Long haul for BA to fix brand damage
• Parent company’s shares fall while airline works to restore full schedule
Shares in the parent company of British Airways (BA) fell on Tuesday after a huge technology failure left 75,000 passengers stranded over a holiday weekend, dealing a major blow to an airline that once marketed itself as “the world’s favourite”.
The British flag carrier had to cancel all flights from London’s Heathrow, Europe’s busiest airport, and Gatwick on Saturday after a power surge knocked out its computer system, disrupting flight operations, call centres and its website.
Problems continued over the long weekend.
Although BA said it expected to run a full schedule from Heathrow and Gatwick on Tuesday, it was left with work to do to, in the longer term, to restore its reputation.
BRAND DAMAGE
Once a symbol of British pride, BA had already come under fire for charging extra for food and baggage. The sight of stranded passengers trying to sleep on the floor of its gleaming Heathrow Terminal 5 building has the potential to do huge damage to its brand.
Like other European fullservice airlines, BA faces competition from budget rivals Ryanair and easyJet.
BA CEO Alex Cruz said on Monday that the power surge was so strong, it also rendered the back-up systems ineffective.
He denied a suggestion from the local GMB union that the outage was linked to a decision to cut staff numbers and outsource work to India.
Mark Simpson, an analyst at Goodbody, said BA’s technology failure was a public relations nightmare “and will take a real focus in terms of handling customer complaints and compensations claims to rebuild trust and confidence with the public”. Simpson estimated the cost of the outage at €82m.
Ryanair CEO Michael O’Leary said his company had very strong bookings at the weekend, but added it was unclear if this was related to the BA problems. Ryanair, which reported record annual profits on Tuesday, used social media to poke fun at BA.
Shares in BA’s parent company, IAG, which also owns carriers Iberia, Aer Lingus and Vueling, fell as much as 4.5% on Tuesday, the first day of London trading this week. They were 2.9% lower late in the morning.
Flight compensation website Flightright.com said about 800 flights had been cancelled at Gatwick and Heathrow at the weekend. BA did not comment on the number of cancellations.
IAG’S MANAGEMENT HAD BEEN INVESTING IN RENEWING ITS INFORMATION TECHNOLOGY
Analysts at Deutsche Bank estimated that the costs of compensating passengers would be €47m and that the cost of restoring BA’s network had an upper limit of €15m.
But the analysts said IAG’s management had been investing in renewing its information technology systems, and expected customers to return to BA quickly as the incident was a one-off.
“While clearly a difficult weekend and week ahead for BA, we do not expect lasting damage to the franchise or longterm forecasts,” Deutsche Bank said in a note, retaining a buy rating on the stock.