Counting the costs at BA
JuDGED on share price alone, BA’s bank holiday IT meltdown has done only limited damage. Indeed, holders of stock in the International Airlines Group, which owns BA, have had a terrific run over the last 12 months with shares more than doubling in value.
The disruption at Heathrow was severe, with some 479 flights cancelled on May 27 and a further 193 on the following day.
The numbers tell only a limited part of the story. Far more serious for BA over the longer haul were images of bank-holiday heartbreak beamed across the globe, damage to a premium reputation and the breakdown of communications.
In true airline tradition, the chief executive – Alex Cruz of BA or Willie Walsh of IAG – might have been expected to be a highly visible presence as things went wrong, filled with remorse, regret and promises of compensation. Instead, neither were anywhere to be seen.
Walsh acknowledges that the carrier didn’t get the communications right but insists that while the incident ‘damaged’ BA it hasn’t destroyed the company and the brand remains resilient. That is partly due to its domination at Heathrow where it holds 55pc of the flight slots, and premium passengers have few other choices if they use London. It is worth noting, for instance, that the introduction of a Club Europe cabin on domestic flights meant an extra 70,000 premium paying customers over the last month.
Similarly, Iberia (also part of IAG) is confident enough to ape BA with a Premium Economy cabin on flights to Chicago, New York and Bogota. IAG remains at the forefront of providing posh travel for those willing to pay.
A technical picture of the IT chaos at the heart of the May events is now starting to emerge. The greatest damage was the result of bungled efforts to bring up the power again after a surge. The reconnection caused an uncontrolled and uncommanded systems breakdown. We have to take BA at its word that none of this has anything to do with IT staff cuts.
A greater cost than compensating passengers should be investment in more durable and up to date cyber-proof systems and fail-safe backup power. It is no comfort to BA passengers that there have been similar, if not worse, problems at Delta and Southwest Airlines in the uS.
Walsh should make it a priority to rip out those legacy systems and replace them and to ensure a new secure back-up system away from Heathrow. If this means a big investment outlay, not budgeted for, it must surely be money well spent for the longterm future of the airline.
It is interesting to note that as the crisis has lingered, it is IAG boss Walsh, rather than the BA chief executive Cruz, who is taking the lead role.
That is the least that all stakeholders could expect, irrespective of whether the events are considered operational.
It is in the nature of these things that the person in charge is eventually ejected from office and Cruz ought to do the honourable thing and clear the decks for a new executive who better understands BA’s rich heritage. As for Walsh, he is promising an ‘independent’ inquiry which will be released.
That is not good enough. The regulator, the CAA, should have been onto this immediately. Its website assures us that its ‘enforcement role is to protect consumers and the public’ and if necessary seek prosecutions. The silence is deafening.
Online strains
THE surge of Amazon and Google shares to $1,000 shows the benefit of patience when it comes to investing in tech.
So maybe online white goods retailer AO World deserves more time as it seeks to conquer Europe and the globe.
Investors, however, can only take so much punishment.
The failure of Ocado to deliver on its global strategy, in a meaningful way, has been deeply disappointing and now it has uK activist Crystal Amber snapping at its heels by building a 5pc stake.
Watch out.
Yahoo riches
HIGH pay is a big issue in the uK as evidenced by the Tory manifesto. But ‘greed is good’ in Britain is nothing compared to what goes on in America. Silicon Valley whizz Marissa Mayer, 42, who was chief executive of Yahoo in a turbulent time filled with missteps, has collected a cool quarter of a billion dollars in rewards.
Nice work if you can get it.