U.S. Consumer Confidence Down; Continental Leaves SkyTeam for Star Alliance
RICHARD QUEST, CNN INTERNATIONAL ANCHOR: A collapse in confidence, U.S. consumers now seriously worried about unemployment and the economy. And a new star in the air. Continental Airlines shifts alliances to the largest alliance in the world. I'm Richard Quest, from Newark's Liberty Airport. I mean business. Good evening. Kind of them to lend me this plane that this evening will probably be crossing the Atlantic, a Boeing 757 of Continental Airlines. Over the course of this program, Adrian Finighan will be bringing us up to date with European markets, and you will be hearing from the chief executives of Continental Airlines, Singapore Airlines, Lufthansa, and United Airlines. It's all part of our coverage, getting to grips and getting to feel how the aviation industry is handling the downturn and the recession. There was disappointing news on that front here in the United States today. Consumer confidence numbers actually tumbled, a very sharp fall at a time when analysts had expected it to be either an increase or, at very best, unchanged. This sharp fall took the market with us. Susan Lisovicz is at the New York Stock Exchange. Susan Lisovicz joins me now in New York to put perspective into it. What happened? Why did the market fall?</s>SUSAN LISOVICZ, CNN FINANCIAL CORRESPONDENT: Well, you know, to be honest with you, Richard, I mean, it wasn't really much of a rally to begin with. We had a higher open on this encouraging housing prices report. Then we got the consumer confidence report 30 minutes after the open, and that really -- that really took some of the air out of the bubble, if you will. We're coming off of back-to-back triple-digit losses for the Dow. That's the first time we've seen that since June. And there are some concerns. It's also kind of a slow day, to be honest with you. Monday and Tuesday have been slow, so these economic reports are -- pretty much take front and center with what is happening on Wall Street. And what we're seeing right now is very modest gains for the Dow, which is below 10,000, up nearly half a percent. But the NASDAQ is down by about a percent. And the broader S&P; 500, it's completely neutral, it's flat, Richard.</s>QUEST: But there is no getting away from the fact, Susan, however we may wish to portray it, there was this falling consumer confidence at a time when they expected the number to improve and the reason behind it seems to be a deepening concern over jobs. Isn't that sort of more worrying looking into the forward (ph), because consumer confidence is supposedly one of those forward-looking indicators?</s>LISOVICZ: It is. And, you know, you have to remember that what we've seen and what people like us and many others are saying is that not only is the unemployment rate high, at a 26-year high, rose in September to 9.8 percent, but it's going to get higher still. And so, you know, one of the key measures of this consumer confidence report is, you know, what is the present situation? And that fell to a multi-year low. What happens oftentimes how we feel is, you know, what we do. And what we do in the United States accounts for about 70 percent of economic activity. The Conference Board surveys 5,000 consumers, of those 5,000 people surveyed, nearly 50 percent that current business conditions are bad, and that was up from September, less than 8 percent, Richard, said current conditions are good, which is also less than a month earlier. And furthermore, Americans are even less confident about the employment outlook, nearly half of those surveyed said jobs are hard to get, again, more than in September. And just over 3 percent, 3 percent say jobs are plentiful. Consumers are divided over whether they believe conditions will get better, get worse, or stay the same over the next six months. But the drop in overall confidence is raising some eyebrows on Wall Street. And the path of least resistance today seems to be down. You know, there is not much action in terms of a rally.</s>QUEST: Susan Lisovicz at the New York Stock Exchange, thank you.</s>LISOVICZ: You're welcome, Richard.