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Quest Means Business

U.S. GDP Number Adjusted Downward; Qantas PR Drama

Aired November 22, 2011 - 14:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Struggling on, slowly as she goes, U.S. GDP is cut (ph). There is an upside to the story. As the slogan goes, don't just book it, Thomas, cook it. Customers aren't doing either. They're making a hash of it. A Qantas Twitter campaign leaves customers hopping mad. I'm Richard Quest. We have an hour together, and I mean business.

Good evening. The U.S. recovery tonight, we are learning, isn't as strong as we thought. The Commerce Department in Washington says the economy grew at 2 and a -- 2 percent in the third quarter. Now, look at the numbers and you'll see what (inaudible).

The initial indication had been that that number would be 2.5 percent. Now they've revised it down to 2 percent. So what we have here is a picture of the U.S. economy, certainly picking up speed but not as fast as we first thought, half a percent less than the first estimate. It knocks about $15 billion dollars off U.S. GDP.

The problem, of course, is even though the economy is still growing and growing faster, it is not growing fast enough. Let's go to Maggie Lake, who is in New York. Is that a fair summation of the problem facing the U.S. economy?

MAGGIE LAKE, CNN BUSINESS CORRESPONDENT: Oh, absolutely, not growing nearly fast enough to resolve the big issue and problem which is jobs. But, Richard, we always say the devil's in the details of these reports.

In this case today it's actually a bit of a silver lining. You're right. That revision was sharply lower and, at first, caused really some ripples of concern through the market. But then when you dug through, the reason that it was lower was inventory.

The inventory drawdown -- in other words, people bought more stuff quicker than businesses were ready for. They emptied the shelves. That shaved about almost 1.5 percent off of growth. And so that's what knocked it down to 2.

The good news is people are spending, and so that's positive, not only that businesses will have to rebuild those inventories, which economists say could actually have us closing out the year with growth around 3 percent. So that's decent news.

But here's the problem. When it comes to the consumer, whether or not that will continue will be up to the consumer and there things are going to be a bit mixed. We don't actually have a scale on that graph (ph). But if you look at the two sides, positives and negatives, you're going to see, on the -- on the plus side, sentiment, while low, is still rising.

And we've had decent retail sales. And, in fact, holiday expectations are pretty good. But here's the problem. And they're big ones. Jobs, housing and absolute disgust with what's happening in D.C. So it's really kind of balanced (ph) and we're really not sure which way those scales are going to tip.

And, of course, that's critical for not only the U.S. economy, but the global economy. With Europe in a mess, if the U.S. consumer climbs back into that bunker, watch out.

QUEST: I've just been plowing through the Fed minutes, which were released early because of an inadvertent leak. One member of the Fed, FOMC still believes, Charlie Evans still believes that there should be more accommodation.

And the committee is pretty much saying they're not going to go to inflation targeting or anything else because it could scare the horses and they don't want to upset people just at this time.

LAKE: Well, (inaudible) they're upset by everyone else, and that's probably a good idea. It's sort of interesting, because you think if growth and their expectations, they still expect growth not only 2012 but in 2013, Richard.

So if the economy's growing, why are they considering more monetary policy? That is because, as you started this with, it's not growing fast enough to solve the jobs picture. And that is a big concern for the Federal Reserve, dual mandate, not only inflation, but also growth. And we're just not seeing enough growth...

QUEST: Good point.

LAKE: ... to spark hiring, and that's a concern of the Federal Reserve.

QUEST: And if you dig deep, as I know Maggie Lake did into the minutes of the Fed, you see that their concern was if they do go for inflationary targeting, that might belittle or at least give the debt (ph) a downgrade the jobs good (ph). Maggie, in New York, many thanks indeed, Maggie Lake over there.

Now a change to America's vital statistics, the number we just showed you is doing little to move the markets. But a caveat as you look at these numbers, it is Thanksgiving week and thin markets as people take a bit of a break. They were flat (ph).

The Dow has closed with a one-month low. HP is the worst performer, down 2.5 percent after it announced profits fell 91 percent in the three months to October. We shouldn't necessarily be surprised on HP. The company is, I think I'm being charitable when I say, in a mess.

NASDAQ is barely changed, as indeed is the S&P 500. Similar quiet, this -- I think -- I think the day has been marked by basically easiness and one of lack of activity. People are a bit gasping for breath.

So the sort of movements that we've seen, particularly in Zurich, where we see very little movement on the SMI index. It was the banking shares that did move, those that were talked about (ph), Commerce Bank down 15 percent, reported it might need more money to lead its -- to fill the coffers.

This is the yields; these are the numbers. We will show you FDs (ph) every night so that you are aware of what's happening. The benchmark on the 10-year is, of course, the Bund, the German -- the German 10-year bond, and that differential, well, Italy is slightly above that, was heavily above it.

Spain is heavily above it, and even France is creeping up. There was one just in postscript on bond yields. Spain did do a three-month auction of bills today, and they got them away, but they did have to pay more than 5.4 percent for their three -- for their short-term money.

