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Quest Means Business
The President And The Democrats Appear To Have Not Brought Much Progress On Ending The Government Shutdown; Speaking On A Panel Alongside Two Of His Predecessors, The Fed Chair, Jerome Powell Says Policy Makers Are Listening To The Market; German Lawmakers, The Phone Numbers And The Credit Card Details, They Were Published On Twitter, Even Angela Merkel Is Said To Be Affected By This; Three Former Credit Suisse Bankers Have Been Charged For Their Alleged Role In The $2 Billion Fraud; Trump Calls Meeting with Congressional Leaders "Productive"; Markets Soar After Fed Chair Signals Patience on Rate Hikes; U.S. Man Detained in Russia is Also a Canadian, U.K. and Irish National; Aviation Industry Remembers Herb Kelleher; Herb Kelleher, Pioneer of Low-Cost Airlines Dies at 87; Dow Set for Historic Daily Point Gain; A New Study Shows CEO Pay Already Tops U.K. Average Salary in 2019; Kevin Hart Having Second Thoughts About Oscars Job. Aired: 3-4p ET
Aired January 04, 2019 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(END OF TRUMP REMARKS AND Q&A)
[15:00:00]
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Well, there you are, you don't see that every day. It was an hour-long, effectively an hour-long
question-and-answer session by the President of the United States, following on from the press talk or the comments made by Senator Schumer
and Speaker Pelosi when they finished their meeting, their hour-long meeting with the President. And the reality is that both sides appear to
have not brought much progress on ending the government shutdown.
When you listen and you parse everything down to its basics, speaking of the White House a few moments ago, President Trump said he could not rule
out the government staying closed for months or even a year.
(BEGIN VIDEO CLIP)
TRUMP: I don't think it will, but I am prepared and I think I can speak for Republicans in the House and Republicans in the Senate, they feel very
strong about having a safe country, having a border that makes sense.
Without borders, I've said it many times, we don't have a country. I hope it doesn't go on even beyond a few more days. It really could open very
quickly.
(END VIDEO CLIP)
QUEST: Phil Mattingly is on Capitol Hill. David Drugger from "The Washington Post" and McKay Coppins from "The Atlantic" also in Washington.
Starting with you, Phil Mattingly, just with the basics on all of this, as you listen to it, what jumped out?
PHIL MATTINGLY, CONGRESSIONAL CORRESPONDENT, CNN: Yes, just to kind of cut through everything and there was a lot there to pick up from both the
Democratic leaders and the President, himself, here are the bottom lines right now.
Democrats I am told inside of the meeting, and they said so, when they came out of the White House. Their bottom line is they will not negotiate on
the border security issue right now until government is reopened.
The President made very clear, he will not reopen the government until the border security and his wall are addressed. That's the bottom line and
that's where they are right now.
It seems kind of simplistic. But as long as they hold those positions and they've held those positions, Richard for the last couple of weeks.
However long the President gives a press conference or wherever Democrats are after they come out of the White House, nothing else really matters.
Those two positions are divergent. Those two positions can't really be married together, and that's where they are currently standing and what I
am told from people that were inside the room, or have been right out on it, since the meeting actually occurred, is it wasn't a great meeting.
There were a lot of rough parts, a lot of parts.
One person told me got a little bit wild at times and there are just not a lot of things right now that are working in the favor to a deal coming
together any time soon.
QUEST: Right, Phil Mattingly, I am going to let you get back to your news gathering duties as our discussions continue with David and McKay. David
starting with you. All right, so we now know the situation, I think Phil Mattingly, I mean, we could talk about it for hours, but Phil Mattingly put
it succinctly.
Neither side is prepared to budge on this $5.6 billion for a wall. In this scenario, it doesn't look good.
DAVID DRUCKER, POLITICAL ANALYST, CNN: No, it doesn't and I don't think you are going to see much budging until one or both sides feel the
political incentive to do so.
I think Democrats right now, as they have for several weeks feel like they have the better side of this issue politically. They look at the outcome
of the 2018 midterm elections. They see the President running around the country talking about a wall and a caravan and things of that nature and
they win 40 seats in the House across a lot of territory, usually held by Republicans.
And they think to themselves, the President isn't getting through to the American people. The President who was prepared to put this aside and then
live to fight another day got a lot of blowback from some of his staunch supporters and has now decided that he cannot back down after basically two
years of a Republican House and Senate in which he really didn't do too much on this front and, therefore, they're stuck and they're stuck until
political conditions change.
QUEST: Thank you - "The Washington Examiner." To McKay Coppins, again, I'm trying to build on from what we hear and what we know. If this is the
case, and $5.6 billion is the talisman, if you like, then neither side can back down.
Because if you give a dollar more from the Democrats, the President claims he's won, and if he doesn't give anything or he gives up his wall, at least
for the time being, then the Democrats claim they've won. This is almost childlike.
MCKAY COPPINS, STAFF WRITER, THE ATLANTIC: Well, that's right. Although, I will say one interesting thing I noticed in that press conference and
today is that Trump seemed to be putting another bartering chip on the table, which is that he brought up DACA recipients, which is to say
undocumented immigrants who were brought here as children.
