Ryanair CEO Calls British Airways' Recovery Plan 'Incompetent'

and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, on the Bloomberg d We beginning this point with the bias left Vich. He's the chief US Equity Strategic City and joins us in our Bloomberg eleven three oh studios. We see the tweet

this morning piece together. What happened over these last nine days between the business meetings in Saudi Arabia, moving on to Europe, the Native Summit, at the g semit, at seven Summit, after that, what's your takeaway from that about the state of the integrity of the alliance between the US and Europe and what does that say to you about the direction of the U S economy. I'm not sure the two are necessarily rely Yeah, I would say

probably the the alliance is you know, is fine. Um, I think they're you know, ebbsom and flows of of that alliance. And and there there's certainly differences between for example, the way George Bush conducted himself, George W. Bush conducted himself with Europe, the way Obama did, and now the way Trump is doing it. And it tends to you know,

move along with the with the various people involved. I've always said that, you know, I've been going to Europe for you know, close to thirty years, and and there's kind of this you're either neutral about the US off European or you're really negative about the US off your European They're never almost a little bit positive about the US because then I guess you have to get up your European citizenship or something. Um. And I joke about

it a little bit. But there tends to be a lot of the political differences show up in the relationships that that are even conversation with investors. It's not even about the leaders of the country. So there's certainly a more i don't know, progressive mindset maybe in Europe that doesn't necessarily exist in the US. Fully, there's obviously different political sizes in the US, but it's much more entrenched

in Europe. And I think that tends to come to the four when you have different leaders who have different perspectives. At this stage, four months into this this administration does a tweet like the one this morning or the one last week about UH automakers German automakers comment about German automakers not a tweet, but but a common doesn't have much of an effect on your your world, not really.

I mean there there's there was. I think initially when the tweets came out and the people were and I don't know if those novel are knew it, just it had an immediate reaction in the markets. And then they've been having fewer and fewer impacts in the market, and that was kind of our thought process that have eventually it would kind of fade into the background. Um, it doesn't help, but it's I don't think it's a dominant feature.

I think we care more about economic progress. Jim Bullard of the St. Louis FID was never view by Bloomberg guests to Day and talked about how this new administration will have to fill the expectations it's it's laid out in the stock market has for what it intends to do. How heavily does that way on you. So, you know, we we track a lot of different things in the in the stock market, including let's say high tax versus low tax performance stocks. We look at the um the

interest expense deductibility potentially being removed. You know, how's that affecting stocks that have that kind of exposure. And most of the Trump trades have pretty much rolled off. So the idea that this is being priced in the market UM, I think is antiquated. With all due respect to Mr Bullard,

I think he's wrong on that on that front. To the city up, good morning, every good morning, David, Tom glad you survived the three weekend, made it up with that incident and we watched all Pirates of the Caribbean. You did. It's like there's eight of our Yeah, not the new one, I hope, Yeah, I got I got ice shadow on that. It's great for radio. The one thing on the data screen that's there, and I know the record highs inequities and all that sp and not

the doubt yet is curve flattening? What is kurve flattening signal to a guy like you. In my mind, it's more about global flows of money than it is about economic trend. Now I'm probably not. I can find people who will say the other side of that argument, that there's something wrong economically. Um. The reason I say that is because what is what's your competition to a tune a quarter tenure yield in the world today? Point oh four and J G B's uh point for on a

bund yield of equivalent duration um. And I think if there's a problem, chances are tenure treasuries would rally or the dollarwood rally. So if you're a foreign investor, buying the US isn't a particularly bad trade. And just very quickly, folks, that's price up, yield down. So the curve is flatter from the land of Lefkovitch because the tenure yield is lower rather than higher. Would you be a steeper curve we have all the fet is also raising rates on the short end, So okay, we need to have a

moment of silence. David, it's the crunch time for the cif A exams. It's coming up this weekend. All cf A candidates had a miserable Memorial Day weekend and we say good morning to all of them. They haven't slept. They say best of luck as well. There's like eight thousand of them at City Group. Right, did they get the week off? I don't think they have the week off, And I've had associates who've definitely taken a couple of days off for it. Uh. They're going back to your

points about the yield curve flattening. I think it's it's less from my perspective about the economy. UM, most of the data that I look at UM is still pretty supportive. The one area that's squishy, call it is the autos. But if I look at capital spending, intention, hiring intentions, new order trends, UM, consumer sentiment, all the kinds of things that you'd like to be seeing are are suggesting

that we aren't necessarily in the economy. And again, autos is an area that there's been a little bit of tension around prime subprime loans and uh and and retail sales trans inventory. There is some issues in autos and we're monitoring carefully. Yeah, this great note out a couple of weeks back on growth. Looking at growth as you've been thinking about it chewing it over as we've seen the White House continue to reiterate, we're gonna see three percent?

