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Inside Business -

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(generated from captions) Closed Captions by CSI G'day there and welcome to the program welcome to the

program. It it's been a year

of shocks for the liern

industry. This week it was

capped off by the grounding of

Tiger Airwaysal August over

safety concerns. We'll look at

what that means for budget

travel and check-in with

Qantas's Chief Executive Alan

Joyce. While Europe's debt

crisis has been capturing the

headlines lately, a mound of

local government debt in China

has economists worried as well.

We'll talk to ANZ's man on the

ground in China, Li-Gang Liu.

This Program is Captioned Live This program is not subtitled

In First Person, the online

re tailer that's cashing in on

leftovers. We find business

is very much recession proof.

Suppliers always have stock

that they need to move.

Yesterday we sold 16,000 sets

of pillows on the site in one

day. Last week we sold 1400

Dell laptops in two-and-a-half

hours. This week the civil

aviation and safety authority

took the unprecedented step of

grounding an entire airline

because of safety issues.

Wests Tigers is set to resume

flying next week. Even if it

does return to the flies it is

doubtful the company's

reputation can ever recover.

In a moment I'll discuss the

situation with Alan Joyce of

Qantas, but first James Panichi

reports that Tigers problems

could mean some serious

upheaval for the leisure travel

business. Volcanic ash,

natural disasters, a soaring

Australian dollar, sky bound

petrol prices and a wounded

Tiger, no-one wonder

Australia's domestic tourism

industry has lost its groove.

The risk level got to such a

stage that we could not allow

them to continue on. Yet in

spite of the doom and gloom,

some investors are upbeat about

aviation. One wonders why

there's such negativity out

there when the backdrop for

sustainable broad earnings for

the markets seem to be quite

intact. You may not like an

industry per se, but there are

times when valuations can be

quite compelling. So why the

optimism? When fuel prices

went up last year, Virgin and

Qantas shares began to plummet.

Industrial unrest added to

investor nerves, causing both

carriers to drop a third of

their value between October and

June. Late last year fuel prices started rising quite

aggressively up to the peak in

April May, there's severe under

performance in airline stocks

because it is impacts their

profitability and up to 30% it

is impacted. There's headwinds

there. They are a an important cyclical sector to be

considering to invest. The

other cost is Labor. It is

probably one of the reason the

Qantas share price is so

depressed because people are

uncertain of the outcome given

the number of negotiations that Qantas are undergoing. Every

company goes through

negotiations, conditions all negotiations, salary

the rest of it. We're no

different. We'll go through

those. We're going through

some at the moment. I think

you can resolve anything

between any two parties if you

approach it in a very rational

and pragmatic way. While fuel

prices and equipment are

largely out of the airline's

control, the main cost variable

is labour which explains why

Qantas is taking such a strong

stand on industrial

relations. Right now, Qantas

have to dig in and fight these

battles as unplease sent as

they are. No-one is going to

argue people should receive a

pay rise, it is an expensive

place to live these days,

Australia, there have to be a

trade off in terms of

productivity. That's the only

way Qantas can continue to

compete. Whatever the reason

for market caution in aviation, travel agents fear the

possibility loss of Tiger will

compound the domestic toour

tourism slump Having Tiger in

the market is good for competition of when new

carriers domestically and

internationally come into the

market and open up new routes

that's good for consumers.

Typically we find there's some

impact on prices. It becomes a

little bit more competitive.

Tiger moving out we'll have to

wait and see what the impact is

it for customers. Never.