He seemed to be suggesting and it's always hard to parse what the President means and what his position is in situations like this, but he seemed to be
saying that he was open to putting that on the table - that issue on the table in response ...
[15:05:09]
COPPINS: ... in return for border security or for a wall. I mean, the obvious problem with that just right from the outset is that immigration is
an incredibly complex politically fraught issue that both parties have struggled to kind of reach consensus on over the past decade. It seems
extremely unlikely that they are going to be able to negotiate a solution on that issue in a comprehensive way while the government is still shut
down.
QUEST: I mean, a lot of this problem, David Drucker, is he didn't get the money from the Republican Congress when he had the chance. He didn't make
enough strides in his first two years when he had ample opportunity with a united or unified government.
DRUCKER: Yes, it was really a missed opportunity. The President could have pushed a whole measure of overhauls to the immigration process and not
all of them have to do with a wall, which has really become a political hot potato if you will. And the President didn't really do much.
He complains a lot, but he did miss a big opportunity. And what we're dealing with now, is not the money. The issue isn't the money. The issue
is what it is spent on. If the President said "I will spend it on other border security measures other than the wall," he could get that from the
Democrats.
It is all about where the money is going because the wall for Democrats has become like tax increase for Republicans, a complete no-go area.
QUEST: Well, and one can arguably say by the same token, supposedly, deficit increases were no-goes for the Republicans until the tax cut bill,
which has ballooned the deficit. But we'll save that one for another - when we've got more time on economics.
Finally, to you McKay, the reality is, this has got very nasty very quickly. It's barely day one of the House and Democrats and it is open
warfare.
COPPINS: Well, look, I mean this government shutdown, it's easy to forget has been going on for two weeks now. What has happened is that, everybody
in Congress returned to Washington from their vacations. The new Congress was sworn in. Reporters returned to Washington.
A lot of people across the country plugged back into the news after the holidays and political pressure is now intensifying, and I think what you
see is both sides, Donald Trump, the White House and the Democrats in Congress are positioning for a lot of fights over the next two years.
They both want to set the agenda and set the terms of these confrontations the way that they want to set them and neither side feels like they can
give in because it will show weakness that will be exploited over the next two years.
QUEST: Gentlemen, thank you both for joining us. It is much appreciated. Thank you.
DRUCKER: Thank you.
QUEST: Yes, with all that was going on at the White House, you might be surprised after a dreadful Thursday, you couldn't write a better scenario
for the markets.
And the market, look at that, the Dow is up 1,740 points, and that's off the best of the day. It was up over 800 at one point. And there are three
clear reasons. Bumped up job numbers - 312,000 jobs were added and wages grew faster than expected.
So that starts the day off in an extremely buoyant mood. We are up about three or four hundred points, and then, you can see it slightly got lost in
the charts. If you look at the chart, you will see, it slightly got lost in there. But at around 10:30 this morning, it got an extra lift.
Speaking on a panel alongside two of his predecessors, the Fed Chair, Jerome Powell says policy makers are listening to the market.
(BEGIN VIDEO CLIP)
JEROME POWELL, CHAIRMAN, FEDERAL RESERVE: The markets are expressing concerns again about global growth in particular. I think that's becoming
the main focus and trade negotiations which are related to that and I'll just say that we're listening carefully to that.
We're listening sensitively to the message that markets are sending and we're going to be taking those downside risks into account as we make
policy going forward.
(END VIDEO CLIP)
QUEST: "It doesn't get clearer than that. We are listening carefully. We are going to make policy adjustments as necessary." This all sounds very
obvious. Except the market had believed that the Fed was almost on an auto route towards higher rates. The Fed, of course, is navigating towards
price stability and for employment.
But it is doing so amidst a current economic fog and the path and rates of balance sheet reduction. The Fed's balance sheets in the trillions. The
object of course is to of course avoid the rocks - very difficult, and that's why when you look at the latest economic signals, you see that they
are, indeed, all shrouded in fog.
Trying to understand exactly what is happening at the moment. Jerome Powell said the Fed is prepared to adjust the course. First of all, have
you jobs. The first signal that's coming out is the jobs report.
[15:10:05]
QUEST: Now, Jerome Powell said that showed economic momentum. But then, amidst the fog, you have the manufacturing numbers yesterday. The data
showed it was weak; and then the third was corporate warnings. The one we got from Apple yesterday. The Fed is worried - is business going to be
strong if a trade war is imminent?
So the warning signals that the Fed is watching given foggy environment that it is very difficult to see as Jerome Powell made clear.
(BEGIN VIDEO CLIP)
POWELL: There is no pre-set path for policy, and particularly with the muted inflation readings that we've seen coming in, we will be patient as
we watch to see how the economy evolves.
But we're always prepared to shift the stance of policy and to shift it significantly, if necessary, in order to promote our statutory goals of
maximum employment and stable prices.