</s>ADRIAN FINIGHAN, CNN INTERNATIONAL ANCHOR: Stocks here in Europe, Richard, struggled for direction this session as a banking selloff offset gains in the energy sector. Let me show you what went on today, starting with London's FTSE. BP was up nearly 5 percent today on upbeat earnings, both Shell and BG Group, that's the natural gas giant, they were both up 1.2 percent. The banks led declines, RBS down more than 8 percent, Lloyds down by more than 6 percent today. That was on the fallout of the break-up of ING that we were telling you about this time yesterday on QUEST MEANS BUSINESS. Over in Frankfurt, the DAX, financials, not surprisingly, among the weakest there too. Commerzbank down more than 5 percent. Car-makers also fell. BMW was down more than 3 percent. Daimler down more than 2 percent. The chip-maker Infineon fell by, get this, 7.5 percent. There is speculation today that it has perhaps lost a lucrative contract with Apple. Into Paris, then, and investors sold off banking shares again there today. Dexia down nearly 6 percent, Societe Generale down more than 3 percent. The drinks-maker Pernod Ricard rose more than 3 percent. Nomura upgraded those particular shares there, which was behind that gain. And as you heard, BP the top performer London on the FTSE today, even though the company has said that it made nearly $5 billion in the third quarter. That's as half as much as it made this time last year, $10 billion a year ago. But the numbers came in way ahead of analysts' forecast. BP says that it has been cutting costs and has increased production by 7 percent. And that has helped to minimize losses caused by the drop in oil prices from the record highs of 2008. Now a major oil discovery in the Gulf of Mexico last month is also fueling hopes that output will rise. All of that helping BP today. Airline stocks, though, had a pretty rough ride this session as oil prices remained volatile. But, a big chunk of the sector had reason to celebrate today. Star Alliance, the world's largest group of airlines, welcomed its 25th member to the fold today. Continental Airlines completed a world first, leaving one alliance, SkyTeam, to join another. And as you saw, Richard Quest is at Newark Airport for us today, and he is covering the event and talking to a whole host of CEOs. And something you didn't say, Richard, when the show started, is that plane behind you, they wheeled it in specially for us, didn't they?</s>QUEST: They did wheel the plane in specially. I'm told that they haven't delayed any flights for us to be using it. But it was outside in the wet and pouring rain. And now, of course, a very expensive $100 million prop. And we thank them for that. The decision of Continental to move from SkyTeam to Star Alliance became inevitable after Delta Air Lines merged with Northwest. But for all airlines in the world at the moment, these are very difficult times as the third quarter reporting season shows. What we really saw was basic weakness in terms of premium demand and no ability necessarily to raise prices. One of the advantages of being here today for the Star Alliance event was I was able to sit and talk with the world's top CEOs. For instance, Glenn Tilton of United Airlines. United one of the largest carriers in the world, what is he seeing in terms of the market?</s>GLENN TILTON, CHAIRMAN & CEO, UNITED AIRLINES: We're seeing gradual improvement. I mean, on a month-to-month basis, you're seeing sequential improvement. So each month a little better than the one before. So clearly there is some momentum off the bottom. And that's what we're seeing in all markets, a little different one market to the other, Richard, but we are seeing some improvement.</s>QUEST: Do you -- are you worried, as we're going into winter, that $80 -- $75, $80 a barrel of fuel, is that going to be a concern?</s>TILTON: I think fuel is always a concern, Richard. But I think that sooner or later it responds to the fundamentals of demand. You can see that the crack spread, the refinery margin is more reflective of genuine demand today than it was back when the real, real escalation took place over a year ago.</s>QUEST: And what more can the aviation industry or the airline industry do? You've got 8 percent, roughly, cuts in capacity. We've seen consumer confidence numbers today that are pretty horrific. Is there a worry that the next downturn is there?</s>TILTON: No, I don't think so. I don't think we're going to see a "W" in terms of the recovery. I think we're going to see a gradual U-shaped recovery. I think it's going to come slowly. But I think when it comes, it is going to be accompanied by a tremendous amount of work that the carriers have done to position themselves to benefit from the recovery. Tremendous work on the cost side, this Alliance event is a significant one. So tremendous, I think, preparation for the up cycle, because the companies have done a tremendous amount of work including liquidity raises with their balance sheets.