Never. Never. Tiger's troubles

have given Virgin and Qantas shares a much needed shot in

the arm this week. That's

because Tiger accounts for 5%

of domestic passengers. Its predicament will leave Virgin

alone to slug it out with Qantas's growing discount

carrier Jetstar. Jetstar is one

of the 100 brand names in

Japan. It shows you it does

have some cachet offshore and clearly it is a different

business model to Qantas it has

than Qantas can because more reach T did do more things

Qantas's cost structure is so

different to Jetstar. Tiger's

grounding this week has kept public attention firmly focused

on the cut throat competition at the budget end of the

market. There's another battle

looming. Virgin is preparing

to take on Qantas's dominance

of the high flying business market, those corporate

customers who are prepared to

pay more for better service. It

is always difficult to take on

a large competitor and this is

no different. But the truth is

that the market does want

competition and I can tell you

that on a daily basis, on a

daily basis, I get either an

email or a call from someone in

the business community saying

good on you and that's

terrific, would we've just

flown your new product it is

fantastic and it is about time competition comes into that

sector. The corporate dollar

is a good quality dollar and it

is a good margin business.

Time will tell. They're doing

everything they can to have a

healthy competition with Qantas

and I'm sure Qantas are quite

happy with that and ts to

compete in return. The survival

of Tiger airways may multi lit

be good for competition and

consumers, but with no end in

sight to the sluggish tourist

market. Tiger's parent,

Singapore Airlines, will need

deep pockets to keep Tiger in

the game. Tiger's suspension

has actually provided a much

needed Phillip for its watered

rivals Qantas and Virgin Blue.

The major carriers have plenty

of problems of their own. I

spoke to Qantas's Chief

Executive Alan Joyce on

Friday. Alan Joyce how much of

Tiger's volume have you been

picking up? It is interesting

N this week, I think Tiger have

said they were going to be

carrying 35,000 passengers.

The Qantas group or Qantas and

Jetstar is picking up around

10,000 of that volume. We have

seen a lot of traffic actually

not travelling which I suppose shows how price sensitive this

end of the market S Tiger has

about 5% of the market. If

they didn't survive would you

expect Jetstar would pick up

all of that capacity it? What

we're saying our plans going

forward wouldn't change much

between Tiger operating or not

operating. Do you think they'll

survive? I think they still be there and still be operating. You're assume ing

inyour planning they will

around, but do you really think

so? Yes. I think, you know,

from a Singapore Airlines point

of view, certainly they are

getting involved in getting

Tiger back into the air. I

think there is... I can't see

an alternative for Tiger

re-deploying a lot of aircraft

into Asia at this stage. I

think there is a big issue in

Tiger's business model being

successful if it only has

Singapore as a base. They need

to show that they can make a

work in multiple areas. I

think their success in

Australia has been non-existent

to date and I think they need

to get the business back into

operation here for them to be

perceived as a Pan-Asian

brand. A bit of a set back,

wouldn't you say? I think, you

know, from a brand perspective,

this has gone to obviously

going to have a significant

impact on them. How they

handle this and how they manage

this I think is going to be

critical. We're all crisis

management. How you handle these issues is extremely

important. Tiger claims to have

brought down fares in the

Australian market. Has your

pricing improved since they

have been suspended? I think

the impact of Tiger has been

overstated this. Has been a

very competitive market in the

Australian market for some

time. We have very strong

competition between Virgin

Australia and Jetstar in the

leisure end of the market. We

have Qantas on leisure markets

on the big volume markets

having a fairly extensive

airfares out there to be

competitive and so Tiger

operates on 5% of the domestic

market. Its impact on low

airfares is overstated. Yes,

but you didn't answer the

question. Has your pricing

improved since Tiger was

suspended? Well, we have

been... We have not been

increasing prices as a

consequence of what... Of

Tiger's grounding. In fact,

both Jetstar and Qantas have

made fares available to

disrupted Tiger passengers to

allow them to travel at fairly

discounted rates. Can I ask

another way. Have your yields

improved? . The yields won't

have improved because what we're doing in the short-term

is making these fares available

to to the travelling public as

people that are displaced by

Tiger grounding can travel at

discounted airfares. That's

something that we have done in other situations in the past

and it's something we're doing

now. In your trading update on

June 22, you said Qantas

International would lose $200

million and more next year. As

I understand it, the Los

Angeles and London routes are

both losing money and they used

to be your most profitable. Are any of your international

routes actually making known?