(END VIDEO CLIP)
QUEST: Diane Swonk is with me, chief economist at Grant Thornton and is well used to interpreting such statements. What struck me - good to see
you, Diane. Happy New Year. What struck me about that is he is reading. He is reading from a statement. In other words, he wants to get that
message absolutely clear so that there is no wiggle room of interpretation.
DIANE SWONK, CHIEF ECONOMIST, GRANT THORNTON: Absolutely. I think what you saw there was Chairman Powell did his pivot. He does - I mean I always
believed the Fed had flexibility. They have always said they had flexibility. But the tenor of his comments after the December rate hike
clearly were not taken well by the markets. He wanted to make sure he communicated very clearly "That listen, we hear you. If something goes
wrong, we will be flexible."
That "patience" word, the "shift" word, also talking about the balance sheet, if this becomes a problem, it won't do it on auto pilot. It will
not go down on auto pilot. That flexibility ironically uncertainty now in the Fed's trajectory is giving the market some certainty about what the
outlook will be because the Fed will not be the one to take it on the chin to take this economy down.
QUEST: And on this question, transparency in reporting. Jerome Powell admitted the failures of that during the tapering -- the taper tantrum --
that they could have done a better job.
On the balance sheet, explain to me what the problem is here. We know that the Fed is running down the balance sheet of $50 billion to $60 billion a
month. So what's the issue? The market knows to expect that liquidity is being removed.
SWONK: You know, I think it's interesting because I've had debates within the Fed about this. They said, "Hey, we've announced it, everybody should
know it." And Jerome Powell, even himself, said this should be like watching paint dry. It should be a non-issue.
Well, it turns out, it is an issue when it became big enough, which it did in the fourth quarter. Now that it has become big enough, the markets are
aware of it, and the fact that the Fed would not adjust it automatically before they adjusted rates, which is what the Fed had planned that they not
be a little more flexible, that shuddered the markets.
Now you saw markets relieved a little bit that, "Okay, we'll adjust it if we need to, if it becomes an issue." But he still says, you know, this
should be like paint drying on the wall.
QUEST: Right, so the core question tonight, and I know you are a chief economist, you are not a market strategist. But, is the volatility over?
The sort of horrendous, I mean, have we reached a bottom? Do you think this is - we may not go back up to the heights of October very fast, but
the Dow - but we're not going to go on another leg down?
SWONK: I think we've got a lot of uncertainty and a lot of volatility. This is a year of transition. We have the good news from oil prices. It
was a great holiday season that helped for hiring, much like 2015, we went into 2016, which the Fed and the former Fed Chairmen Janet and Ben, also
talked about today that 2016 pivot that the Fed had to make great 2015, and all of a sudden, things fell apart - in part because lower oil prices also
have a cause. It is the one investment sector that we have and that's going to go away in 2019.
QUEST: Is it still wait and see as to whether one gets back in?
SWONK: In terms of the market, you know, I'm always in, and so I don't try to time the market. But I think, the reality is just buckle your
seatbelts, this is going to be a rocky year no matter what.
QUEST: Okay, and finally. We do need to pull this apart in so many different ways because one of the overhangs that the market had worried
about were those comments about whether he was going to - the President - the U.S. President, was going to try and fire the Fed Chair or get him to
resign. Listen to what Jerome Powell said on that one.
(BEGIN VIDEO CLIP)
POWELL: Nothing has been scheduled. I would say that meetings between Presidents and Fed Chairs do happen and they've happened I think, and I
can't think of any Fed Chairs who didn't eventually meet with the President.
[15:15:07]
POWELL: But again, nothing has been scheduled and I don't really have anything to report on that.
UNIDENTIFIED MALE: If the President asked you to resign, would you do it?
POWELL: No.
(END VIDEO CLIP)
QUEST: That was a very clear "no" and we don't think that the President has the legal authority to fire him. So I guess that has cleared that up
as far as the market is concerned.
SWONK: I think that was good news for the markets. Two things that were good news for the markets, Jerome Powell wasn't exactly jumping through
hoops to have a meeting with the President, which I think is actually good at this stage of the game because you don't know how the two would come
apart from that meeting in terms of what was actually said.
We just saw different interpretations of a meeting with the President. What would come out from that meeting? Is there any upside? I don't think
there is any upside at this stage of the game, and so I think not having that meeting is actually good news for the markets on the other side of it.
No, I'm not going to get pushed out. I am independent. I'm in for my term, and here I am, so deal with it.
QUEST: On that forceful robust note, thank you very much, good to see you, as always.
SWONK: Thank you.
QUEST: The market, itself, looks like it will be positive for the week. We're up 750 on the Dow, 3.3%. It's off the best of the day, by the way,
but it is up 3.3%; and 4% on the NASDAQ. And if we quickly look at our old friend, the Dow 30. Well, Kelso, please, Verizon is the only one that's
down. An exact opposite mirror of yesterday when Verizon was the only winner.
Boeing comes in very strongly, up 5%. Having said this, when you get a market up 750 odd points, everybody is going to be showing good gains.
Interesting question why someone like Walmart would only eke out a half of percentage gain as against some of the other big winners.