What what new? What? What new things have you come to inclusion on what what have you learned here? Thinking about growth in such detail. So we were we were thinking about a longer term perspective when were wroth at the pieces called growth, and the one you're highlighting was called growth growth My kingdom for growth, UM and and the idea was more around what are the long term drivers of growth? And historically it's been things like population growth,

income growth, productivity, and innovation. Now I think innovation is still pretty darned healthy out there. UM. I was out in California last week, and you know stle Com values humming UM. But if you look at the demographics, they've clearly weakened the The birth rates are down, population growth is down, still adding eighty two million people globally every year, but off off of larger base, the percentage increases decline UM. Income growth was a big story in emerging markets over

the past decade plus and and it's still happening. It's not as aggressive, but it's still happening again off a higher base. UM. And the one area that's probably the most disturbing and I think is the one that causes angst amongst economists around the world is productivity is just

seemingly not there despite all this investment in technology. And I'm not sure if it's because people are sitting at you know, watching you know, looking at their Facebook feeds h during the day and seeing what their friends had for lunch, um, or you know, or they're playing candy Crush instead of working at their desks. I just don't know, um, But but there there is some you know, you made a common earlier in on TV Tom about Marty Felstone.

I know that Harvard there are spending a lot of time trying to understand why we're not seeing all this productivity benefits. Maybe we're measuring widgets per man hour correct incorrectly in this kind of service based economy with with new digital tech achnology. And I have sympathy to that view because it does seem like things are much more productive.

You can sit there in the cab, pay your bills, you know, off your phone through your bank account with mobile so I mean that that's much more productive than sitting at home at night writing check Okay, but David, where are you on this? Because to me, it's a partition of American society as much as we saw on the reporting of a mobile day weekend, there's a group of society that's taking advantage of what Tobias just mentioned as a whole another group that's just being loved by

the wayside. And I suppose too, there's the argument as well, Tobias, how are we getting any better at measuring this? Do you do you see signs that we are? No, I don't see any. But I don't see signs we're getting better at measuring And I think this is I think this is where economists are struggling. I've talked to a number of them and they have not kind of found the holy grail on this um. But you know, to your point, time, I think innovation over time has always

left some people behind. I mean, when I went back in the ninet thirties, I think was close to um of the American workforce was working down on the form. Today it's less than two percent. Productivities up more than tenfold through a whole bunch of measures, including mechanized farming, including anti fungus type UM pesticides including UH modified c that can that can survive different temperature swings. So there's a lot of different things going on that allows people

to to kind of move elsewhere. The question is, and I think this is the fair one, are we retraining people fast enough well for that new economy? And the answer is probably know in The answer is that's where every article ends upgoing. Is this mystery of retraining and almost career shift, which is a theme under its own, Or Tobias Levkovich of sitting David Gurr and and with you on a Tuesday, four day workwate somebody said a younger soul, David said, what's a holiday length and work week?

And you know, I said, well, you gotta live it. You know how it is. Folks, you're like working five days and you work four days and they tell you to squeeze in five days or six days, and that's how you get to a holiday length and at work week. He knows about that. He's an academic professor. That was a little sarcasm there, Professor Calamarus at Columbia University Hard Work, CHERYLS. Calamaris, who's planning a sixth sabbatical reforming financial regulation after Dodd

Frank is a small but important book. If you wrote this book for the believers in a more conservative free market take on regulation, what's in this book for liberals? What's in this book for Democrats that support UM? Senator

Warren Speaker Pelosi? Why do they need to read this book? Actually, Tom, at the end of the book, I try to argue that it's exactly directed to them, because, UM, some of the concerns the ineffectiveness of regulation, not just the high costs of regulation, and also the collapse of due process in regulation should particularly be concerns for Democrats, especially now that they're not in power. So we've had eight years

of the Obama administration. They don't worry about process the Democrats when they're in control, but they're not in control right now. Trump is going to point, for example, at least five and maybe all seven of the governors of the FED, and now the discretion the unlimited discretionary uh sort of moment to moment cough cask process of regulation is going to be in the people's hands that he appoints.