Yes. International has routes

that are making money. For

commercial reasons I'm not

going to go into the details

which routes are loss making

and which are profit making.

Needless to say we do have an issue on international. The

issue has been there for some

time. The international

business has not been

performing at the levels it

need to. Over the years we've

compensated that by having a

very strong domestic business,

having a very front frequent

flyer business, by the creation

of Jetstar we have we created a

new business and all of these businesses have helped

subsidise the international

operations. However, we don't

believe that situation is

sustainable going forward and

we need to make significant

changes to our international services as a consequence for

the under performance of

Business Today. Are you going

to be the CEO that turns Qantas

into a domestic only airline?

No. Qantas will always be an

international and domestic airline.

airline. We like Qantas to

grow significantly

internationally. I have to

say, Alan, people 10 years ago

were saying that Qantas would

not be a domestic airline any

longer. They were saying with

the advent of the new low-cost

carriers coming into the

Australian domestic market,

that Qantas domestically was a

dinosaur. We didn't listen to

those people back then. We put

a huge amount of Everingham

effort if creating a very

strong strategic platform for

us into the domestic market

with the creation of Jetstar

and 10 years later, the most

postible carrier operating in

the domestic market is Qantas

because we turned it around and

Jetstar the second most profitable carrier operating.

We will do the same with our

international business. How are

you going to turn it around?

strategy There are four pillars to the

strategy we're going to

announce on 24 August. First

of all, we're going to talk

about the investment that we're

going to make into the product

to make sure that Qantas

remains one of the top premium

airlines in the world.

Secondly, it is looking at our

partnerships. Thirdly, it is

cast ing an honest and fairly

aggressive view on the performance of the international network and

making cuts where we need to make them and it is important

for us to do that. And then

lastly, it is looking in

particular at the Asian market and seeing how we can

participate in the fastest

growing aviation market in the

world. Isn't there a

fundamental tension between

cutting costs on the one hand

and investing in what's

essentially a premium airline

on the other? I think they go

together because it is reducing

costs in areas where

efficiencies can be achieved.

We're using that capital to

invest back into the premium

product. You know, in the last

two years we sent $75 million

on new lounges. We've spent

over $100 million on the new

automated check-in system.

Both of them are significant

improvement in customer satisfaction. At the same

time, we're investing in new

technology like new aircraft,

like the A380 and the 787s

which are hugely efficient

aircraft, dope need the level

of maintenance that older

aircraft would have needed,

don't need to have a huge

amount of automation associated

with them from an engineering

point of view, and they give us

the type of savings and

efficiencies that we need as an organisation to be able to

compete on the world scale.

They go hand in hand. New

aircraft, new efficiencies and

better customer service for our

core customers. Do you have to

pay the pilots less? It is not

about paying the pilots less.

What we're working on is making

sure we have sensible wage

settlements with all of our

employees and unfortunately,

after over 25 discussions with

some of these unions, we've had

still some very outrageous

demands on the table and given

the challenges that our

international business actually

has, we don't believe that it is appropriate, that that's

correct, and that actually

helps us turning this business

around and that's why we

haven't been able to reach

agreement with some of these

unions and some of these unions

are actually asking for a veto

on change. It is back to the

old fashioned way that unions

used to be run in Australia.

It is back to making sure that

change doesn't happen in

business. One pilot told me he

and his colleagues have been

asked to run down their

holidays to the minimum of two

weeks which makes them and me,

for that matter, think that

there's redundancies coming up.

