Episode 47 Show Me the Money

before their release on Tuesday. I will be back a little later. Now

This is the weekly guide to who is making the cash, how they are doing

t and it what it means for the way we work. With us tonight, ready for

take-off, Steve Ridgway is the man in charge of Virgin Atlantic. From

luxury packaging to paper strong enough to build planes, and Jill

Treanor's first outing as the Guardian's new City editor, though

she has told us not to mention it. I'm sure you have noticed the price

of things has been going up a lot lately. The inflation figures are

due out next Tuesday, they are expecting to show prices are rising

faster than wages. Soaring gas and electricity bills could push the

inflation rate up to 5%. Steve Ridgway, we will start with you on

this. Obviously you're facing higher fuel

costs, the rising cost of oil is one of the things that has been

causing pain in the economy for the last two years or so, how do you

manage the rise and the fall in that cost? It's a very significant

cost, historically fuel used to be 12-15% of costs, it is now 40%. We

have traditionally hedged our fuel, that only buys you a bit of time to

smooth out, it is very painful. That together with the taxation

increases, Air Passenger Duty has gone up dramatically, it is making

huge price pressure in the industry, passengers are feeling it. Hedging

is something many airlines do, it involves buying the fuel in advance,

agreeing the price quite some time in advance before it is actually

delivered. Is there a limit to the amount of hedging that can be done?

Yes, and all you are doing is you are just buying a bit of time, as

you see a market changing. We do it just so we have certainty during

the year. But ultimately the fuel price is the fuel price and that's

what you end up paying. At what point do you end up saying we can't

shield ourselves from this price rise any more, we have to pass it

on to our consumers? It does have to pass on, aviation margins are

thin. You saw that in 2008, with the recession coming, typically you

will start to cut capacity because demand falls and bring the industry

back into balance. It is not easy to do and doesn't happen quickly.

Jill Treanor, we will hear tomorrow from the club of economists, that

in their view the economy has stalled. This rise in prices, that

outstrips wages, must surely be one of the reasons for that? Yes, I'm

pretty sure it is. Of course it is not just energy prices, which we

have been talking about, but also the price of clothing as we know is

going up in the stores. That is having a major impact on everyone.

Mark Webber what does your business do to deal with rising prices?

Steve we have been - Mark Cropper, what does your business do to deal

with the pricing prices? Like Steve we have been hedging prices for a

number of years. We can pass some of the cost on, but that is very

difficult. We have to make things better and more efficient, and try

to transition to products that perhaps we can get better margins

on. The position where you are in your market place is hugely

important f you can go for that high-quality end that very few

people can mimic, it gives you a little bit more self-control?

is exactly where our business is, and we need to move even further

into this specialist end of the spectrum. Mark does a lot of

experts to Europe and other places, exports were meant to be the thing

that we are going to lift the recovery and the slowdown of the

last few years. It started well and has eased off since? The Item Club

is talking about a terrible jucture in this state of the economy we are

- juncture in this state of the economy we are in. Exporters like

Mark were helped by the level of the pound, but it takes more than

that to get economies growing. You can't rely on exports alone. The

Chinese, as we know, have been trying to reduce their exports. So

it is major problem for this economy at the moment. Meanwhile,

while businesses are worrying about rising prices, there are people on

the streets this weekend, taking part in those protests that we

mentioned in the news there. They are complaining various ills and

evils of capitalism. We see them there on the steps of St Paul's

Cathedral, just on the edge, just next by the Stock Exchange in

London. When City people go to work tomorrow, do you think any of them

might have even the slightest shred of sympathy for the points the

protestors' are making? I suspect the people who work in the City

don't have simthee. They live in a bubble of their own. And kind of

feel they are working very hard and worrying about bonuses at this time

of year, knowing the profitability of their banks are down much

further. You can see while those people, why they are on the streets,

as we know inflation is going up, wages aren't rising as fast, it is

making people feel far less secure than they did. Squeeze on the every

day incomes. They will seat City as the enemy, and the source of the

prob - see the City as the enemy and the source of the problems?