Now that 5.4 percent on short three-month money compared to 6.6 percent on 10-year bonds -- and you start to see -- you get the idea things are grim and getting worse.

As Europe's debt crisis threatens to engulf the entire block, the IMF is making it easier for countries in the firing line to get help. It's created a new credit line which has fewer strings attached than one of the IMF's traditional loans.

It's called the precautionary and liquidity line, and countries get credit for six months, a year or two. Governments can tap it, and they won't need to make as many policy changes as you would with the old-style loan.

The line is available to countries who are prequalified, those with strong economies (ph), and those that are prepared to follow on with a proper program. The IMF's managing director, Christine Lagarde, has said it's another step towards creating an effective global safety net with increased global interconnectedness.

Now, as its borrowing costs rise, France might be next in line to actually need rather (ph) a help, but certainly support. As our correspondent in Paris, Jim Bittermann, reports, it's the global interconnectedness, particularly, obviously in the Eurozone, that's the risk.

(BEGIN VIDEO CLIP)

JIM BITTERMANN, CNN REPORTER (voice-over): Along the most famous avenue in France, the Champs-Elysees in Paris, the little white cottages have been sprouting like mushrooms. The Christmas Market is underway, and small business men here are trying their luck at pulling a few euros out of the pockets of the passersby who line up for jam-filled crepes and Russian dolls.

Despite a grim economic climate across Europe, a few days into the holiday sales, the seasonal entrepreneurs have a sunny outlook.

UNIDENTIFIED MALE: They're optimistic. Yes. (Inaudible) optimistic, no. Optimistic.

UNIDENTIFIED MALE: If we have good weather, I think it will be a good, interesting year, you know.

BITTERMANN (voice-over): But optimism on the microeconomic scale hardly reflects the concern from the macro point of view. For one thing, there is the exposure of French banks to other indebted European countries, like Italy.

For another, there's the indebtedness of France itself, which President Sarkozy has tried to bring under control with a new round of austerity measures that some immediately criticized as too little, too late. And, finally, there is the threat that France might soon lose its triple-A credit rating, something which could trigger a new round of market speculation and push up French interest rates.

ALEXANDER LAW, CHIEF ECONOMIST, XERFI CONSULTANTS: Since 5 percent of France's national debt is held by foreign investors, so that would have much more of an impact than it would, say, on the United States or Japan, which have already been downgraded, or even in Italy. So it is a huge worry.

BITTERMANN: Still, the economists say that one sure way to get off the merry-go-round as one country after another in the Eurozone comes under attack is to bring the unified currency under unified political control by empowering the European central bank to take on and stand behind European debt...

BITTERMANN (voice-over): ... something that Germany has until now opposed. But some here believe -- or perhaps hope -- the German position could be changing.

FRANCESCO SARACENO, FRENCH ECONOMIC OBSERVATORY: There are a few new facts. The first one is that they -- there starts to be an impact from the recession in the European periphery (ph) on the German exports and this is, of course, so they are starting to feel the pain.

BITTERMANN (voice-over): At a time of year when many people start to believe in Santa Claus, thoughts about avoiding an economic crisis here seem to rely on hope trumping reality. But as one of the Christmas merchants put it, "If you can't be optimistic, why go to work in the morning?" -- Jim Bittermann, CNN, Paris.

(END VIDEO CLIP)

QUEST: That was Jim Bittermann in Paris. And I need to correct, remember, I just showed you, I did wonder at the time when we showed you the number of the DAX, particularly bearing in mind Commerce Bank (ph) off 15 percent, obviously slow, is, whatever reason (ph), that is the true number, up 0.4 versus down 1.22.

You pays your money, you takes your choice. If you were long on the market in Frankfurt, you knew what I was talking about anyway. The DAX off more than 1 percent. When we come back in a moment, it is to South Africa. It's a struggle against apartheid.

Now the struggle itself was long and difficult, not to say bloody. The protesters are back, enjoying (ph) this day a new law (inaudible) on two decades of democracy.

(COMMERCIAL BREAK)

QUEST: It's been called a day of reckoning for South Africa's democracy. Earlier, South African MPs approved a secrecy law. Its critics are calling it the biggest affront to democracy since apartheid. And they say the law threatens the freedoms of the press.

As (inaudible) in Cape Town, demonstrators clad in black staged a protest outside the parliament. CNN's Robyn Curnow is in Johannesburg. Robyn joins me now live.

Robyn, before we get to the meat and veg of this, what is it that people object to in this law?

ROBYN CURNOW, CNN REPORTER: Well, they object to a very specific part of it. Besides the fact that it limits journalists and whistleblowers from possessing and publishing secret information, it specifically deters people or perhaps prohibits people from using information that could be deemed in the public interest, and that's the key, because this sort of law is common around the world.

States are allowed to protect their classified secrets. But the fact that there is this public interest clause means that journalists could be jailed for up to 25 years if they have so-called safe secrets. And, of course, that is the real humdinger, as you might say, Richard.

Now to get more detail on this, I want to bring in Justice Malala. He's a journalist here in South Africa. He's also a political commentator, and I think he's a good person to also assess the kind of impact this has on the ground. What kind of stories won't be told because this law has now been approved by parliament?