Alison Kosik is with me in the Stock Exchange. Well, we're off the top of the day, but not by much. What's the mood as the last hour begins?
ALISON KOSIK, CORRESPONDENT, CNN: Obviously, I think you are seeing investors buoyant. I think they needed to have some good news. So they
got this trifecta of good news, there is the China stimulus, those steps to stimulate the slowing economy there. There is the December jobs report
which blew expectations away. Then, of course, there is all that chatter during the roundtable with Jay Powell, Ben Bernanke and Janet Yellen.
So you kind of roll all of that together and you've got buoyancy on a Friday before a weekend and you see the Dow up this much before a weekend,
this is unusual.
QUEST: Good to see you. Have a good weekend. It's been a busy week for all. Many thanks, indeed. One thing, though, this chart really is
fascinating because it's exactly what you would expect to see at the moment. You've got all the usual consumer goods -- P&G, Johnson&Johnson,
Coke, and possibly even Walmart, all right the way down showing the least gains and those affected by CapEx, growth of economy, strong economy, job
markets, numbers, cap investment. The Boeings, the Caterpillars, and all the tech stocks which benefits across China. They are all leading the way
with the gains. But it is an unusual day.
So when we return, German lawmakers, the phone numbers and the credit card details, they were published on Twitter. Even Angela Merkel is said to be
affected by this. It is "Quest Means Business" live from New York.
(COMMERCIAL BREAK)
[15:20:00]
QUEST: Personal data belonging to hundreds of German lawmakers have been published on Twitter after a massive hack. Even the Chancellor, Angela
Merkel was reportedly amongst those targeted. The government says no sensitive information from her office was exposed.
The Interior Ministry says all political parties in the German Parliament were affected. The leaked data includes credit card details, phone numbers
and e-mail addresses. Nina dos Santos is in London.
It sounds like the information may not be the most dreadful in terms of secrecy and privacy, but it still begs the question, how does this happen?
NINA DOS SANTOS, CORRESPONDENT, CNN: Yes, it's embarrassing, isn't it? Well, Horst Seehofer, the Interior Minister has recently released a
statement saying that what they believes may have happened and this tallies with cybersecurity experts I have been speaking throughout the course of
the day, is that we may have seen some sort misuse of password data that allowed hackers to compromise the Cloud and therefore get access to
people's e-mails and also the social media accounts.
As you pointed out, a lot was published in fact on this Twitter account that had 17,000 users - followers, I should say. It seems as though it was
only following a couple of accounts itself, which in itself is actually telling.
And that this information had been drip fed out probably since the last month of 2018, but authorities only appear to have become aware of it as of
Thursday evening and acted swiftly to launch an investigation both at a national level, also at a local level because this Twitter account may have
been registered to an address in Hamburg in northern Germany, Richard.
QUEST: Was this political? I mean, it was criminal, but you know what I mean when I say what was its motive? Was it to raise money or to extort
money I should say? Was it political to extort gain or something else?
DOS SANTOS: Well, this is the big question that authorities have. It may well be that they end up having to rely on international expertise for this
type of thing if, indeed, it seems as though this may have been a state sponsored act or perhaps just an opportunist out there wishing to shape the
political tree.
I should point out that throughout the course of the day, we've heard varying reports about whether or not the far right AFD party in Germany was
also affected by this. At the start of the day, German media reported that interestingly enough, the far right party was the only one that didn't see
members affected by this leak.
But apparently, according to the German authorities, all political parties saw members affected and also members of the commentary, celebrities and
journalists as well saw some of their data leaked online.
Now, here's an interesting fact, Richard. Authorities also believe that some of this information may well not be entirely true. So you could
expect some fake nuggets or fake news, if you like in some of this correspondence that seems to have been leaked out into the public domain
over the last month or so, Richard.
QUEST: Nina, thank you very much. European markets have been swept up by the same wave of buying that we have seen in the U.S. markets, all the
major indices ended the week with strong good gains - look at the FTSE, up 2.16. I mean, the Zurich was the lag out. The German Dax was the best at
the course of the day.
Three former Credit Suisse bankers have been charged for their alleged role in the $2 billion fraud. The scheme involving state-owned companies in
Mozambique. That's sort of interesting. And we are, indeed, lucky and fortunate, Eleni Giokos normally in Johannesburg, but is with us to talk
about this, and also about this new deal for Jacob Zuma.
ELENI GIOKOS, AFRICA CORRESPONDENT, CNN: I know, lots to talk about today.
QUEST: Let's talk about Mozambique.
GIOKOS: Nice to see you. Okay, Mozambique, $2 billion of worth of loans taken out between 2013 and 2014 by the former Finance Minister. Credit
Suisse and other banks were involved in helping secure those loans.
Now, how many tuna fishing boats do you think need to buy worth $2 billion?
QUEST: Well, it's a lot of - it's a long coast.
GIOKOS: It's a long coast, but also in all fairness, it was also for a coastal protection system.
[15:25:05]
GIOKOS: Now get this --
QUEST: What happened to the money?