So I think that it's an attractive time for Democrats to be thinking about due process given that, UH, some of their concerns about the Trump administration. So I I really do feel that this is a bipartisan story. Um. And I wouldn't even describe this as a conservative set of principles. I would just describe it as a rational set of principles. The the the academic literature over the past nine years has now evaluated the regulatory reforms, and

the evaluation is very negative. The regulatory reforms aren't accomplishing what they wanted to accomplish by their own lights. They're doing it at very high cost and having pretty much destroyed due process uh in the regulatory sphere. So I think it's a it's a failure across the board. What lessons can we can we learn? What lessons can we draw from what's happened with the so called fiduciary rule. This is something that was in the prominence of Department

of Labor for some time. We have a new Labory Secretary who has expressed some desire for the sec to take on a role in its implementation and oversight. Uh. Indeed, it seems like we may be headed in that that direction. What does that city about the level of complexity associated with financial regulation now that you have two different agencies fighting this truth war over who's gonna oversee a rule like that one? It's an excellent question. I mean, I

think there are two things that leap to mind. One is, once people are used to something and have already gone through spending the costs to adopt it, especially the large players, they want to keep with the status quo. So you're seeing that having already implemented some changes or about to implement them, having paid the cost of it, they now don't want to have to think again about whether the

fiduciary rule makes sense. Um. I think that there's another piece to it, which is that specific to the fiduciary rule, that there are some arguments in favor of it. Um, it's a trade off. It's not clear that it's a good idea, but it's not clear that it's a terrible idea. So I think I was very encouraged that, um, we're now going to have from the Labor Department, uh, a sort of thoughtful review. That's what they should be doing. Is the president on board. I can't figure out if

he's a conservative liberal, regulationist deregulationist. Depends on the tweet, Yeah, what is it? You gotta you gotta are you gonna join his staff. Can we make some news here this morning? UM, I have not been approved. Let's just leave it at that. And but I would say that I would be willing to because I think that this is a time where we have to come together. And I think that the President is uh not fully formed. His views are not fully formed on exactly what to do in financial regulation.

But I think his instinct is right, which is that there's, um, there's been a lack of discipline in terms of cost benefit analysis on regulation, and so I think that his his action so far on the regulatory front um have actually been very encouraging. And as I would emphasize, you have to also ask who's in charge now in the Treasury Department. Mutan doesn't really seem to know much about financial regulation yet, and he doesn't have an under secretary.

In fact, now I don't even think there's one that's been named. Because can you pass the litmus test? I'm not sure. Well, you know, I think Nick Burns, who joined policy, are you on the ugly list? I maybe I don't know. I did know. I criticized the idea of Chinese currency manipulation in two thousand and fifteen, that's been the main, the main thing. So you never know, how do you teach finance differently than you did in

two thousand six. You don't need a face lift to do that, but how do you teach the troops differently than you did in June or in April of two thousand seven. You know, UH finance has sort of um fallen off a cliff UH in NBA curriculums, mainly because of the change in UH jobs that happened in two thousand seven, and so a lot of the teaching has to do with trying to think through UM how crises occur.

And I've been teaching, of course for twenty years called emerging financial markets, which is all about how things tectonic shifts happen in different countries. So it was very natural for me. I I feel like it actually helped my class because it made risk and systemic risk really was brought to life by the crisis. So for me it was actually good news. But for much of our teaching and finance, I have to say, I think that it

was a little bit overconfident that we thought that it was. Ah, well, it's also normal and it's also just about technical details, whereas In fact, people started asking very basic questions, do do banks know what they're doing? Um? Do people have a way to quantify risk on a forward looking basis that's useful? So these were really fundamental questions. I think the curriculum has been affected. But from my class, this was really grisp from my mills, because that's that's really

what I like to teach. I wanna ask you about Alan Meltzer. He passed away on May the eighth. We were very closely do something on the show, and then the president fired as FBI director and things got busy the following morning. I know that you you knew him well and every worked on the shadow Open Market Committe with what should we know about him? And in his legacy Again, he passed away on May the eight. Well, Allen was an amazingly diverse and hard working person. I

was with him in the hospital. Uh just you know a couple of days before he died, and he was working in the I c U. He was working on his new book with pen and paper, with the oxygen hooked up and very very weak. UM. So he was just somebody who had an incredible dedication. He worked on issues as diverse as um what's the link between monetary policy and inflation or the political economy of elections? Why

sometimes growth versus redistribution wins in an election. He also worked on reform of the international financial institutions, the I m F, the World Bank, etcetera. UM. He worked though on many other issues. UM he founded the Shadow Open Market Committee. UM. You know, just an amazing contribute. What was his work with Carl Brunner of the University of Rochester. The Carnegie Rochester series was legendary for all in economics.

