BA chief says he will not resign over IT problems

Outage could cost airline £82 million and reduce IAG’s 2017 operating profit by 2.7%

British Airways was operating most of its flights from London's two largest airports on Monday after a computer-system failure stranded thousands of passengers over a holiday weekend and turned into a public-relations disaster.

The airline planned to run more than 95 per cent of flights from London Heathrow and Gatwick on Monday, chief executive Alex Cruz told Sky News.

Cruz said the origins of the problem, which also hit passengers trying to fly into Britain, had been a power surge on Saturday morning that affected messaging across BA’s systems. He said there was no evidence of a cyber-attack and denied a union claim that the outsourcing of IT work to India had played a part in the failure.

Ryanair was quick to seize on the marketing opportunity, tweeting "Should have flown Ryanair" with a picture of the 'Computer says no' sketch from the TV series Little Britain to poke fun at BA. Ryanair said it had seen a spike in bookings over the weekend but gave no further details.

The GMB union said that BA’s IT systems had shortcomings after they made a number of staff redundant and shifted their work to India in 2016. “This could have all been avoided. BA in 2016 made hundreds of dedicated and loyal IT staff redundant and outsourced the work to India,” said Mick Rix, GMB national officer for aviation.

Cruz rejected the union criticism. “They’ve all been local issues around a local data centre, which has been managed and fixed by local resources,” he said. Several passengers complained about a lack of information from BA staff at the airport.

Costs and causes

With British Airways operations largely back to normal following a weekend of massive cancellations, the airline’s focus now shifts to tallying the costs and causes of the fiasco.

The carrier scrapped almost 600 flights since Saturday due to a computer failure and is still processing thousands of passengers who missed flights or lost their luggage. The crisis puts the spotlight on Mr Cruz, who took charge a year ago to lift profit as the carrier struggles to fend off budget rivals. The weekend breakdown raises questions over his aggressive cost-cutting strategy.

"Coming after a spate of other issues, the bad PR and potential reputational aftermath will likely hit future revenues beyond the likely material impact," Damian Brewer, an analyst with RBC Capital Markets, said in a note. "It is tempting but increasingly questionable to view this as a one-off."

Images of thousands of stranded passengers coursed through social media in the latest mess to hit the embattled global aviation industry. This year alone, airlines have been caught by United Airlines' dragging fiasco, mass cancellations at Delta Air Lines, the US's laptop ban and restrictions on travel from majority-Muslim countries.

It’s also not the first problem involving British Airways. Last September, a computer network failure brought down the airline’s check-in system, causing worldwide service delays, while earlier this month, Gatwick airport reported problems with its baggage-sorting system.

Increasing competition

The PR disaster hits British Airways as it faces increasing competition on lucrative transatlantic routes. Low-cost competitor Norwegian Air is ramping up service to the US, while Ryanair is increasing feeder operations to connect with long-haul flights.

Cruz joined International Consolidated Airlines Group's British Airways after running the group's Spanish budget unit Vueling for more than nine years, with a mission to boost margins. Measures in his four-year programme at BA include cutting almost 700 back-office jobs, as well as maintenance posts, outsourcing some technology operations and switching to paid-for food on short-haul flights.

While Cruz helped Vueling expand into Spain’s second-biggest airline, the airline suffered repeated flight cancellations and delays in the summer of 2016 due to a lack of available aircraft and crews. Vueling was the only airline in IAG’s portfolio where profit declined last year.

This weekend’s outage could cost British Airways £82 million (€94 million), according to Goodbody Stockbrokers, which estimates that about 1,200 flights were affected and that 171,000 passengers qualify for damages. That would reduce IAG’s operating profit in 2017 by about 2.7 per cent, Goodbody estimates.

The disruption coincided with the start of the annual end-of-May bank holiday weekend in the UK, as well as the three-day Memorial Day weekend regarded as the unofficial start of summer in the US. The airline’s shares fell as much as 3.8 per cent.

– (Bloomberg and Reuters)