GIOKOS: Exactly. Well, $500 million, we don't know where it went. But two Credit Suisse employees were arrested in London today for alleged
bribery and corruption -- $200 million worth.
And we were looking at some of the e-mails that came through. They were even talking about, you know, getting 50 million chickens. They were using
chickens as a currency. I mean, it's really all quite interesting.
QUEST: Is this Mozambique's and Credit Suisse's 1MDB? From Malaysia?
GIOKOS: Yes.
QUEST: Is this the Africa equivalent of let's raid the fund by raising money and bonds, the money of which will disappear?
GIOKOS: This is probably it. These are all allegations, but it's pretty crazy to think that the former Finance Minister is currently sitting in
South Africa waiting to be extradited to the United States as well.
So it really goes quite deep, up to government official level, Richard. And it's a lot of money. I mean, we are talking about an economy that's
$12 billion in terms of size. You are taking out $2 billion loans, you don't declare the whole thing to the IMF. The IMF gives you a loan, and in
the meantime, you default. Last year, they defaulted on this debt.
They are only going to be able pay this money back after they start producing gas in 2023. They're in real big trouble.
QUEST: Talking of being in trouble, Jacob Zuma got kicked out. We're now on to a route - we're going further south, but Jacob Zuma is making a
comeback of sorts.
GIOKOS: We knew he was going to come back. We didn't know how. I mean, this is - remember, we call him the Teflon President, right, he always came
back somehow. He got back on Twitter in early December. He really came back with a bang. People started following him.
And now, he is going to be releasing his album. He got a record deal. And he is saying it's about liberation, songs and struggles. I mean, if you've
ever seen him live, he is always singing, he is always dancing.
I know other Presidents around the world do the same thing. But this is about popularity. And isn't it interesting the timing? We've got
elections coming up and here is the former President that has this cloud of corruption around him, facing corruption charges and he's releasing an
album? Pretty crazy thing.
QUEST: How popular is Jacob Zuma still?
GIOKOS: Good question. He still has a following.
QUEST: If there was an election tomorrow, would he with in?
GIOKOS: Oh, Richard, I don't know. It scares me. It really does scare me because he has such a strong following in his home base, in KwaZulu-Natal
and he is trying to get back into politics. I mean, this is his kind of the thinking.
QUEST: So, right. Since we've got you here, a chance for one more question, which is the investigation into the state capture of the state
enterprises, the corruption, for want of a better word, has it discovered just how bad this thing was?
GIOKOS: We are talking about hundreds of billions of dollars that have been siphoned out of the country. Talking about it going deep into state-
owned enterprises, into every department within government, with the ministers that are being implicated. Government - I mean, it's so deep and
so corrupt and this is why our current President - new President, Cyril Ramaphosa is going to have a really tough job.
He's got to clean up. He's got to get rid of the people that were involved. But it's so many people, so I don't know how he is going to do
it.
QUEST: Right, well, it's lovely having you here in New York as our Africa business correspondent, but I urge you now to please return to Africa as
fast as possible because there are clearly stories that need covering. So get on your way.
GIOKOS: I will.
QUEST: And we look forward to having you back into the show.
GIOKOS: You should come soon. We should get you back into South Africa very soon.
QUEST: Thinking about it.
GIOKOS: Yes.
QUEST: Thinking about it. All right, as we continue on "Quest Means Business" tonight, we're going to remember one of the greatest pioneers.
If you are going away on holiday and you are flying on a low cost carrier, EasyJet, RyanAir, AirAsia, Jetstar - the list goes on and on. The man we
are going to talk about is the man who created the industry.
(COMMERCIAL BREAK)
[15:30:00] RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Hello, I'm Richard Quest, there's a lot more QUEST MEANS BUSINESS in just a moment. But
before we get to it, this is Cnn, and on this network, the facts always come first, that's a big news.
President Trump said he had a productive meeting with congressional leaders on both sides of the U.S. political aisle. They were discussing the
American government shutdown. President Trump also says he will be spending -- sending his top people to negotiate after failing to strike a
deal with the Democrats over border wall funding so far.
A strong day on Wall Street with a rally on the market, strong reports and comments from the Federal Reserve Chairman Jerome Powell. He said the Fed
will be flexible in its plans to hike interest rates. The markets got a big boost after China took steps to stimulate its slowing economy.
The U.S. man who Russia has arrested for alleged spying has citizenship in at least three other countries: Britain, Ireland and Canada, the country
where Paul Whelan was born have already revealed his citizenship. Whelan's lawyer in Russia has filed a complaint calling the detention excessive and
has requested bail.
Herb Kelleher said that to understand how valuable something is, you would try to imagine himself without it. And today the aviation industry is
without a true pioneer. The founder and long-time CEO of Southwest Airlines has passed away. He was 87.
In the 1970s, Kelleher took four planes and he had an idea when he built the largest airline in the United States. Indeed, one of the largest
airlines in the world -- Southwest Airlines. For more on, for the principle was simple. Keep the fares low and keep the spirits high. It
was the motto.