What was Carl Brunner Elor Meltzer's legacy. Well, you know, I was at Allen's apartment and I noticed several pictures in his office of Carl Brunner. Still so, Carl Brunner was an incredible influence on Allen and not all of us. And it was a personal partnership of dedication to public policy old school style, right people who saw problems at that time in the seventies, people were saying that inflation wasn't caused by monetary policy, and Carl and Alan, I

think we're absolutely dedicated to showing that wasn't true. In the Carnegie Rochester Public Policy series was really unique very valuable. Charles Collenyers, thank you so much for Columbia. David. My great Allen Meltzer memory was somebody holding an umbrella over his head in the pouring rain at Jackson Hole and his lee upset that he's wasting time. My TV said Mr Meltzer. There's too many panels, aren't there? In heat? God fear Tom. That used to be simpler, there were

fewer panels. In honor of Allan Meltzer. Charles calumeres with thoughts there. This is Bloomberg Brunt you by Bank of America Mary Lynch. With virtual reality, virtually everything will change. Discover opportunities in a transforming world. VI of a mL dot Com, slash VR, Mary Lynch, Pierced Fenner and Smith Incorporated.

There's something new from Bloomberg. It's called Lens. Starting right now, you can use the Bloomberg iOS app off your iPhone or iPad, or our new Google Chrome extension to read any news story on any website, scan it, and then instantly see the news stories relevant market data from Bloomberg. In addition, see all the bios of the key people mentioned in the story. It's called Lens, and it is just that a lens into the people and the data of any story you may be reading. Again, Lens brings

you the power of Bloomberg's news and data. Download or io s app or search for the Bloomberg extension at the Chrome Store to try lens out. Learn more at Bloomberg dot com slash lens. David Harrow with US from Chicago. He invests in large cap internationals and is known he'll have an off You're here and off You're there, but has put together just a terrific long term track record. David, good morning. What is your appetite for international stocks right now?

Has all the easy money been made? No? First of all, it's never easy to make money time. You know that. Um, there's always the beauty of having the globe at your disposal, as you are always able to find a place or a pocket where there's value where perhaps fear and fright have caused opportunity. And I think if you're looking at the differential that European equities still sell at from evaluation differential perspective to US equities as an example, there's still

some opportunity there. So we're not seeing fire sale prices like we did after Brexit or in February. But we're seeing some reasonable valuations, especially in some of the European continental blue chips and financials. Where are the other places and pockets you're you're looking at outside of the Eurozone. Well, we have increased our m exposure a little bit, but again this is all driven from bottom up valuation. Uh,

some places are easier than others. UM, we have an exposure to I've got a few good quality Mexican stocks Group or all of Visa is an example. UM. And we we actually have in our large camp strategy at Chinese stock I do which is not of course the leading search engine in China, but one of the leaders and artificial intelligence, one of the top two or three players and artificial intelligence in the world. So, and they're not owned, there's not a direct government ownership, which always

scares us. Of course, there are some government influence because of how the Chinese regulates the Internet, but it's it's not owned by government entities, which is which is the case for a great deal of the Chinese stocks. Is China a place you're looking to more and more for companies that are innovative. You mentioned that company doing work on yes search, but also AI and I wonder if if if that's increasingly the place you look to for for new novel technology. Well, it's kind of tough because

of this government involvement. What I mean by government involved mentis the government basically tells them what to buy and what to sell and wow to expand. And even with some of the tech companies, uh, you just don't really have it independence that you want that you could get elsewhere.

And so this is a major problem. I mean, you could talk all he wants about globalization, but when you're a European automaker and you want to build a plant and they want your battery technology for free, that's not globalization. Where we on use of cash and if we finally get interest rate normalization, I guess the first question is do you predict that how will use of cash change in a more normal rate environment. I mean, that's a great question, Tom. I do think there will be interest

rate normalization. I think this has just been a long cycle. But eventually you'll start to see interest rates uh reflect you know, inflation levels, etcetera, etcetera, etcetera. So I do think you'll see some interest rate normalization, that the central banks will realize that these low negative rates haven't really

had the desired impact. And one of the reasons why they haven't is remember Irving Fisher's quantity theory of money and the equals p Q will The problem is that velocity you know, has which was supposed to be stable, has fallen, and this is what you're getting at uses of money. Well, at some point you're going to see the velocity of money pick up and you're going to see kind of back to the quantity theory of money.

But because of technology and financial technology, I would assume actual uses of cash continue to decline, though of course the black market loves the use cash. When you when you talk about the length of the cycle, that's being along the cycle, what are the signs you see that it may be coming to an end? Well, I think in the United States in particular, you're starting to see um, the easing cycle turn um, we see interest rates lifteeing um, talk of what to do with the FENS balance sheet.

These are all little signs that we're gonna start to see back to a pickup in a normal interest rate environment. Even in Europe, I think there's some some talk about we're getting getting towards the end of using monetary policy as an end all and be all tool. And I think that's also something that needs to be mentioned, is we have around the globe relied far too much on an imperfect tool, and that's monetary policy. I mean, monetary policy is best used to provide a stable price level.