That is what people are talking about, that the City is the reason

our economy is stalling. The cost of bailing out our banks three

years ago is the reason we are so indebted. That is why a lot of the

anger is being directed at bankers. A lot of people feel the City has

managed to keep operating almost in the same way as it did before,

despite having received all this taxpayer support. Carry on as

before someone else comes and cleans up the mess. It is time for

boom or bust, the quick flick through the stories you would

probably rather have missed this week. We start with this, popstar,

Lady Gaga, here she is inside a giant egg on the way to an awards

ceremony. Her lawyers probably used a different mode of transport when

she went to battle in the courts. She stopped the makers of a

children's game making a character called Lady Goo Goo, the game was

an overnight sensation and the games makers wanted to release the

song. A new law means fines of up to �20 though if publicity is taken

by drawing a company logo on naked flesh of athletes. It is known as

ambush marketing. A crime-fighting superhero in

Seatle says he will fight on, even though he was arrested by police.

Phoenix Jones, his real name, Benjamin Fodor, says he was trying

to break up a fight outside a nightclub. The police said he

probably shouldn't pepper spray people just because he thinks they

are fighting, they charged him with assault.

Mark, the story of Lady Gaga, and Lady Goo Goo. She was protecting

her copyright, and protecting copyright, and protecting

intellectual property is something that is hugely important in a

knowledge economy? That's right. Although I think in this particular

case it is perhaps a little petty, when you have got a brand of the

strength of Lady Gaga, that they feel the need to do that. There is

a serious point about copyright, and you do have to defend it. If

you can afford to. The stuff you make it pretty advanced, pretty

high-tech at times? Yes, and the way we protect a lot of our

knowledge, is simply trade secrets, we won't, we just don't tell people

what we do. You keep it internal to the business and nobody finds out.

The thing, seeing this story when it developed on Friday that struck

me, is she is called Lady Gaga, this product was going to be called

Lady Goo Goo, surely that is enough of a difference for laws on

copyright not to aploo. But the judge felt actually they were

similar enough for people to be confused? They do sound sort of

simple later, Ga-Ga and Goo-Goo, they could be the same. You say you

thought it sounded petty, but people go to extraordinary lengths

to protect their brands, and clearly Lady Gaga is proud of the

way she has presented herself and her image, and felt it was one

situation where she wasn't prepared to let it go. You have to wonder, a

children's character, whether it would have been good for her. A

judge somewhere agreed with her. there an allowance here for attire.

Your industry Sister is the Guardian, and it has been named by

Private Eye about its propenceity for spelling mistakes and copyright

law looks like they 0 could stop that!

The ambush marketing, Virgin is well known for its marketing stunts,

I think you have drawn the line at having people draw your logo on

their naked flesh? I think it is people will think that the money

and the way is worth it. Is it a publicity stunt beyond the pale?

There somebody publicity stunts, to make it amusing you have to be

careful. You can be edgy, but you can cross the line. Over the years

there have been spectacular ones. Sir Richard Branson in a wedding

dress and frock, wasn't the line, he did that to publicise the bridal

business? That was a new business, it was a very long time ago. It

sticks in the mind? As several other stufpbtss by Virgin are

remembered. He was a genius at getting publicity? And still

protects the brand. The Branson name, and Virgin is something

clearly well protected. You can bring the two stories together. It

is about brand protection and clever ways of publicising. A quick

thought on superheros and their superpowers. If you were to have a

superpower in business, what would it be? Now I have spent ten minutes

with these two gentlemen, I have decided commodity prices and

predicting what they will be tomorrow and the year after, that

is the key to the success. They are both obsessed by the price of

commodities. You could translate that whatever your input is into

your business, the price, would be key. Your business superpower?

would have to go agree, I would opt for the same one. You need a

different one. Superheros don't share power? Mine would be to have

engaged, enthusiastic people, for the duration of my career to excite

them about our business. You can, talk about paper, how much more

exciting could it get? Your's? confidence and growth going. Let's

develop that particular thought. How would you get confidence going,

how would you get the economy going? I think we're going to have

to do some things and be quite brave to actually plaik consumers

feel more confident and get - make consumers feel more confident to

get them spending more and being less cautious. I think there has

been own goals about taxation, the Government is in a bind and needs

to fix the deficit but we need to get the economy moving.