JUSTICE MALALA, FORMER NEWSPAPER EDITOR: Well, I mean, for example, for your American (ph) viewers, if you go back to the'70s, you look at Watergate, essentially the intelligence services, the CIA, the FBI, our local equivalent (ph), are totally and completely have (inaudible) on public (inaudible).

You cannot report a lot of what they're doing and otherwise, you, as you said, you go to jail. But the issue that we have had huge, huge corruption program in South Africa, the arms deal we spent 10 million U.S. dollars on buying arms gear, which we (inaudible).

Those stories (ph) have emerged from the press (ph) showing that senior (inaudible) right up to the office of the president, have been implicated in taking bribes. Those -- that kind of stuff would not have seen the light of day.

We've seen there are two ministers fired recently by the president of South Africa. Those two (inaudible) were reported (ph) by a journalist who was arrested, by the way, by the police who were implicated in one of those stories (ph), and, again, those two stories (ph) would not have seen the light of day if this law was in place (inaudible).

CURNOW: Now, the question, Richard, is, is this about senior politicians, about the ANC in particular, the ruling party, covering up potential corruption, exposes down the line? It is simple as that? Is it -- is it as cynical (ph) as that?

MALALA: I think it has become as cynical (ph) as that. If you look at the behavior of the ANC today, when this was law was adopted by parliament, the ANC specifically told all 264 members of the -- ANC members of parliament that you must be in there, and you must make sure that you vote.

The only people who didn't vote for this, for the adoption of this bill, were the people who did not pitch up (ph). And they just passed overwhelmingly. There has been instances of massive (ph) corruption in South Africa and many (inaudible) ANC leaders who are now government leaders.

And I think 17 years after Nelson Mandela first became our president, we are seeing a country that is losing its way. We're seeing an ANC that essentially has forgotten about the principles that were encapsulated in the words and the speeches of Nelson Mandela. That is what is happening, and it's about covering up corruption in this country.

CURNOW: OK. So then on a wider scale, we're on a business show. And Richard's going to ask you the same question, if he were sitting here. The implications for South Africa, about perceptions, about foreign investment, how do you think it's going to play out?

MALALA: I think it's going to be hugely negative for South Africa. Remember, the World Economic Forum has said in its Global Competitiveness Report that South Africa, among the top four impediments to business here, is corruption. How is corruption going to be exposed if firstly whistleblowers will go to jail for 25 years merely for talking to me about what they've seen and as a journalist, I'll go to jail for 25 years?

There's going to be a chilling effect on investment because investment -- investors want certainty. And for them to get certainty, they need to know that, in this country, corruption will be exposed so that they are operating in an environment that is -- that is open and, unfortunately, with the adoption of this law, South Africa is not saying that it's an open country.

CURNOW: Thank you. Justice Malala there.

So, Richard, big questions. I know you've come to South Africa very often over the past few years. It's a country that has prided itself on...

(CROSSTALK)

QUEST: Robyn...

CURNOW ... on its post-democratic transition. This is damaging.

QUEST: OK. Quick question: is this an issue that the intelligentsia, the clatter, the chattering classes, the journalists are hot under the collar about, but frankly the man on the Johannesburg omnibus doesn't care about?

CURNOW: You know, that's a good question, and I think it's important you asked it, because like Justice said, this bill was voted for overwhelmingly by the ANC in parliament. As you can see, many journalists today wore black. It was called "Black Tuesday." So, indeed, maybe the chattering class will -- classes, the liberals, the journalists and civil society wore black today.

But on the streets of Johannesburg, unfortunately, for many people who watched this bill and who are fearful of it, they weren't a lot of people draped in head-to-toe black. So perhaps you're right. Perhaps for ordinary people, they're more worried about bread-and-butter issues, about a roof over their head.

But in terms of the broader scheme, when people take a step back and look at the path down which South Africa is going, that's why they're issuing (ph) these warnings.

QUEST: Robyn's in Johannesburg for us tonight, one of my favorite cities in the world, Johannesburg. Many thanks indeed, Robyn Curnow, joining us from South Africa.

In a moment, light beer or a little romance? You don't get that from other business programs. Things are better when you have light beer, romance and a light beer. And it's making the best of those partnerships. It's "THE BOSS" next.

(COMMERCIAL BREAK)

QUEST: Tonight on the bus, two of our leaders are working on making the perfect relationship. Now, in London, eHarmony's Sean Cornwell thinks he's found the perfect partner for his Internet dating business.

Across the Atlantic in Brooklyn, and Steve Hindy is introducing a taste of Italy to his all-American beer. In other words, put them together, and we are crossing the corporate cultural divide. Because, after all, these men, well, they're "THE BOSS".

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Previously, on "THE BOSS," harmony in the eHarmony team as Sean Cornwell takes his staff out on the town.

SEAN CORNWELL, V.P. INTERNATIONAL, EHARMONY: We spend a lot of time together. And I think it's important occasionally to make sure that everyone just kind of pauses for a second and just has some fun.