It is not meant to be used to to lift employment level simultaneously everywhere to get the economic engine necessarily started. Because of this whole notion that Kane says, you can't necessarily push your strength if people don't have positive expectations about the future or animal spirits that they are not going to invest, they're not going to so so there

has to be something other than monetary policy. And this, I think is one of the lessons that we're learning post the Great Financial Crisis of two thousand and eight and two thousand nine, is that monetary policy can facilitate growth, but you need other policies to really ignite the engines of growth. And there's been far too much reliance, in my view, on monetary policy, and it's been used to

someone incorrectly. It is a blunt tool. It is not a tool that you could find tune and use meticulously. What have we learned about the promise of policy, about optimism here over these last five six months since since the election. Is you look at yourself and other investors and how they reacted to the presidential election last year and all that that could have ushered in or people thought it would usher in. What have we learned now a few months into the president's term. Well, I think

we haven't learned all that much quite yet. I think what we're the biggest thing we've learned is this kind of consistent bashing of success send capitalism and banks and greedy bankers and all of us. You know, everyone's greedy and everyone's out to get the world. At least we've backed off of that, and I think there was a realization that the private sector creates jobs, the private sector creates opportunity, the private sector creates upward mobility, and it's

not this evil boogeyman. Perhaps that is the biggest lesson learned, the biggest relief because prior to this, I mean, we had eight years of of you know, the bashing of the private sector and a free enterprise, and we still have yet to see what's going to replace it. I think there's still some uncertainty what's going to replace it? But what we have seen is kind of an end to the evil private sector rhetoric. Do you invest thinking it's a double digit return world? Or is David Harrow

a single digit guy? Now? I think what you have to invest is a you have to think of what's inflation while it's one or two percent, and then you know worship interest rate speed and you had a couple points to that, and what's the equity risk premium when you add it all together. I think equities through time, if you have an inflation environment of one to two percent, should be should do eight to ten percent through time through time, And what you achieve is dependent on where

you enter in the evaluation cycle. So if stocks are kind of rich and you enter there, you will get less than that eight to ten percent. Stocks are kind of average valuation, I would presume you would get around eight to ten percent, and you could buy stocks at a cheap valuation level and the cycle you will do

better than eight to ten percent. But I hope for my shareholders that we could do close to double digit and that we could beat the index that we compete against by a measurable one one basis points and luckily, over twenty years we've been able to beat it by four hundred basis points, so we got we get bonus points. David Harrow with US on International Investing. David, you more buy and holding Now is your so called portfolio turnover rate? Is it lower and lower or are you churning in

holding stocks for like ten minutes or ten months? Well, we tend to be very much on the buy and hold camp. If if you look at our strategy to analyze the business, to price a business, to buy it low and to sell it, dear, business valuation and the creation of business value tends to be a lot more stable than price. Price is very very volatile, whereas business value even through cycle tends to be somewhat moving gentle fashion. So we tend to be very long term shareholders. Some

stocks we've owned for over a decade as an example. Now, when prices, when you have atility uh and prices that may pick up our portfolio turnover rate. So the natural rate is probably a year, but in very volatile periods, and if you have a out of inflows and outflows, it could drift up to thirty percent a year, probably still well below the average fund which you know, some funds literally are you know, trading every two days and you see two portfolio turnover for us, it's a very

very different strategy. How does what President she unveiled at his One Belt, One Road for UM change the calculus for you or for investors more generally outline these ambitious plans outlining the need for private investment, Does that change

the calculus for you at all? Well, again, you know these are plans and these are mostly words, and what you really need to see, for instance, is you know, an increase infrastructure development as part of this plan really suggests and more airports, ports, ports, railway, etcetera, etcetera, etcetera, more trade, more free trade. Now, if all this happens, it's quite good, and it's really good for infrastructure. Uh, infrastructure, which is kind of the oil that lubricates economic growth.

And you know we have we own shares and companies like Lafarge Wholesome that is one of the leading cement makers in the world. I mean, this would be very good for Lafarge Wholesome, This would be very good for Glencore, which is a big producer of copper. So I mean it would be good for our portfolio. It would be good for global growth, would be good for just about everyone. But you know, these are politicians and often what they say does not materialize. Where's the growthiness right now? Not

the value, but the growthiness. I see you at w P P. Martin Searle's company at some point, but you know, is it like an entertainment or cable or something. Where's where's David Harrow's growthiness right now? Yeah? You know, you don't see just these high pockets of growth. And maybe you know, certain areas of financial technology, maybe certain areas of UM credit expansion. You're starting to see a lending pick up in Europe as an example. I mentioned it before.