As for Kelleher himself, besides always perpetually smoking. He never -- he was -- you never saw him without a cigarette in his mouth, he was known
for his big laugh and putting employees ahead of profits and never being afraid to act the fool to grow his own business.
(BEGIN VIDEO CLIP)
HERB KELLEHER, LATE FORMER CHIEF EXECUTIVE OFFICER, SOUTHWEST AIRLINES: At Southwest Airlines, we want our passengers to spend their time in the air
not on the ground. That's why we invented the ten-minute turn around, our planes pull into the jet way, board passengers and pull out again in ten
minutes or less.
The way we look at it, the quicker you're in the air, the quicker you get where you're going. Kelleher here.
UNIDENTIFIED FEMALE: You're going to love our Southwest spirit.
(END VIDEO CLIP)
QUEST: Southwest had cheap tickets and it didn't assign seats until boarding. The whole plane was coach class, the object was to get as much
use from the aircraft as you could, single destinations.
No inter-lining with other carriers. All the hallmarks of the low-cost carrier. There was also of course glitz in the cabin that helped grow the
brand.
[15:35:00] (BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: Remember what it was like before there was somebody else up there who loved you? There was no such thing as executive class
service to Dallas, Houston and San Antonio. With first class leg room, free cocktails for everyone and a schedule you could depend on. Remember.
(END VIDEO CLIP)
QUEST: Earlier, I spoke to Jerry Greenwald; the former chief executive of United; a fierce competitor of course. He told me that while many tried to
replicate what Herb did in his day, nobody was able to succeed.
(BEGIN VIDEO CLIP)
JERRY GREENWALD, FORMER CHIEF EXECUTIVE OFFICER, UNITED AIRLINES: And there are few of us that belong to a club. You either have to make the
planes or you have to fly them to be a member and it goes back to Eddie Rickenbacker.
And there we were having drinks, saying who are the pioneers and the great ones of our industry? And to a person we named three. One of whom was Herb
Kelleher. And for an industry of this size to identify just three people as pioneers is quite amazing and a tribute to Herb.
QUEST: And many tried -- I mean, in your -- for example others followed Ryan Air with Michael O'Leary, Stelios with easyJet. In Asia, many
followed, of course, Tony Fernandes with AirAsia. But in the United States for the legacy carriers like yourselves, competing against this new
model gave you no end of headaches and troubles.
GREENWALD: Well, you've got it right. I would admit to you that I tried to compete head-to-head on the West Coast, up and down the West Coast of
the United States, not management with Southwest and Herb to a point where I literally got volunteers among pilots and flight attendants and mechanics
to go drink in bars and find out from Southwest employees how they really did it it.
And we figured it out. And yet, we still could not compete with them.
QUEST: Why was that? What was it -- I mean, forget necessarily legacy contracts and the like. What is it about that ethos that he was able to
generate at Southwest that's been many times tried to be replicated but can't?
GREENWALD: Well, I would say though, you wanted to put aside legacy contracts, it's not so much contracts. He was able to gain cooperation
among his employees in ways that none of us could duplicate. And I mean, how did he do it?
I mean, he would do anything. He would -- I mean, he'd hide in a baggage area and jump out wearing a costume to make everybody laugh. From little
things to big things, he gained cooperation from his employees. And I think none of the rest of us -- some got close, but no one ever duplicated.
(END VIDEO CLIP)
QUEST: What exactly was it that nobody was able to duplicate? Herb's approach to aviation is credited with democratizing the skies, opening up
the air travel to millions who couldn't afford it before him. It became known as the Southwest effect.
I'll show you how it worked. Southwest would enter a new market. It would do so increasing supply, but at the same time, it would offer ridiculously
low prices, peanut prices, they only gave peanuts on the plane.
That would create other competition with other airlines. The other airlines would lower their fares to compete and it really was the virtuous
circle -- the virtuous cycle. Demand for travel goes up, everybody benefits, sales rise. The rising tide lifts all boats.
I spoke to Jude Bricker; the chief executive of Sun Country Airlines; a low cost airline based in Minnesota. This principle that Herb Kelleher
introduced many -- back in the 1970s and '80s, it's a low-cost philosophy that Southwest created.
(BEGIN VIDEO CLIP)
JUDE BRICKER, CHIEF EXECUTIVE OFFICER, SUN COUNTRY AIRLINES: Before Herb came along, I mean, air travel was basically for people that were wealthy,
and there it was only a few of us. And now, it's available to everybody. And the idea is to make your airline really efficient so that you can lower
the cost and pass those costs on to customers and allow more people to fly.
It's really that simple.
QUEST: Right --
BRICKER: And Herb really pioneered that and you know, with Southwest Airlines, 40 years ago.
QUEST: But doing what? I mean, is it by not offering food by charging for everything else? By -- I mean, what are the tricks of the trade of the low
cost carrier --
BRICKER: Yes --
QUEST: That Herb started?
[15:40:00] BRICKER: Yes, I mean, I think it starts with making real efficient decisions with your aircraft. So you want to carry as many
people every day with an airplane and he -- I think what Southwest Airlines operations should be credited with is that they got a lot more use out of
their airplanes than any airline before them ever had.