You mean the rise in VAT? Things like VAT, I think it was a mistake

to put VAT up, especially to up a round number, we can all work it

out now, which we couldn't before. I expect if it was an obscure

number it would be raising the money it needs to. There are a lot

of things that are psychalogically important that we some how get

consumer confidence and get it moving. It is not helped by the

eurozone crisis. The sooner there is more clarity on that, and that

is very solved, there will be more direction. We will see exports

start to move. Airbus are selling a lot of planes in the far east, that

means lots of wings are being built here, that is great for the UK

economy. Look at Jaguar Land Rover, they are exporting, we are flying

lots of businessmen to China and the far east, that is very

important for UK business. I would be encouraging Mark to get on plane

soon and sell some of his high- quality paper. How much are you

willing to pay for British Midland? That is something I can't discuss

with you, but it is a very interesting time for us. I think

putting the two airlines together would be great for the future, and

also it would be, most importantly, great for the UK economy and

consumers, to keep that choice, keep everything on their toes.

far down the process are we, are you talks to Lufthansa, are you

assembling advisors or seeking funding? We are talking to

Lufthansa, we are interested in buying some or all of British

Midlands, it is early days yet, let's see how it develops. Do you

expect to be the ultimate winner of British Midlands when Lufthansa

sells it? I can't say that sitting here tonight, we would like to be.

You would rather you had it rather than British Airways? There would

be issues with British Airways given how dominant they are at

Heathrow. And the authorities would have a big challenge on their hands

to make sure consumers are protected. Heathrow is full, the

airport says that the airlines say it, there was talk a week or so ago

about the plan of sharing flights between Heathrow and Gatwick and

moving passengers between the two by high-speed rail, what did you

make of that plan? I don't think it is really the solution. I think the

good thing is that there is a debate now that is running. The

Government is beginning its new aviation policy, where we are all

in putting, many, many interest groups are imputting. We need a hub

airport that flies to many, many destinations, particularly the far

east and the grorg markets. It is worrying when you hear Lufthansa

saying that London or Heathrow could become a backwater, that is

in none of our interests. Is that likely to happen, or saber-rattling

because you want the extra runway and the Government said no? It is

bound to look that the airlines have a vested interest in wanting

another runway. But there is a co- relation in business about how well

your main airlines serve the businesses around the world and how

well your country does and prospers. The news in the night about the Air

India flight on the ground for eight or nine hours, when it landed

at cat gik instead of Heathrow, it is not your flight - Gatwick

instead of heat thro. It is not your flight or your airline and not

privvy to the airline operational decisions they would make. Given

your experience about running an airline, why might a plane be kept

with its full load of passengers on the ground for such a prolonged

period of time? I don't know, the reason it went to Gatwick was

obvious, around the fog. I would have thought it would have been

very easy to get the passengers off the plane, you are only a little

way round the M25, or got them on coaches and back up to Heathrow to

meet friends and relatives, which many would be waiting. I was just

talking to our operations department, they have an

conjecturing about why they kept the aircraft on the ground so long

and kept the passengers on it for so long and suffering that delay.

For us, because we have operations in Gatwick and Heathrow, we would

have got off the plane and repositioned the plane later.