UNIDENTIFIED MALE: And in New York, Steve Hindy faces up to the inconvenient truth of rising prices.

STEVE HINDY, FOUNDER, CEO, BROOKLYN BREWERY: If we can increase our price by a dollar a case across all brands, we'd be able to meet the $3 million in extra costs we're going to have next year.

UNIDENTIFIED MALE: There's an Italian flavor at the Brooklyn Brewery tonight and the boss, Steve Hindy, is sharing the spotlight.

HINDY: These are our Italian partners, Betto Mini (ph), an owner of the brewery, and Picayo (ph).

UNIDENTIFIED MALE: It's the launch of Brooklyn's latest creation, the AMA Bionda , a blend of flavors and cultures. It was created in partnership with the Amarcord Brewery, a family-owned firm based in the town of Apecchio in Italy.

HINDY: We've done several collaborations with European breweries, but we came up with the idea here of an actual joint venture. So this is a business partnership between us and them.

UNIDENTIFIED MALE: The AMA Bionda is a unique project for the Brooklyn Brewery. The beer masters of both breweries worked together for months on the recipe. But it's brewed entirely in Italy at Amarcord's facilities.

At this exclusive launch party, guests from the New York restaurant and beer world are certainly making all the right noises.

UNIDENTIFIED MALE: It's great. It's light. It's a bit hoppy. It's got that little sunny essence to it, summery.

UNIDENTIFIED MALE: While not everyone's lapping it up, Steve believes there's a gap in the market for his new venture, one of his most ambitious collaborations yet.

HINDY: You know, there are more Italian restaurants in the United States than any other single kind of restaurant. And they don't really have any craft beers that fit with their theme. And we think AMA is going to do that.

UNIDENTIFIED MALE: This beer is part of a wider strategy, to build Brooklyn's global profile.

HINDY: Fifteen percent of our sales are export now, and it's growing every year. We could become a serious international brand in the next couple of decades.

UNIDENTIFIED MALE: Steve has reason to hope. Brooklyn Beer exports are up some 80 percent this year, way above projections of 50 percent, helped by the weak dollar. And Steve's confident this beer will live up to first impressions.

HINDY: If we can begin to sell this brand into Italian restaurants, maybe we can sell a little Brooklyn along the way, too.

UNIDENTIFIED MALE: Across the Atlantic, another European collaboration is up and running. The international vice president of eHarmony, Sean Cornwall, is in Berlin, checking on one of his most important ventures.

This is eDarling.

CORNWALL: I think two, three years ago, we were looking at the continental European market and we saw the big opportunity there. We definitely wanted to be part of it. But we asked ourselves are we best equipped -- we being eHarmony -- to enter that market on our own and have - - and do an organic growth strategy?

And when we were really frank about it, we realized that it was going to take a huge amount of resource that localization into non-English languages was not a core competency of eHarmony. And ultimately that making an investment in eDarling actually made a lot more sense for us.

UNIDENTIFIED MALE: EHarmony investigated European dating site eDarling in late 2009.

CORNWALL: Kind of a high level snap (ph).

UNIDENTIFIED MALE: For sure, the real selling point was foothold in some key and growing markets.

CORNWALL: EDarling covers all the major continental European markets that you would expect. So France, Germany, Spain, Netherlands, Scandinavia, Italy. EDarling is also in three very fast-growing markets -- Poland, Turkey and Russia, which is incredibly exciting.

UNIDENTIFIED MALE: Running eHarmony in Europe and juggling a significant stake in eDarling is a challenge. Paying (ph) for that collaboration to work, Sean knows he must stay alert to change it in the market.

CORNWALL: It might be helpful, also, I think to go through, on a market-by-market basis, just kind of the high-level snapshot of how each country's doing.

UNIDENTIFIED MALE: And make sure the partnership benefits both parties.

CORNWALL: I think one of the key things that we look for in this partnership between eHarmony and eDarling is the ability to learn off each other.

UNIDENTIFIED MALE: Both eHarmony and eDarling believe in long-term relationships. And both are committed to making theirs work.

CORNWALL: I think what we want to do with eDarling and eHarmony in terms of the long-term vision is really make sure that the two companies are broadly aligned, that we create the same mission, the same vision, the same kind of culture in the companies in terms of really believing in long- term relationships and the importance around those.

UNIDENTIFIED MALE: Next week, on "The Boss," in London, Sarah Curran (ph) takes online shopping offline. And from the chips to the popcorn, as Francis Lloyd gets ready for a new addition to his Macao empire. That's next week on "The Boss."

QUEST: EHarmony and beer, along with clothes and, of course, a good dose of hotels in Macao.

Going from bad to worse after a year when its shares went into freefall, Thomas Cook (ph) is going back to his vendors for another financial lifeline. Is the company (inaudible)?

(COMMERCIAL BREAK) * QUEST: Hello, I'm Richard Quest.

More QUEST MEANS BUSINESS in a moment.

This is CNN. And here, the news always comes first. Egypt's military rulers are denying using (AUDIO GAP) days. Field Marshal Mohamed Hussein Tantawi said in a national address that the Military Council does not want to rule. Presidential elections will be held by June. The speech was not well received by the crowds still in Tahrir Square.