Are there. Just to put that in

context, Alan, the reason why

the pilots have been running

during the Global Financial down the annual leave is that

Crisis when we had to scale

back significantly as a

business inter

internationally, as every

airline around the world had to

do, we didn't make any pilots

redundant. We did that by

asking people to make annual

leave. We have had a surplus

of pilots for some time and

we've managed with the big

leave balance that that is

there. Are you getting to the

point where you can't avoid

redundancies any more? What we

have to go through this review,

wait until 24 August and then

we'll be very clear what the

implications of that review

are. We can bring certainty to

the market, to our employees,

to our customers about what Qantas is going to do into the

future and we need to wait

until 24 August to see

that. Thanks for joining us,

Alan Joyce. Thank you very much

Alan. Thank you for your

time. Now with the latest

business and market news over

to Jayne Edwards. Thanks Alan.

You should expect a fairly

lacklustre session on the Australian market tomorrow

after disappointing job figures

caused a slump on Wall Street

on Friday. The Dow and the

Nasdaq fell by half a percent

and the broader market lost

nearly 1%. The US unemployment

rate crept up to a 6 month high

of 9.2%, while just 18,000 jobs

were created, destroying hopes

of a recovery in the job market

that have helped fuel the share rally of recent weeks. We

were expecting a bit of's rebound and I believe most had

been expecting a rebound from

pretty much a weak first-half

of the year. We can't really

blame it all now on weather.

This is certainly a concern and

moves towards the concern that maybe this transitory soft

patch is not so transitory. Investors are

hoping the second quarter

reporting season beginning next

week will give them some reason

for optimism. Looking at world

markets. The US and UK closed

flat over the week. Europe was

down sharply while the Asian

markets had the best of it,

posting healthy gains. Now

with more on local stocks and

our own much Morrow bust labour

market here's Tom Elliott. As

you just heard the Australian sharemarket enjoyed another

fairly strong week, possibly in

response to the fairly benign

unemployment data that came

out. Local unemployment rate

is steady at 4.9%. Although if

you drill down to the numbers,

you see that the participation

rate actually fell. This is

potentially negative in the

future because it says fewer

people are bothering to look

for a job. Tonight of course

the Prime Minister finally

unveils her long await the

carbon tax and if the share prices of companies like

Bluescope or One Steel are

sharemarket doesn't have much anything to go by, the

to fear. Both were bought up

strongly on the prediction that

the carbon tax will not impact

their operations too heavily.

In similar fashion, the share

prices of Qantas and Virgin

Blue were stronger. This was

of course a response to the

ongoing woes of the of Tiger

Airways which could be grounded

until August N contrast the

shares of News Corp fell during

the week after the company

announced it would close its

168-year-old tabloid the 'News of the World' in response to

the UK's well publicised phone

hacking scandal. Shares in

were local TV network Channel Ten

were up strongly after the

company confirmed plans to sack

over 100 people. Elders and

AACo also up because of

government invention n this

case the decision to resume the live cattle trade to Indonesia.

That will be very positive for both companies. Murchison

Metals shares down strongly

over the week after the company

announced a major cost blow-out

at its Oakey plant. Many

people think the plant may not

actually go ahead this. Would

leave both Murchison

shareholders and their main

asset somewhat stranded in the

desert. Finally, Fosters

shares down around 1% over the

week after George W Bush, the global brewing giant, suggested

that it would not be bidding

for Fosters. That's one less

competitor that bidder SAB

Miller has to look for. Winner

of the week Centro properties.

Loser of the week is Cougar

Energy down 25% after the

company was banned by the

Queensland Government for

drilling for gas in the Kingaroy area. The People's

Bank of China raised interest

rates again this week.

Highlighting authorities are

yet to tame the inflation

dragon, despite a softening

economy. Like Europe, and the

US, China has some serious debt

problems. For his view on the

state of play there I spoke to

ANZ's head of greater China

economics Li-Gang Liu. Li-Gang

Liu, China raised interest

rates 25 basis points this

week. But that's only a for

night after Wen Jiabao declared

victory over inflation in an

article in the Financial Times.