Europe is looking a little better and part of that manifests itself and better lending volumes. Um. You know, autos aren't growing, but they're still selling at We're at a pretty high level. Um. You know, even though you know it's slowed down the auto global automobile sales are at a high level. You still see respectable automobile sales even in the United States, despite the fact that perhaps too

much incentive is needed to maintain those levels. But you still see places in China and the emerging markets growing um some consumer products luxury goods are growing. Soft goods in particular, company carrying that owns Gucci and in Paris, and Gucci is an Italian company carrying owner owner is a French company. You go into a Gucci store in London on Necessariday afternoon and mob seeing a mobs to buy your wife Gucci is very hot. Thank you, Fastion.

Advice for the wise guy from David get one more question and with David Harold before I hit him over there very quickly, David, And light of the tweet from the present this morning, light of the reports of the new tension between Europe and the US, how much does that matter to you as a global investor, global politics and and the comedy between the US and Europe. Not really too much, David, because what really matters is how does this impact a company's ability to generate cash flow streams?

And so much of it again just ends up being noise. Now, I said, I just saw the tweet about this trade deficit. Well, the problem is that some of this is autos. But the German car companies, namely BMW and Mercedes, have substantial operations in the United States and are huge exporters. Every X Serish truck literally around the world is made in

South Carolina. So when you when you go around the world and seeing X five and X three and X two and X one, those are all US cars, you know made, And so I mean this is this is again the problem with politicians. They just say things that aren't always accurate. David, thank you so much. David here greatly and Harriss Associates greatly appreciate that. This morning, it is our great pleasure to bring you know a gentleman who has changed worldwide how we get around, how we fly.

His effect has been profound. I can think of very few people in the airline business even approaching the work of Michael O'Leary and the impact he runs a small shop called Ryan Air. I met you in the basement of our London offices. I think the Right Brothers had just landed and the Carolinis on the beach. You've been doing this, Michael a long time? Is it still fun? Thank you? Tom. I know you didn't say that I've improved their form after the weekend we've had, but are

you still having fun? I'm having more any more. It is the most fun you can have with your clothes on tom in Europe bringing forward lower affairs, keep driving down those air fairs and making it impossibly for other airlines to compete. After what Mr Walsh and companies saw this weekend, can you outsource I T. We don't think so. I mean we've deliberately insourced the whole I T function under Ryanair Labs for the last couple of years now. To be fair, I don't think what happened this weekend

had to do withoutsourcing. But there's clearly something wrong with their disaster recovery program. I mean there's no way that any large company can operate with all of its data in one center where some power surge takes it all out. I mean, it's just it's beyond incompetent. And we've had this three or four times now. Right to be fair to British Airways, there are a small airline company in London. You may ye vaguely. They carry about thirty million pastors

a year. We'd cary about a hundred and twenties, so you know, but I think there's something wrong with the disaster recovery program. We are in our data centers are spread across five different data centers in Europe with disaster recovery programs for each one, so if one thing goes down, you switch to the other four um But you know, ultimately these are just blips. Be A is doing a

reasonably good job. They're trying to lower their costs. Unfortunately can't lower them down to where Ryan areas, so they're still not able to compete with us on price. But the good news is that we're continuing to expand rapidly. We have produced guidance this morning. We see our fares falling by another five to seven percent in the next twelve months, but profits will rise by about eight percent, and so good do you think is the business model?

We're buying back another six hundred million euros of our shares in the next couple of months. What's the greatest challenge that you face. You talked about the expansion of the reducing fierce even more. What's the biggest challenge that you face in the next six months. I think, without doubt it's always cost discipline keeping. How do we get

the cost to come down again? And this is where you know our new aircraft order with Boeing we're taking delivery of fifty grade boweing seventies seven eight hundreds each year for the next eight years. That's going to take down our costs. We're talking to airports all over Europe who are terrified that Anatally is now in chapter eleven. Air Berlin, Yeah, Berlin's how do you get to Rome? What are you gonna do about Rome? Where now the

second largest airline in Rome. We're have a big base in Champago and with a big base in Film and Gino. And I think what happens tom is as Alatali emerges from chapter eleven. It would probably be more focused on Longhold where they can make money. And I think they're gonna have to cut their capacity on shorthold where they're just unable to compete with Ryan there either on Italian domestics or shorthold European routes. It's plainly a trip. That's

the sigma do you know? Yeah? No, Do you see any indication that the American public wants anything but cheap price? I keep hearing these theories. They want this, they want that, Bologna. They just want the lowest price. And it's not just the American public, the European customer as well. People booking a trip, the first questions who's got the cheapest fairs. They want safety, they want new aircraft, and they want punctuality.