But I think what's really special about Herb is he created a culture that endures today, 40 years later of efficiency and focus on the customer.
And Southwest Airlines is a real family, and I think that's something that any business leader, whether they're in the industry or outside should
respect.
QUEST: At a time when the Southwest method or model has now been replicated many times in different versions --
BRICKER: Yes, true --
QUEST: In the United States, you've now gone to the ULC, the ultra-low --
BRICKER: Yes --
QUEST: Cost. Which is really the next stage of what he created. How -- what do you do to be ULC?
BRICKER: I wouldn't spend too much effort in trying to distinguish between a ULCC and an LCC. I think the point is that airlines over time, their
costs are going to go up, that's happened here with Southwest. I think when Spirit and Allegiant and Frontier came along, they said, wow, we can
be significantly lower cost than Southwest Airlines, and we're going to do that and they're going to call it a ULCC.
But the point is still the same, and it's kind of the same thing that Herb did in the triangle between San Antonio, Houston and Dallas, which is let's
offer really low fares and get more people flying.
QUEST: As you grow Sun Country, does the legacy of these pioneers go with you?
BRICKER: Yes, I hope so.
(LAUGHTER)
I hope I'm worthy of that. I think that, you know, Herb is a hero for me, and you know, I grew up in Texas, and I'm an airline executive. So it's no
surprise that that's the case. But, you know, I certainly would like to do a lot of the things that he did, there's no doubt about it.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
QUEST: All right, the QUEST MEANS BUSINESS trading post, the Dow is on track for its fourth biggest points gain in history, and all the indices
are up for the week so far. Look at that, 3 percent, 4 percent for the Nasdaq.
[15:45:00] Fred, I'm going to let you guess the color for our -- there we go -- well done -- or green, don't worry, that wasn't too tricky today.
But -- well, thank you. Now, stock markets have that Friday feeling, in the U.K., it's also been called Fat Cat Friday.
A new study says the average FTSE chief executive and Britain has already made more money so far this year than their average employee will make all
year, and we're already four days in. Apparently at 1:00 this afternoon, they made the crossover.
The study comes from Britain's High Pay Center, its director Luke Hildyard joins me now. Luke, you would agree -- so this afternoon, the FTSE, the
average FTSE 100 has now made as much money as the average employee for the whole year?
LUKE HILDYARD, DIRECTOR, HIGH PAY CENTER: Yes, it's an incredibly stark finding, and I think it shows the extent to which we're in the U.K., an
economically divided country.
And I don't think people are very comfortable with those divide, and I don't think they reflect tremendously well on British --
QUEST: Right --
HILDYARD: Business. I think it's -- you know, a little bit crass vulgar, to be taking such large sums of money out of your company when paying your
workers, a relative pittance. And over 60 percent of the --
QUEST: So which --
HILDYARD: FTSE 100 companies are accredited as living wage employers.
QUEST: So which would you like to see, the top pay come down or the bottom pay come up?
HILDYARD: Obviously, the priority has to be raising low incomes. How do we do that? How have we done that historically? Well, it's been through a
mixture of things. Economic growth and innovation, but also --
QUEST: Yes --
HILDYARD: How the proceeds of growth are distributed. The size of the pie and how it's divided --
QUEST: So --
HILDYARD: Up if you like.
QUEST: So what do you think is a fair and reasonable multiple of average workers' pay to the CEO's pay? You know, you've dealt with these arguments
a million times, everything from the fact that the CEO bears responsibility for the company and can make decisions that affects everybody.
So what do you think is a legitimate multiple in your view?
HILDYARD: So people have talked about ratios of 20-1 in the public sector. Some of the political parties in the U.K. have called for a 10-1 ratio. We
wouldn't argue for a fixed multiple as a cap.
I think it's more about giving people confidence that the pay-setting process is sufficiently rigorous and critical and challenging of these
executives and incorporates a broad range of perspectives into the deliberations.
QUEST: But --
HILDYARD: It's currently -- sorry.
QUEST: Why should part of the deliberation be the ratio to the average worker in the company versus are you going to run this company effectively,
efficiently for all with care for all, CSR responsibility and make profits?
HILDYARD: Yes, and I think that doing things like giving workers representation on company boards and involving them in the pay-setting
process would help to consider those factors you think about more deeply than they are being done --
QUEST: Right --
HILDYARD: At the moment, and would lead to a sort of fairer more proportionate pay levels. I don't think you need to pay some, you know,
pay somebody several million pounds to do a capable job of running the company. I think there'll be much more focus on the kind of solidarity
between the people at the top, in the middle and at the bottom.
Research has shown that --
QUEST: Right --
HILDYARD: Very high levels of CEO pay do demoralize staff and actually have a negative impact on the business.
QUEST: Good to see you, sir, this Friday, thank you very much for coming in and talking --
HILDYARD: Thank you --
QUEST: Very much, look forward to talking about this one again, it's always a good talk up now. As we continue when we return, quality change
of heart, the comedian Kevin Hart may try to get his job back as the host of the Oscars with little help from day time host Ellen DeGeneres.