Clearly, there is still an

inflation problem. Indeed, we

think that China's inflation

will now peak after June. In

fact, with recent flood in rice

producing Chinese provinces,

Chinese food prices will

continue to rise in the next

few months. Our projections

suggest that Chinese inflation

will not peak until August or

September and China's CPI

inflation for the year as a

whole will be around the 5.8%

with a peak value close to

7.8%. Are you still looking at

a soft landing in the Chinese

economy? Indeed, we still

think China's economy is

heading to a soft landing. The

People's Bank of China suggests

that Chinese G 2 GDP growth

could be still relatively

strong. In the context of

interest rates, you wrote

recently that Chinese

depositors are subsidising

investors and banks and that

this disporting the Chinese

company. You can explain that

and is it still the case?

Indeed, you know, at this

moment with expected June

inflation at around 6.5%, even

with the rising lending or

deposit rate, Chinese ordinary

depositors are still suffering

negative real interest rate as

high as 300 basis points. This

means that... 3%. They're

going backwards by 3% per year?

That's. That means they're subsidising investors and to

some extent the banking system.

If this were to continue, you

know, with a higher inflation

expectation, Chinese depositors

may shift their deposits

outside the banking system and

put their money into trust

funds and other high yield

assets. That will create new

problems for China's banking

system. At this stage, it

results in them buying a lot of

property, doesn't it, buying

apartments? Indeed, according

to the recent PBOC vary Chinese

consumers still prefer to put

their money in property

market. There's a lot of concern around the world with

the high-level of debt in local

governments in China. Is that

a concern to you? We know in

the Chinese fiscal stimulus

package it is quite sizeable,

four trillion renminbi

announced in the late 2008. At

the time the central government

only financed 30% of the fiscal

stimulus package. Then the

rest was left for the local

government to come up with

money to finance the fiscal

stimulus package. As a result,

they have to borrow from the

banking system. That's how

they come up with such a large

fiscal liability. Is that an accident waiting to happen now?

Well, I think, you know, with

proactive policies this problem

can still be manageable. The

reason that if you look at

China's mystical debt as a

share of GDP, it is still quite low. What's the term of the

debt? The bank debt that the

local governments have yuntd

taken, what's the term of it?

They invested it in a long-term infrastructure, department

they? Indeed. Basically, most

of these projects are

infrastructure related. These

type of infrastructure will

take long time to yield return.

Meanwhile, they have to payback

loans almost immediately once

they get the loans. That seems

terrible. I mean, they've

borrowed all these local

governments have borrowed from

the banks to build their road

and other infrastructure, and

they've got to repay the money

to the banks. What will

happen? I would envisage

several ways to handle this

current problem. First of all,

you know, the central government can help local

government to issue some debt.

The second solution could be,

you know, Chinese commercial

banks could lessen their

current five-year loans to 7

years or even longer loans.

The local government can also

privatise these projects by

selling these infrastructure

projects to private investors

using the proceeds to pay off

their bank liabilities. So if

you lock at these possible

solutions, I would still say

the current problem local

government debt problem can

still be managed. This will

not degenerate into a serious

banking crisis in China. It

will be central government bail

them out like the European

governments are bailing out

Greece, I guess? There are

some similarities here. The

problem is China's central

government is well endowed fiscally, but local government

is running a lot of debt

problems and given the current

Chinese Government structure,

it is a unity try one.

Whatever the liability owned in

the local level is also the

central government liability.

In that sense, it is very

unlikely that the central

government not step in and bail

them out. Thanks for joining us

Li-Gang Liu. Thank you very

much.

This is the warehouse of one

of Australia's largest online

retailers and its activities

suggest that retail therapy by

the laptop is here to stay. In

fact, online retailing is

attracting the interest of some

big name investors and for one local company that's already

creating new opportunities.

