Burke shows us how robots are now replacing the humble shopping trolley.
(BEGIN VIDEOCLIP)
SAMUEL BURKE, CNN BUSINESS CORRESPONDENT: The last mile of delivery is the most expensive, so companies around the world are working to make that
final stretch more efficient and faster.
They're experimenting with drones, drivers and now - pardon me - self- driving robots.
AHTI HENLA, CEO, STARSHIP TECHNOLOGIES: it's the most expensive because there is this huge van that is starting and stopping and the driver's
getting on and off and knocking on doors.
And that takes time and that's something that the driver needs to do for every parcel.
BURKE: Home grocery delivery services like Fresh Direct and Amazon Fresh are convenient, but they're not always cheap.
Amazon's membership costs $300 a year. Now, one of Skype founders believes he can bring those costs down with self-driving robots.
What does it have in it different from the cart that I use to get my groceries?
HENLA: Well, the cart doesn't have nine cameras, but our robot does and it's six-wheel drive so it has motors - electric motors - and varied other
sensors.
The robot is observing pedestrians. The robot is navigating on the sidewalk and it needs to be aware of its surroundings.
BURKE: And how does it get from the warehouse to the person's housing? Using Google Maps?
HENLA: We are doing our own mapping actually because the maps that our robots need are quite special. They are more sidewalk maps than the road
maps.
[16:40:07] BURKE: The road map's for a car, --
HENLA: Exactly -
BURKE: -- (inaudible) is on the sidewalk.
HENLA: Exactly.
BURKE: Excuse me, sir, can you help me? I'm trying to steal a robot.
Theft deterrents include onboard cameras and GPS tracking. In worst-case scenario, Henla says each unit just isn't that valuable.
HENLA: The most expensive part in the robot is about $40 and that's actually the whole point of it. It has to be a low-cost machine, otherwise
the economics doesn't work.
BURKE: And he says your groceries are safe as well.
HENLA: You get a notification in your smartphone when the robot arrives, and then you push a button on your smartphone, then the lock opens.
(END VIDEOCLIP)
QUEST: (LAUGHTER). When we come back, the drive to the airport will cost you less in fuel this season. The airfare on the plane apparently not.
Oil prices may be falling, so why aren't airline tickets also going down?
(COMMERCIAL BREAK)
QUEST: Oil prices took a pause on Tuesday, a day after they hit an 11-year low. Crude and global oil prices came together at around $36 a barrel.
Now oil prices are still at multi-year lows. Of course you'll have noticed that at the petrol pump or on your heating bill where there seems to be a
direct correlation between what's happening in the markets and what you pay at the pump and to stay warm.
However, at the travel agent's office and at the airline ticket office and the ticket desk, it seems to be extremely uncoordinated.
Airline fuel expenses have tumbled year over year but ticket prices haven't kept pace.
Look at the average airline fare is down 14 percent but fuel expenses are down some 20 percent.
And bear in mind that fuel makes up roughly 30 to 35 percent of an airline's cost base. The mismatch is forecast to be even more extreme next
year. It's driving airline profits to the highest levels in decades.
Tony Tyler is the director general of IATA and told me airlines are putting the windfall to good use.
(BEGIN VIDEOCLIP)
[16:45:04] TONY TYLER, DIRECTOR GENERAL, IATA: The lower fuel prices though are helping everybody giving - having - buying time for everybody to
do this kind of work and of course that is exactly what a lot of the carriers are now doing - restructuring themselves, you know, mending the
roof while the sun is shining.
(END VIDEOCLIP)
QUEST: If they're mending the roof while the sun is shining, let's look at some of the things that they're doing it with. First of all, why haven't
prices fallen as far? Hedging. Many airline - there are three key reasons.
Airlines are locked into contracts to buy fuel at old, higher prices. These so-called hedges still have some years to run off.
Now, this year most hedges should have been unwound and we should start to see that going through. But the hedging argument is still valid.
The next is demand, not costs are driving prices. The number of flights of course has been reduced, planes have got smaller and the aircraft are now
flying full.
It's simple supply and demand, particularly at this time of the year. If you want to cross the Atlantic in business class in January, expect to pay
an arm and a leg.
And finally, investments. Investments in plane and infrastructure. It was badly delayed during the recession. Now many airlines have spent money.
They're buying the 787 Dreamliners, the 350s from Airbus, and the airports have also invested in new terminals and runways and infrastructure which of
course boosts landing costs and en route charges.
Take the three reasons together and you see why, perhaps unfairly, we're not gaining the benefit. Simon Calder is the travel editor with "The
Independent" and I asked him what consumers will need to see will be productions and reductions coming soon.
(BEGIN VIDEOCLIP)
SIMON CALDER, TRAVEL EDITOR, THE INDEPENDENT: If you're an airline and your hedge positions have not unwound by now, certainly by spring 2016,
then you've been doing something really quite seriously wrong.
What we see of course for the last year or two is many of the airlines, particularly I must say the budget carriers in Europe pay far more than the
spot price for fuel, those hedge positions have now unwound and they should be really reaping the benefit or indeed their passengers should be.
QUEST: And that's really the nub of it, isn't it? Because we can accept that they were all caught on the wrong side of the hedge, however once the
hedge unwinds, the fear is it'll go to the bottom line rather than to cutting prices. Or maybe a bit to cutting prices -
CALDER: Yes.
QUEST: -- but mainly to investors.
CALDER: Well as you know, the price of any airline ticket is what the airline thinks they can get from your wallet on the day for that particular
seat on that particular flight.