Egyptian television says three Americans have been arrested during the Square's protests. Authorities say the men were throwing Molotov cocktails. The American University in Cairo says the students are in Egypt on a study abroad program. The sister of one man says she looks absolutely terrified.

The chief prosecutor of the International Criminal Court is in Libya today for talks on jurisdiction in the case of two high profile Moammar Gadhafi loyalists. Gadhafi's son, Saif al-Islam and his former spy chief are both in custody in Libya and both are wanted by the ICC.

The Turkish prime minister has a stern warning for Syria's president - - quit now or you may end up like Libya's Moammar Gadhafi. And separately, a U.N. humanitarian committee voted on Tuesday to condemn Syria's violent crackdown on dissidents.

Despite all that, activists say at least 17 Syrians were killed on Tuesday.

And so to our business agenda and Thomas Cook, the travel company, saw its share price collapse this day. It blames the Arab spring for splitting financial headache. Just a month ago, Tim Cook secured $156 million in short-term credit. Now, it's going to go back to lenders for more. It's been forced to renegotiate the terms of a debt burden, $1.5 billion.

Not surprisingly, look at what happened to the share price. Yes, that really is a seven and a five -- 75 percent down today, which heaped misery on what's been a terrible year for one of the world's oldest holiday companies.

If you join me at the super screen, I can put it in perspective for you.

This is since January of this year. So let's just run the numbers and you see the share price, probably the largest fall, of course, happening here in -- at the end of the summer. But down some 95 percent in total.

Now, what happened here was the CEO resigned after 11 years, Manny Fontenla-Novoa. He bowed out after all that time at the helm.

If that wasn't enough, well, it continued, I'm afraid, that fall, down even further. And that's where the share price is at the moment.

So what we have is not only this dramatic fall, but a year where, frankly, in this quarter, just about nothing has actually taken place.

All in all, the share price of Thomas Cook down nearly 95 percent.

Factoring that together, it has been a tough year for everyone in the tourist business, not least because two of the top winter destinations have gone through revolutions.

CNN's Jim Boulden shows us what Thomas Cook has been frankly fighting against.

(BEGIN VIDEOTAPE)

JIM BOULDEN, CNN CORRESPONDENT (voice-over): It's been about 150 years since Thomas Cook and his son began providing packaged holidays for people in Britain who rarely, if ever, traveled on vacation before, the middle class.

Today's Thomas Cook is not just a holiday booking service. It has more than 30,000 employees under a number of travel brands. It's also a big U.K. airline and has operations throughout Western Europe. Thomas Cook sends Europeans all over the world.

But all that diversity hasn't made Thomas Cook immune to today's problems -- a slowing economy and rising unemployment is hurting bookings from within the UK. Thomas Cook says the Euro crisis is responsible for a 20 percent drop in bookings out of France and Belgium compared to last year. And it says travel to its key North African destinations like Tunisia has not come back as expected.

And, of course, the scenes in Egypt and these scenes in Thailand with the floods have caused disruption to popular destinations.

SIMON CALDER, TRAVEL WRITER: Thomas Cook has had quite a lot of bad luck recently, or, indeed, bad decisions, depending how you want to look at it.

They went into Russia thinking, well, this is a profitable market. But the Russians go on holiday to Thailand, where there have been floods, and Egypt, where there's been political turmoil.

BOULDEN: Thomas Cook said Tuesday it will delay publishing its results until negotiations with its banks are complete. But it said it is a, quote, "robust company" and expects to report and operating profit for the year up to the end of September thanks to decent business in Germany and Scandinavia.

But Thomas Cook said it looked Monday at recent bookings and says it's worried that Europe is deteriorating so quickly and could get much worse that it's time to go back to the banks and ask for a new line of credit -- an urgent need for cash for a company that's been around since Queen Victoria.

(END VIDEO TAPE)

QUEST: Been around since Queen Victoria.

BOULDEN: Hmmm.

QUEST: We are not amused.

Is Thomas Cook going out of business?

BOULDEN: No, it's not. And a...

QUEST: Come on, I'll ask you that again.

BOULDEN: The...

QUEST: Is Thomas Cook going out of business?

BOULDEN: No, not -- that's not what's going to happen here. The banks -- the CEO, the acting CEO was on the conference call. And he went to great pains to say that they're a robust company, people...

QUEST: Ah.

BOULDEN: -- people should continue to book...

QUEST: I'm sure he said that...

BOULDEN: Flights are taking off. No, if -- it they were going to -- if they were to close tomorrow, I think he wouldn't have been able to be so -- so...

QUEST: Right. I'm just (INAUDIBLE).

BOULDEN: I know. So -- so the banks have already loaned them $156 million. They're going to have to loan them the money again. They're going to have to give them money through December so at least people will be able to -- to travel with Thomas Cook through Christmas.

QUEST: All right, so let...

BOULDEN: Let's leave it at that.

QUEST: -- let's forget the -- the Egypt problem...

BOULDEN: Yes.