We've got a very simple

concept. We sell one deal a

day T could be anything from a

laptop, cot mess tick, Julie

toys. Yesterday we sold 16,000

sets of pillows on a site in

one day. Last week we sold

1400 Dell laptops in two-and-a-half hours. Catch of

the Day is one of Australia's

daily deal sites will

specialises in selling excess

stock at very low prices. Look,

we found this business is very

much recession proof.

Suppliers always have stock

they need to move, whether the

dollar is up or down, whether

it is recession or good times,

suppliers make mistakes and

have excess stock. They find

us an amazing solution to

convert that stock to cash. As

you can understand, they will

have to give us an unbelievable

deal in order for us to deal in order for us to move

such large volume of goods. The

five-year old business now has

one million members, employs

over 100 people, and has a

yearly turn over of $120

million and counting. Growth

for the last five years has

truly been at just about 100% a

year. It is time retailers are

struggling to achieve 1 or 2%

growth I'm 100% sure we'll

Deputy keep on doubling. The

market is growing at a

tremendous rate. Last we are

we had an average day 300

people join the site. Today

that number is about 4,000 people. With those kind of growth numbers, Catch of the

Day found itself being courted

by some serious

investors. We've had a lot of

interest from the USA, Europe,

venture capital, high net worth

individuals in Australia.

No-one was offering us what we really wanted, which is rather

than money, we were looking for

expertise and guidance in the

ability to open doors. After a

long beauty parade, a

consortium including James Packer's consolidated press

holdings was the successful

suitor. The group is spending

$80 million to take a 40% stake

in catch of the die. What's

really appealed to us is that

these investors actually didn't

want to come in and interfere

or assist with our daily

operations. They came to us

and said guys, you obviously

know how to execute, you've

proven it over the last five

years. We're hear to help you

financially and with advice.

Everyone is certainly taking us more seriously. A lot of big

brie retailers are contacting

us. It is very exciting. I

can call anyone today and

they'll pick up my phone

call. Catch of the Day will now

add more vertical sites to its

brand targeting fashion and

groceries. What we're actually

doing is building a puzzle of

websites. We're building an

e-commerce group that will be

known as the market leader

hopefully. While he'd also like

to see an end to the GST free

threshold for overseas sites

Gabby Leibovich says traditional department stores

have bigger issues to address.

The larger the company the

slower they move. We're very

nimble. We think of something at midnight and execute the

next morning on a shoestring.

These guys need a board meeting

with 30 people to make a

decision that will be executed

in luckily 12 months. Having

already recorded 5 years of

high-speed growth, Gabby

Leibovich believes there are

still many more customers to

hook on the line. If you do

stop in the shopping centre and

ask 100 people if they've heard

about Catch of the Day, I'm

guessing 97 people haven't.

That's very exciting. It is

music to my ears to know

there's such a huge potential

to grow considering how big we

are already. Rebecca Nash

reporting. That's it for the

program. If you'd like to

check out any of our stories

and interviews again we'll have

the transcript and video and The Queensland Reds last

night beat the Crusaders 18-13

in front of a sold out

The Reds had hit

rock bottom in recent years but

they recovered to head the

table and go on and win the

grand final. Will Genia's 65m

charge to the try-line when the

score was locked at 13-13

rocked the record crowd.

The Queensland Reds

SuperRugby champions in 2011. This Program Is Captioned

Live.

The game really came alive

in the second half? It did. It

was probably four the purists

in the first half-hour. It was

all thick with tension and that

brutal feeling-out period. When

it broke up, it was the Reds

who capitalised on I guess what

they've made their name for

which is their adventurous and

inventive style. That was Quade

Cooper open opening the scoring

in the 3 2nd minute. The

Crusaders punched through a

couple of minutes to give the

visitors the ascendancy. There

were slightly unnerving periods

either side of half-time. Sonny

Bill Williams almost clutching

onto this. Had he done so, they

were probably away and through

again. Just a fumble on the run

here and the knock-on cost them

any chance of getting through.

Then the Reds stepped it up.