But other than that, they're willing to trade almost every element of customer service, which is if you look at the Ryan Revolution, Tom in the last twenty years, we were the first people to start charging for the onboard snacks, the first people start charging you for checked in bags. Not because we wanted your money. We wanted people to start bringing checked in bags. And I've been transformational. I'm on air on our surveillance golf stream. I'm paying people

not to bring the snacks to me. That's a gold Michael Leary, thank you so much. With Ryan here, let's speak in London. This is Bloomberg. David, why don't you bring in our esteem? Gust very glad to looking forward to this next conversation with Graham Allison. He is a professor at the Kennedy School of Government at Harvard University, the director of the Belfry Center for Science and International Affairs, the author of a new book, Destined for War. Can

America and China Escape the Cydities Trap? He joins us now on our phone lines and running through his bio, Theere failed to mention his role in government as well, having served as Assistant Secretary of Defense previously as well. Great to have you with us and help me with the Greek term. First, I think we should begin there at the Cydities trap? What is it and what can

we learn from it? Here in two thousand seventeen. Okay, so it's a mouthful, and some people have a little trouble saying Thucidities I practiced, I didn't practice before the Okay, So Thucidities was the father of history. He wrote about the great conflict in the Classic Greece between Athens and Sparta, and the Thucidities trapped is when a rising power threatens to displace a ruling power. Bad things happened, alarm bell

should sound danger ahead. In Thucydities case, it was, as he said famously quote the rise of Athens and the fear that this instilled in Sparta that made the war inevitable. In this book, I look at the last five years, I find sixteen cases in which a rising power threatened to displace the ruling power. Twelve of them ended in war four and not war, but in general, business as

usual will produce history as usual. And in the case of the rise of China, which is now threatening to displace the US in arena after arena, either we'll learn the lessons of history or will be just to repeat it, probably with the inevitability of that trap. If anything, that the last presidential campaign taught us to look at this relationship in a binary uh. And there are a lot of people who fear the rise of China is conflict with China, conflict between China and the US, and inevitability

as you see him in a word, No, okay. So when Tucidity said made the war inevitable, if when read it in context, as I say in the book, here's exaggerating. He bent this to be hyperbole just for the purpose of emphasis, just likely would be a more likely, more more appropriate word. So if we look at the recent history, as I say, just the last five hundred years, twelve cases of war, four cases of not war. So that clearly does not mean inevitable. That just means that's the

way to bid it. If people don't learn, Graham, you founded the Kennedy School at Harvard. You were the force that got it going and got it onto bigger and better things. If you were lecturing today at Kennedy on North Vietnam, what will be? This is the number one question I get on excuse me a North Korea, A little misstatement there by myself. Yeah, North Korea, what do the how are the president's comments received in North Korea by their leadership? Well? I think the North Korean's or

a puzz sol for all of us. And I don't believe anybody has a good fix on him. I mean, Kim Jongwin, at least until the past year, was clearly the strangest, most erratic, most impulsive, most unpredictable character you know on the on the global stage. And so this is a guy who, uh, he looks at his local things that he may be suspicious and gets a rocket launcher that blessed him away in public, who killed his half brother or had him killed in the recent event

in Malaysias. So it's a very strange guy. Nonetheless, I think as he looks and listens to Trump, he may

at least think that things will change. What he's learned from his father and from his grandfather is that North Korea can just take one step after another and defy the US and defy China in creating nuclear weapons, building nuclear arsenal testing, miss being capable to now to deliver a warhead against South Korea, also delivereral warhead against Japan, and god forbid soon but in the next year or so, as soon on the current path to be able to

deliver a warhead against San Francisco or Los Angeles. So he hears Trump saying, no, I'm telling you, this is not going to happen. Of course, that's the same thing he heard from George W. Bush. That's the same thing you heard from Obama. That's the same thing he heard from Clinton. That's the same thing he heard from she and his predecessors. So I suspect he thinks he can get away with it, and that's why I think this is going to be very dangerous. He's strange, He's dangerous.