Then we'll be talking about this and to come out here and join me as we continue. We'll find a seat for you.
[15:50:00] (COMMERCIAL BREAK)
QUEST: Welcome back. Kevin Hart is having second thoughts after barring out of hosting this year's Academy Awards. Remember, he pulled out after
homophobic comments he made on Twitter several years ago, nine, ten years ago resurfaced online.
Hart's chances are being reinstated and being given a big boost by the day time host Ellen DeGeneres; a prominent advocate for gay rights. Chloe
Melas looks into all these sort of matters is with me.
Well, I -- you know, you take it.
CHLOE MELAS, CNN ENTERTAINMENT REPORTER: Well, so first of all, to have Ellen DeGeneres come out and endorse you, and say, you know what? You are
absolved, you should host the Oscars, it doesn't get much bigger than that.
And worst, it's Oprah Winfrey, OK, when it comes to Hollywood. But here is the thing. Although these tweets and the stuff that he said in his comedy
routine are pretty much between 2009 and 2011, I'm pretty sure that we all knew in 2009 that it wasn't OK to call people homos, it wasn't OK to call
people an f-a-g, I'm not going to say the word.
He also said that if he could do anything -- I even heard him in his standup routine say, if he could do anything to prevent his son from being
gay, he will do it. And if he saw his son playing with his daughter's dollhouse, he would beat him up.
QUEST: When -- OK. Assuming all of that is right, when do you think the statute of limitations on comments made in youthful ignorance or
irresponsibility is?
MELAS: OK, well, he wasn't a teenager. I mean, he's still an adult, right? Making these comments, nine, ten years ago. But what I will say,
though, is that I do think he makes a great Oscars host. He's a really funny guy.
Even GLAD came out and said, the organization for gay lesbian rights, they said, look, he shouldn't step down, he should step up. A lot of people
have an issue with the fact that he has never --
QUEST: So --
MELAS: Truly apologized and sounded contrite.
QUEST: Would it be stronger if he was to do it and make that positive statement there?
MELAS: Yes, to use that platform back stage, on that large night to be the Oscar's host and to make things right. He does have that opportunity to do
it, and I bet you, he will. There is no doubt that he will. I'm already hearing behind the scenes that GLAD supports him coming back to host --
QUEST: So, he's going to do it?
MELAS: I think he is, and the Academy hasn't said one word since he stepped down. I think that they've been trying behind the scenes ever
since --
QUEST: Oh, what a mess --
MELAS: To --
QUEST: What a mess --
MELAS: To have him come back.
QUEST: All right, completely unfair question, totally and absolutely unfair question. Which film is going to win the Oscars?
MELAS: Oh, maybe if "Vice", it's about Dick Cheney and it stars Christian Bale and it's leading the way --
QUEST: Right --
MELAS: With six nominations.
QUEST: It's new year -- oh, look at that.
MELAS: I'm ready.
QUEST: No, but how do you know I was going to take it over there. You are ready, go on.
(BELL RINGING)
[15:55:00] Happy new year. We'll leave you for a moment, going to the markets. Verizon is still the only one in the red at the bottom, Intel is
at the top, Boeing is strong, Apple having lost 8 percent, 9 percent yesterday, has gained 3.5 percent of it back.
Even Goldman Sachs is up 3 percent. The market overall, with 707 coming today, we are off the top and the best of the gains. The market opens up
strongly, but the big -- I left my pen here, but this is the bit where Jerome Powell speaks and makes those comments about being flexible.
And the market -- the market builds on that with the questions of China trade and how things are moving forward on that front. The best of the day
was just over 800 points. Now, we're off about -- we're going to go to about 732. A remarkable performance when you think of yesterday's 700-
point drop that closes off 660.
And the number of days where we've had point moves in the five or 600s. Again, leave you with this particular lot as we wait for the closing bell.
We'll have a profitable moment after the break -- poor old Verizon.
(COMMERCIAL BREAK)
QUEST: Tonight's profitable moment. It is jobs day, it is Fat Cat Friday in the U.K. and it is also the day Herb Kelleher passes away, and it is
appropriate to pull all of those aspects together. Because if there is one thing about Herb Kelleher, he built his airlines because of his employees,
not in spite of them.
The way he treated the workers at Southwest meant they were and are still today the best ambassadors. I met Herb Kelleher a few times, and he was
always the same, it was always how are the workers doing? Who -- my employees? My pilots, my flight attendants, what are they doing? What can -
- more can we do for them?
Look, he wasn't a pushover, don't get me wrong. When tough decisions had to be made, he would take them. But he would let the employees understand
why that was being taken. How different it is from so many managements today.
You want to know why Southwest was such a success, not because of an economic model that was part of it, but because the CEO actually cared
about the people who made the planes fly. And that's QUEST MEANS BUSINESS for tonight, I am Richard Quest in New York.
Whatever you're up to in the hours ahead, today definitely, it is profitable. Up 700 points, 3.3 percent, the bell is ringing, the day is
done! Over!
(BELL RINGING)
END