</s>QUEST: So, that is the view as seen from one of the very large domestic U.S. carriers, Glenn Tilton. The airline, United, has tentacles across the Atlantic and across the Pacific. To get the Pacific perspective, I turned to Chew Choon Seng of Singapore Airlines, an aircraft and airline known for its premium service, but one that has also suffered from difficulties with a drop in demand. What are they seeing out of Singapore?</s>CHEW CHOON SENG, CEO, SINGAPORE AIRLINES: You're absolutely right, Richard. Demand has stabilized, but it's too early to call a turn and to say whether this recovery is going to be sustained for much longer.</s>QUEST: On the long haul routes, what more can you do to cut costs? There is not a lot more. You've got these expensive 380s which, I wonder whether you will regret putting into service now. Capacity is difficult to reduce with them.</s>CHEW: No, the 380 has done very well for us in terms of delivering the promised cost efficiencies. So it is doing its job for us to the extent that we are able to fill the airplanes. And I must say the routes on which we have deployed the aircraft, London to Paris to Tokyo to Sydney, have all been doing well. So the aircraft has been doing its job for us. Our challenge has been more throughout the rest of the network where the U's (ph) are not holding up.</s>QUEST: There is very little you can do about that. You either give the seats away, or you let the plane fly empty, which is your preference?</s>CHEW: Well, that's in the short term, Richard. I think when the demand returns, and as the market firms up and we run higher load factors, then we will start managing the yield up again.</s>QUEST: Which part of the world do you like the look of most to move capacity into? Clearly some parts just are not -- I mean, trans-Pacific is very, very difficult.</s>CHEW: Well, right now the strongest market for us China-India still. But the Australia-New Zealand market is very firm as well. And markets in Germany and in France are looking up too.</s>QUEST: And the bits you don't like?</s>CHEW: The bits we don't like are at this moment: America, Japan, the</s>U.K. QUEST: Oil $80 a barrel, what more can you do about that? If that looks like the numbers, $70 to $80 a barrel that you're going to go into the winter at, can you live with that?</s>CHEW: Yes. I think $80 oil, we've learned to manage it, but if it goes anywhere higher than that, and gets near three digits, then all bets are off, and fuel surcharges will go up again, and -- but I think before we reach that point, Richard, the global economy itself will slow down if oil keeps on going up.</s>QUEST: No one wants to run -- no one wants to contract their airline. And you've had to do that over the last few years. That was not what you came into the business to do.</s>CHEW: Absolutely.</s>QUEST: When do you hope to be able to expand the airline again?</s>CHEW: Well, when demand returns. When global trade flows stop firming up and unemployment numbers start coming down, that will be the point.</s>QUEST: Chew Choon Seng of Singapore Airlines. In Europe, Lufthansa has been making the news of late. Not content with taking over Swiss, it went for and received Austrian, Brussels, and, of course, now also owns BMI of the U.K. For Wolfgang Mayrhuber, integrating these airlines and at the same time having a cohesion policy is difficult at time of recession.</s>WOLFGANG MAYRHUBER, CEO, LUFTHANSA: Well, I mean, that's the way it is. I think running a company or your own family, you must make sure that you survive in crisis, which we are doing. But at the end of the day, I'm absolutely convinced that mobility is so important for the global societies, for the economy, that the demand will come back again and grow. And we are just at the beginning, I always say (ph). Currently 70 percent of world traffic is done between Europe's -- Europeans and Americans, but you have only 50 percent of the world population. Here you can imagine how big the opportunities are.</s>QUEST: Wolfgang Mayrhuber of Lufthansa. When we come back at the half past, we'll hear from the chief executive-elect, Jeff Smisek, of Continental Airlines, an in-depth interview in which he questions the role of speculators in the oil market. It is a topical subject, it's QUEST MEANS BUSINESS from Newark.