How do you you counsel a student who wonders how you engage with a leader like that. We've enjoyed talking with your colleague, Ambassador Nicholas Burns from time to time here on the show. Of course, he's dealt with these issues. Ambassador Chris Hill, whom we've talked to as well, has dealt with him as well, how do you engage how do you deal with with with the leader who is

so erratic? Well, I get if an excellent question that I would say that we've had great diplomats and great secretaries of state try to deal with this little But the truth is that if you look at the facts, unsuccessfully, that is, the succession of efforts have not been successful in dealing with either Kim Jolin or with his dad. I think, Uh, I start by asking about all leaders and their regimes, what do they really care about? What matters most to him? And I think for him it's

his survival and the survival of the Kim regime. It's essentially a dynasty. But I think that I think therefore, Uh, to the extent that he feels that the regime is threatened, if there was a credible way to do that, we might be able to move him. A book that's getting considered in Rave reviews, Destined for War Graham Allison, who is at Harvard's Kennedy School, indeed was the founder and the soul of the school. A guy named Kissinger says,

of this book, I read it with great interest. I can only hope that the U. S. China relationship becomes the fifth case to resolve itself peacefully. Speaking of peacefully, let's talk NATO, Professor Allison, there was a thing called the Truman Doctrine March twelfth, ninety seven. How scared were we in March of nine? Extremely uh? The again hard to remember the Cold War, but the Soviet Union emerged

from World War Two as the other great power. UH. The Soviet Union was getting its act together and aggressively reaching into Europe, including into Greece and into Turkey, into France, into Italy, into their politics. And the Truman administration initially with the Truman Doctrine, and then with the Marshall Plan also in thy seven, and then with the creation of NATO in pushed back and basically that's the reason why

we have a free Europe today. Let me ask you about the message, the tone, the content of the President's speech in Brussels last week. He received a lot of criticism for focusing so much on funding and so little on the alliance and its history and its importance. Let me stick with the funding side of things for just a second. Here. You've written about this before. I think your agreement here that European nations, most allies should be doing more to get to the two percent commitment they've

they've made. Why is that case so difficult to make? Why does it have to be made? And such maybe a ham handed way by the President in Brussels, it's clearly something he cares a lot about. Why Why hasn't he Why haven't previous presents made much traction there? Well, I think it's a great question, and I think essentially the President speaks for many Americans when he says, rightly, Germans are as wealthy as the US, why should the U S Citizens taxpayers pay more to defend Germans. The

Germans are prepared to pay for for themselves. And the answer is, well, we've been doing that through the period of the Cold War, when NATO was the pillar essential for the defeat of the evil Empire. That was understandable or at least explainable. But in the period the last twenty five years since the end of the Cold War, this becomes less and less plausible. From the European perspective. A free writer's role is a good is a good role.

Uh And even though repeatedly presidents and secretaries of Defense have said to the NATO counterparts this cannot continue. We're not going to continue doing this. American tax players won't continue supporting it. Basically they've said yes, yes, yes, but they meant no, no, no. So I think I can empathize with President Trump's frustrations, which you're shared by many people. If you look at Gates's speech at his last NATO meeting, it looks very similar to the to what Trump was

saying about. You know, look, guys, this cannot go on in this fast but moving people from a position in which you can't really exclude them from a defensive perimeter because we care about their defense as well. Uh is a dilimma. There will be some listening today who will sympathize with what Secretary of State Rex Tillerson said mumbled off Mike on his first trip to Europe as Secretary of State. Why why is NATO relevant? What do you

say to them? How do you make the case to to Americans this alliance, which is stories and has been around for for so long, indeed, art triggered after nine eleven, has done more than Yeoman's work in Afghanistan in our war there. How do you make the case for its continued relevance that Americans should continue to put billions of dollars a year to pay for it. Well, I would say that the three things. First is the historic fact that it's been the greatest alliance in history that was

essential for the defeat of the evil empires. Secondly, it is our closest set of colleagues for engagement in the world. So NATO members are with the US in Afghanistan today. NATO members were eager to be with the US after nine eleven. So if the US wants any company in the world in terms of values, interests, institutions, uh, it's NATO. And then thirdly, as President Trump has said, for the fight on terrorism, basically Europe is the heart of that.

Now as you see the populations that have come into the European complies and not been fully intovated. What is your quickly, what is your prescription professor for Secretary Madison,

Secretary Tillerson. Well, I think they have a hard job dealing with the NATO counterparts because the NATO counterparts have become accustomed to basically not being serious about defense, not being serious about their own defense, not spending what they should spend, and even worse than what they spend is what they spend it on mainly on the headquarters and bands and flyovers, not fighting capability. So trying to get Pato to be a good partner is going to be

a long, hard shout. It has been. This has been wonderful. Destined for war Graham Allison again. Robert D. Calpot writing it up in the Journal today. I'm one money of the constructive reviews. Destined for Ward is most thoughtful. He is at Kennedy School, Harvard. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at

Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio, brought you by Bank of America Merrill Lynch. With virtual reality, virtually everything will change. Discover opportunities in a transforming world. Be of a mL dot Com, slash VR, Merrill Lynch, Pierced Fenner and Smith Incorporated,