QUEST: -- or the whatever, because there's always going to be a -- a problem in the...

BOULDEN: Yes.

QUEST: -- in the industry. The core question is whether their model works. Those shops that they're wanting to go -- that they merged with -- Coop Travel, I think it was. Remember it was...

BOULDEN: Coop Travel (ph). Yes.

QUEST: Coop Travel. Those shops that they merged, people aren't buying the holidays that way anymore.

BOULDEN: We've been talking about this all day.

Why do you want to package holidays?

Somebody obviously wants to do packaged holidays. It's just a -- and I don't -- I don't know who they are, but people are doing that.

QUEST: No, no, no, no, no, no, no, no, no, no, no, no. No, no, no, no, Jim. There's nothing wrong with a packaged holiday. I -- I'm -- I'm a great believer in the packaged holiday. I went on one in January of this year. It's a question of the vehicle by which you buy it.

BOULDEN: Right.

QUEST: Do you go to a shop...

BOULDEN: Yes.

QUEST: -- or do you just mouse your way to the deal you want?

BOULDEN: And the -- and their Web site is fabulous. I mean they've got plenty of deals on there. And that brings down the costs. But then you're right, they did take over all these shops, had nearly a thousand, down to 800 and will get rid of a lot more. And they also did, you know, they took over an airline in Germany. There's been a lot of mergers in this field. They have consolidated and that seemed to have been the right thing to do. But moving into Russia seems to have been a very bad thing to do.

QUEST: OK, if Thomas Cook is experiencing this problem, what about Toohey, its -- its larger competitor?

BOULDEN: Yes, I mean it's been a terrible year for travel. I think one of the things you have to look at is -- Thomas Cook specifically likes to have people go to North Africa. So when you talked about strategy, that didn't work.

But that's not their fault. Others go to various places. They -- the Russians...

QUEST: Well...

BOULDEN: -- want to go to Thailand. That's why Russia has been a disaster, after they moved in there, because the Russians, for some reason, love Thailand. You have floods in Thailand.

So strategy didn't work, which I don't know that you can look at them and say, it's your fault, you should have known better.

QUEST: You could have moved -- well, we -- we can argue that one...

BOULDEN: Yes.

QUEST: -- they should be more nimble.

BOULDEN: Um.

QUEST: You sure they're not going out of business?

BOULDEN: You can book your flights tomorrow. That's what the CEO said.

(LAUGHTER)

QUEST: We'll take it to the bank.

But not actually. But in fairness...

BOULDEN: Yes.

QUEST: -- they're not going to go out of business. They'll probably be around for another 150 years.

Thomas Cook, many thanks, indeed, Jim Boulden.

Chancellor Merkel offers Spain's new prime minister her warmest congratulation.

But with friends like Chancellor Merkel, who needs enemies?

She's leaving him in no doubt about what she expects. We're reading between the lines of her communication.

QUEST MEANS BUSINESS.

Good evening.

(COMMERCIAL BREAK)

QUEST: Say what you mean and mean what you say -- in her first letter to Spain's new prime minister (ph), Angela Merkel isn't beating around the bush. She's kept pleasantries to a bare minimum. The German chancellor is all too clear of what she expects of him.

She starts the letter off very polite, "Dear Mr. Ahoy (ph), I congratulate you on your electoral victory." And then it begins: "You have received" what she described as a clear mandate to approve and execute the necessary reforms from your population in these very difficult times for the Spanish people, and, indeed, for all of Europe.

She gets -- she goes on and she says: "I wish you the best of luck and success for the responsible execution of your mandate. I look forward to working with you on advancing European integration for the good of Europe. At the same time, I look forward to advancing the traditionally good ties," blah, blah, blah, blah, blah, blah, blah, blah, of our countries. Best regards, Angela Merkel.

That's, of course, from the German chancellor.

Now, it's certainly to the point. Whether it actually borders on the rude or not is open to interpretation.

Robert Hickey is the deputy director of protocol at the School of Washington.

He joins me now live from New York.

When you read what Mrs. Merkel said, bolstering the -- this phrase about the mandate, execution and responsible, she's left no one in any doubt, has she?

ROBERT HICKEY, DEPUTY DIRECTOR, PROTOCOL SCHOOL OF WASHINGTON: Well, it -- it sounded to me like a very typical German approach, that it was very direct, that she wanted to say exactly what she wanted said. And there wasn't a lot of window dressing around what she had to say.

And in the Spanish style, which is a more indirect style, they would have probably not mentioned that until maybe the second or third communication, because all -- everything she wanted was really clear and everybody knew that.

But the Spanish are much more deferential and would have waited until later.

QUEST: All right. OK. So is she being direct or is she being rude?

HICKEY: You know, for me, it's a cross-cultural issue. There's a big difference between the -- the styles of a German -- of the German people and the style of the Spanish -- Spanish people. And so it would definitely be considered rude within the Spanish culture if a Spaniard had talked to another Spaniard that way.

But the -- but in this case, there's a big -- it probably doesn't show a lot of culturally sensitivity...

QUEST: All right...

HICKEY: -- to present it really well.