Thank you very much. They have been at it again, the people who run the

20 most important economies in the world, that lot. They met this

weekend, they talked about the same old thing, how to solve Europe's

debt crisis. Finance ministers from India, China and Brazil are so

worried that Europe's problems could hurt their economies, they

are offering to pay more money to bail Europe out. Any extra money

would be collected by the International Monetary Fund. As the

UK is a key member of that club t means Britain could be asked to pay

more too. Jill Treanor from the Guardian, the

solution to this is going to be more money on the table? It has to

be. We know the European leaders have been talking about this 440

billion euro, ESFF fund that can be used to bailout countries, they

have realised they need to bail out banks too. What people seem to be

talking about is turning this fund into some sort of two trillion euro

fund. Which some money earmarked to stablise some banks around the

eurozone. The two are interlinked. The reason people are worried about

the banks is because they are holding sovereign debt, the debt

issue by these troubled Governments. When these troubled Governments run

into difficult, the value of their bonds fall, and the banks take

losses. That is the crucial difference this time around, it is

that the banks may have to be bailed out, and it may be the gosms

that have to do the bailing out? the Governments that have to do the

bailing out? It is interesting three years on from bailing out

banks in the UK and the US. Three years ago when we were bailing out

the banks, we were worried because they were sitting on property,

loans to property companies that nobody really knew what was going

on. They also had these complex derivative products, CDOs, that

nobody knew how to value them. This time round people are worried

because they are sitting about something they know about,

Government bonds. The idea is you can work out what the losses can be

in a straight forward way. It is an old question and asked at the time

three years ago, why can't the banks sort out their own financial

mess? I think the problem is, what the banks would usually rely on is

investors in the City to buy their shares, and that bolsters their

ability to do loans through their capital. The problem is, that

investors have lost confidence in banks. They don't really want to

lend them money any more through these share issues, and the reality

is they have to turn to their Governments to bail them out.

problem for anyone in business, in particular someone like you, who

exports and sells your kpwoods in Europe s that these - goods in

Europe, is that this crisis has hit economies on the continent and they

are slowing down. Have you noticed the impact on export sales? We are

not noticing much impact. Just do comment on the eurozone crisis, I

think there is still some way to run. As a business we remain

confident, we are continuing to spend and hire. Our banks are

remaining very supportive. We lost three of our five banks in the

financial crisis, we had five backers before. We lost three of

them. In fact, we have now got a new round of backers that actually

are very keen to lend to a business that isn't going to make anybody

rich quick, but will be there in the long-term. Someone with nice

things to say about banks, I never thought I would see the day.

Do you have a sense of frustration that if you ran your business, and

made decisions as slowly as these European leaders seem to do, your

business would not be as successful as it is? Certainly some of the

problems recently have been that the lack of cohesion between the

leaders, and that certainly seems to be a big cause of the problem.

We couldn't afford to be like that. But I can understand why it is like

that. These are very different countries with different problems.

Business can cash in by offering us products not only made exclusively

for us, but we have designed ourselves as well. Isn't that

getting the customers to do the work for you. We looked into it.

# I said hey # I put some new shoes on

# And everybody is smiling The options are limitless, this is

a point the court. 18 months into trading, this

company says it already offers over four million different styles of

shoes. What are the advantages of doing

business this way? The first thing is to keep fixed costs low. We

don't have to buy stock. That is great from cashflow. We are an on-

line business, we don't need the huge fixed costs of stores. We

build a deep relationship with customers, which is great for a

repeat business. They buy from us more often. They give us great word

of mouth to recommend us to others. You have decided to price your

shoes at �230, that is the start point. That's not cheap?

pricing feels right for our target market. When we launched the

business, we did come under the �200, but actually quite quickly we

realised that just wouldn't work for us, given the cost of servicing

every customer. We give them a high level of customer service.

Click on the part of the shoe first. I think single strap would look

really cute. It is premium fashion with a big difference, you are the

designer. With just a click of a mouse, customers can design their

very own shoes, made to order. It is technology like this, that is

changing the face of retail. Customers can visualise their

products on-line. They can play around with them. That means that

businesses can give customers exactly what they want, without it

costing them the earth. As access to new technology grows,

many more of us are accustomed to getting what we want, when we want

it? Retailers have to offer something else in addition to low

prices. That is why we are seeing retailers looking to bespoke

products and quality-led items and consumers are responding. You are a

budding entrepeneur, setting up an on-line business using this model,

how can you know you can make any money, surely the costs are much

higher? There are more costs involved in running a bespoke

retail operation, as opposed to mass market one. It varies by chat

gree. Take shoes where sizing is straight forward, it is easy to

customize. If you look at tailoring suits, it is more cost intensive,

you have various measurements, fabrics, patterns. That adds a lot

of cost into the process. person who knows all about keeping

costs to a minimum is chemistry graduate, Ruth Ball. She had no

doubt on-line was the only way to go to launch her bespoke liquors

business. I'm a generation who has always had the Internet, it is like

somebody without a phone 30 years ago. This is a niche market, where

do you see the business going? want to keep it small and artisan,

really. I'm looking for the customers who are happy to pay for

that handmade product, for that personal relationship with me

making the product. Marrying the customer to their very

even product can be a recipe for success, it is choosing what to

make that is the hard part. Next week, more plain speaking this

time from Sir nijm Rudd, the industrial - Nigel Rudd, the