And guess what? Going across the Atlantic, there's been a lot of discipline on capacity for once. Which means that you are simply seeing
lots more people chasing basically the same number of seats and that has sent prices sky high.
And so therefore, yes, at a time when the airlines costs are doing a very nice kind of gentle reduction, you and I are paying more than we've ever
done to cross the Atlantic.
However, that is going to improve because what tends to happen is that once fuel prices get low enough, you do automatically get an increase in
capacity because, guess what?
People will think, `Hang on, that old 757 we've got or that 20-year-old 777.'
They might not be very efficient, but these days it doesn't matter. They cost us effectively nothing to operate. We'll put those into the market.
QUEST: And are we going to see that happen?
CALDER: It is happening already. If you look, for example, at Aer Lingus, you know, not known for great innovation.
This airline is from next year launching a route which I never thought I'd see - it goes from Hartford, Connecticut to Dublin. And they're doing that
with a chartered-in 757. They think that they can make a decent amount of money flying to New England and -
QUEST: Boston.
CALDER: -- back to Ireland.
(END VIDEOCLIP)
QUEST: That's Simon Calder of "The Independent."
Winter is coming for cable. HBO is one of the originals of the industry and the home of the "Game of Thrones" knows it must adapt or lose.
We'll talk about that after you have had a moment to "Make, Create, Innovate."
(COMMERCIAL BREAK)
[16:52:06] QUEST: When you play the "Game of Thrones," you win or you die. HBO knows the U.S. media landscape is becoming as dangerous as Westeros,
the world portrayed on the show.
Viewers are cancelling their cable subscriptions and streaming rivals are circling. They're waiting to move in for the kill on streaming.
As Brian Stelter now explains, HBO must adapt or be overrun.
(BEGIN VIDEOCLIP)
NICK RIEDELL, YOUTUBE USER, THE BROTHERS RIEDELL: Streaming video is going to be, I think, the forefront for a long time.
KERRY TRAINOR, CEO, VIMEO: Whether it's coming through your television, whether it's coming through your laptop or it's ultimately coming through
your phone, all video is ultimately going to be stream (inaudible).
JENNI KONNER, EXECUTIVE PRODUCER AND DIRECTOR, "GIRLS": I just want everything to be available to me immediately the second I want to see it.
STELTER: There's a big threat to the cable TV bundle - streaming. Companies like Netflix, Hulu and Amazon are changing the way we watch TV,
giving us more options than ever while cable has taken a hit for the first time ever -- all together losing half a million customers this spring.
Everything must be just a click away. So the giants of old media have to adapt.
The question is exactly how they should keep up with this rapidly-expanding and hugely popular shift in media.
Take HBO, it's been on cable boxes for over 40 years. But instead of holding on to its old model, shaking things up and becoming the first
staple of cable to offer all its programming on online subscriptions - no cable box needed.
RICHARD PLEPLER, CEO, HBO: I think this is the most exciting reflection point in the modern history of HBO.
STELTER: And this is history in the making. We're on the set of HBO's new show "Vinyl." It's a drama about the music business in the 1970s.
It's the kind of program that HBO CEO Richard Plepler needs to be a success both online and on cable. But he says the two businesses do not have to be
mutually exclusive.
PLEPLER: There was an implicit criticism that we were going to cannibalize our core business. Less than 1 percent of our core business has left to
get HBO as a stand-alone (ph) streaming service.
STELTER: HBO and CNN are both owned by the same company, Time Warner. The company doesn't release the number of subscribers HBO has in the U.S. but
analysts estimate around 30 million subscribe via cable and now close to 1 million subscribe online.
Combined, that's still a smaller number than Netflix's 40-plus million in the U.S.
And making the competition in even stiffer, HBO now costs twice as much.
How do you justify that more expensive cost?
PLEPLER: We think it's a premium product. We have four Hollywood studios, we have, you know, 3,000 hours of library programming. We think that's
more than a fair price. It's a movie ticket and a bucket of popcorn.
STELTER: Are we at the point where HBO is a streaming service, an on- demand service that happens to have a linear television network?
PLEPLER: No, no, no. As we say, it's multilateral. People are enjoying the network in myriad different ways.
We just want to give them the flexibility to do so however they want, whenever they want.
[16:55:05] STELTER: HBO's high-quality brand is supposed to be a signal to subscribers in 2015, just as it was in 1995. But you're going to enjoy
this hour of TV whether you're streaming it or watching it through your cable box.
PLEPLER: It's a very exciting time for people who make their own great content. We have more people lined up at our door and more talent lined up
at our door who want to work with us than ever before and networks (inaudible) other than that I think is great, great content.
(END VIDEOCLIP)
QUEST: Brian Stelter, HBO, part of Time Warner, parent company of this network. We'll have a "Profitable Moment after the break (RINGS BELL).
(COMMERCIAL BREAK)
QUEST: Tonight's "Profitable Moment." The numbers show the story - fuel prices down 20 percent, airline tickets just down about 15 percent. And
that's the way it's been over the last two years.
Ticket prices not falling as far or as fast as fuel. Anybody who expected some purely mechanicalistic relationship between fuel prices and airline
fares were simply deluding themselves.
Airline have made almost no money in percentage terms and return on capital for many years and they are going to take the opportunity of repairing
their balance sheet.
Oh there will be reductions on certain tickets, but if you want to fly somewhere popular at the height of the season, do not expect to get a
bargain.
That's what capitalism is all about. It's call the law of supply and demand - get used to it.
And that's "Quest Means Business" for tonight. I'm Richard Quest in London. Whatever you're up to in the hours ahead, (RINGS BELL) I hope it's
profitable.
We'll do it all again tomorrow.
END