QUEST: OK. Now, we're at the position now where these European leaders know each other extremely well.

But when you get Cameron of Britain saying about Sarkozy, how would he feel about a tax on cheese and you get Sarkozy saying of Cameron, why don't you shut up, and -- rather than joining the euro, stop criticizing from the outside, do you think there's a point upon which protocol finally breaks down?

HICKEY: I -- well, I would say that protocol defines their relationships. And, actually, when protocol works well, it creates an environment which is a stress-free environment where the people really get to communicate what they want to say really, really easily and correctly.

So when someone is rude like that, it really doesn't build the relationships. And that's what we want our -- our leaders to do, is to have the relationships that are effective.

So, yes, absolutely. If they are going to be rude to one another, it doesn't help anybody. It just makes them feel like they're powerful cowboys.

QUEST: OK. Powerful cowboys, but the situation is so serious.

Do you detect, Robert, in public life, a diminishing respect for protocol?

You've been a student of it for -- for many years. You've obviously lived your life by the rules of protocol.

Do you think we now think, ah, it's old fuddy-duddy stuff, say what you mean, mean what you say, get on with it?

HICKEY: I think that -- that in the speed of communication now, leaders are held responsible for very quick turnaround. And so they don't have the slowness that they used to have a few years ago. I mean years ago, one leader would never even talk to another leader. It would go from -- it would go from his mouth to the diplomat or across the diplomat and up a chain.

And today it's so fast that they really are probably much more unguarded with one another. And it doesn't really serve anybody's interests.

So you're right. And, also, in -- in the case of our elected leaders, they're elected without any experience or any training to really be the seasoned diplomats that our country needs.

QUEST: We thank you for that.

That -- that was a diplomatic way, following protocol, of telling us what you think on that front.

Many thanks, indeed, for joining us.

Angela Merkel -- we await to see what the reply was. We can only speculate on what she might have said or what Mr. Rajoy might have said.

QUEST MEANS BUSINESS for you on this Tuesday edition.

Qantas has a P.R. problem. The carrier's ongoing turmoil -- we will talk about the question of PR. You know the old adage, all P.R. is good, eventually. Tell that to Qantas.

(COMMERCIAL BREAK)

QUEST: Escalating labor strife, emergency landings, falling stock prices, drama is a way of life at the Australian national flag career, Qantas. In 2000 -- well, you know, the Qantas A380, where the engine exploded and nearly took off most of the wing, flying from Singapore. It's diverted. The plane lands, but fault is in the Rolls-Royce engine. Qantas' pilots are praised. Qantas' management perhaps not so, for the way they are maintaining the airline.

We also have a Qantas restricting taking place at the moment, Qantas International losing money, more flights being shifted across to the low cost subside, Qantas -- Jetstar. They're trying to stem international losses.

And most recently, the industrial strife -- the dispute between Qantas and its unions, which caused or led the airline to ground the planes. Tens of thousands of passengers were stranded. They're now in arbitration, which is not going well.

All in all, you might wonder what is happening.

But now Qantas has a public relations debacle on its hands. It all started when Qantas offered to give a competition to win 50 pairs of its fine first class pajamas. Now, all you had to do was go to the carrier's hash tag on Twitter and say why you thought Qantas luxury was so good and this could have been yours.

Remember what I just said about all these problems, particularly this one. And now Qantas is inviting passengers to say on hash tag qantasluxury why -- well, needless to say, people responded very viciously.

From front to back, the messages came out: "Qantas' Twitter campaign might be the Hindenburg of social media."

We had: "Qantas indicating Qantas luxury class, same as standard class, but the plane leaves the ground."

There are hundreds of these.

"I've experienced really Qantas luxury the last few years by flying on other airlines instead."

And right at the front: "Qantas luxury is bathing over an airport toilet with a bottle of water because you are stranded at the terminal."

And all this because they were having a competition to give away a pair of pajamas. The sheer amount of negative publicity coming Qantas' way is extraordinary.

Before we went away, I talked to Paul Charles, chief executive of travel and transport agency, P.R. agency PCC.

He's also the former communications director for Eurostar and Virgin Atlantic.

Is all this an example of the old adage that, frankly, all publicity is still good publicity?

PAUL CHARLES, CEO, PCC: Usually I would say yes for most organizations. But not for Qantas in this particular case. They've been through an horrendous last few weeks. They've been through a period where they've taken the decision that no other airline CEO I know would take, which is to ground their own airline for non-safety reasons.

And now, coming so quickly after that debacle, which had -- isn't over, hasn't been completed, they're clearly in the wrong for doing this at the same time.

QUEST: So you're not surprised at the wrath that's come forward.

Should they have foreseen this?

What should they have done?

Should they have abandoned this Qantas luxury idea?

CHARLES: Yes, without doubt, they should have abandoned it. They should be dealing with the aftermath of that close down. And it's not over by a long way. It's not over because people have not received compensation, they've lot a lot of money, in some cases, and they haven't got closure with their own unions yet.

QUEST: So how does this sort of mess-up happen?

Is it a case of the left hand and the right hand not knowing what's happening, something who had a strategy for a competition just never thought -- I mean what would you tell them, are you barking mad?

CHARLES: Well, in larger organizations, it's quite common for departments not to talk to each other, for there to be no joined up thinking on communications. Often adverts will run in newspapers or on TV. And it will clash with something the P.R. team are doing.

Clearly, there hasn't been a joined up strategy here in the aftermath of one of the worst cases of P.R. that Qantas has had to deal with.

QUEST: What does it tell you about what's happening at Qantas?

CHARLES: Well, there is strong leadership. Alan Joyce, the CEO, is a strong leader, without doubt. He is respected in many circles...

QUEST: You're being -- you're being kind here, Paul.

What does it tell you...

CHARLES: I'm not...

QUEST: -- about their ability to have a P.R. strategy?

CHARLES: It tells me that the leadership is not filtering down through all bits of the organization. It's coming from the top but people are not taking on board the changing nature of how Qantas should be talking to its customers. It needs to adopt a completely different tone since that close-down that happened, that shut down that happened just a few weeks ago.

QUEST: And if we just take an example of the -- the very competition that they invented, hash tag Qantas Luxury, tell us about your experience, isn't it inevitable that they were going to be crucified and excoriated in public, even if they didn't have these other issues?

It's just in -- it's, you know, red rag to bull's bill.

CHARLES: Qantas has had its fair share of issues over the last 18 months. It's not just the last...

QUEST: Well, you wouldn't do it.

CHARLES: -- two weeks...

QUEST: You wouldn't advise them to do that sort of competition.

CHARLES: I would have -- I would advise them to do it, but not so early after the shutdown. And that's their problem. They've done this within the space of a month, less than a month after that shutdown, which caused horrendous problems for so many thousands of people around the globe, not just in Australia. And that's the problem. They've too quickly pressed the button on an initiative that, on paper, looks really good, looks really exciting, but in reality, the public is not ready for. And that means Qantas have not read the tea leaves of public opinion well enough.

(END VIDEO TAPE)

QUEST: Paul Charles there.

These actually belong to somebody. Hopefully they washed them before they sent them our way.

Jenny Harrison is at the World Weather Center for us this evening -- good evening.

JENNY HARRISON, CNN METEOROLOGIST: Good evening, Richard.

Well, I thought I'd start with weather conditions, actually, in Australia, simply because that's been a bit of a heat wave across the west and a lack of rain across areas of the east.

Both things actually set to change, but not for a little while. The heat, you can see the satellite. A lot of clouds streaming across eastern regions between New South Wales and on toward Queensland. And that certainly is where the front is. That is where we're going to see the rain, some heavy rain at times, heading into that general direction.

But with the winds coming from the interior, very warm, indeed, across Western Australia. And that really does mean (INAUDIBLE).

Look at this, 35 Celsius this Wednesday. The average high this time of year is 26. Now, it's 36 degrees Celsius on Thursday. It does cool off a bit ahead of the end of the week. It's still above average. But it's the overnight temperatures that are going to be very warm, as well, for the next few days.

And remember, as well, these temperatures, these high temperatures, that is the forecast for the shade. So it's going to feel much hotter than that, actually, under those sunny skies.

Now, that rain is heading in toward Queensland. I'm sure it will be fairly welcome, because it has, indeed, been the driest start to November in Brisbane since 1919. And that's because so far, there has been no rain at all. The average for the month of November is 110 millimeters.

You will be seeing some rain as the we go through Wednesday. So southeast good news there.

You can see that lines of showers and thunderstorms, too. You can see it working its way fairly eastward. It does begin to peter out a little bit. But even so, it is bringing some much needed rain with it.

Temperature wise, we should see about 18 Celsius in Sydney and 28 degrees Celsius your high in Perth.

But as I say, very warm, indeed -- that's not a high in Perth, the high in Brisbane. But very warm across its path.

And then just quickly, I've run out of time, Richard, just to say in Europe, still, there is some patchy fog. And, in fact, the worst fog right now is across in areas of Germany. But it's much by the year across the Low Countries and also in the southeast of the UK.

QUEST: Travel is likely to be difficult in the morning.

We thank you, Jenny Harrison, at the World Weather Center.

When I come back, A Profitable Moment.

(COMMERCIAL BREAK)

QUEST: Tonight's Profitable Moment.

There is a moral in the attempt by Qantas to repair its battered public image through the Twitter quiz and campaign that has spectacularly failed.

Now, Qantas asked people, if you want to win some pajamas, to tell us -- or to tell them, actually, about your Qantas Luxury experience.

The problem is, was Twitter the right vehicle for this, in any event, let alone whether they've had a problem of a strike or a problem of a -- of an airline in somewhat of a crisis?

The reality is, maybe social media, where people can vent their spleen in a stream of angry, sarcastic comments, is not the way you want to go, even when a pair of PJs is at stake.

And that is QUEST MEANS BUSINESS for tonight.

I'm Richard Quest, QUEST MEANS BUSINESS.

Whatever you're up to in the hours ahead, I hope it's profitable.

@richardquest, that's the Twitter address.

END