Frankfurt - British Airways is shifting its focus to tallying the costs
and causes of the weekend’s massive cancellations after bringing operations
largely back to normal. The UK carrier scrapped almost 600 flights since Saturday
due to a computer outage and is still processing thousands of passengers who
missed flights or lost their luggage.
The crisis puts the spotlight on Chief Executive Officer
Alex Cruz, who took charge a year ago to lift profit as the carrier struggles
to fend off budget rivals. The weekend breakdown, which analysts estimate could
cost the carrier more than 82 million Euros ($92 million), raises questions
over Cruz’s aggressive cost-cutting strategy.
“It’s a tragedy,” Cruz said in a Sky Television interview on
Monday, blaming a power surge in the UK that disrupted communications systems
worldwide. “We absolutely profusely apologize for that and we are absolutely
committed to abide by the compensation rules.”
Images of thousands of stranded passengers coursed through
social media in the latest mess to hit the embattled global aviation industry.
In recent months, 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 not the first problem involving British Airways.
Last September, a computer network failure brought down
British Airways’ check-in system, causing worldwide service delays, while earlier
this month, London Gatwick airport reported problems with its baggage-sorting
system.
The PR disaster, which coincided with holiday weekends in
both the US and UK, hits British Airways as it faces increasing competition on
lucrative transatlantic routes. Low-cost competitor Norwegian Air Shuttle
ASA is ramping up service to the US, while Ryanair Holdings Plc is increasing
feeder operations to connect with long-haul flights.
British Airways parent IAG SA has fought back by cutting
jobs, investing in budget brands and signing partnerships with rivals such as
Qatar Airways and Latam. That’s helped fuel a financial turnaround, and IAG
posted an operating profit of 170 million Euros in the first quarter, a record
for the period and 9.7 percent more than a year earlier.
IAG shares, which weren’t trading in London due to a public
holiday, fell as much as 3.8 percent in Madrid and were down 2.6 percent at
6.83 Euros at 3:11 p.m.
Budget Hawk
Cruz joined IAG’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 program 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.
British Airways’ outsourcing and off shoring of technology
jobs in recent years is to blame for the weekend’s problems, according to its
GMB union. The airline has cut about 400 jobs in the UK since 2015, leading to
flight delays and other operational issues, said Mick Rix, national officer for
civil aviation at GMB.
Cruz denied that outsourcing had anything to do with the
issue, noting that the outage happened at a “local data center.”
Thousands Affected
The UK carrier canceled 50 flights, or about 6 percent of
the total 852 scheduled, to and from its main London Heathrow hub on
Monday, according to the British Airways website. An additional 66 routes
were delayed. That brings the total of flights scrapped at Heathrow and Gatwick
airports since Saturday to 583, according to Bloomberg calculations.
Read also: British Airways might scrap free meals on long-haul flights
It’s unclear how many passengers were affected. British
Airways pegs the figure at 75,000 while Goodbody Stockbrokers and Citigroup estimates
exceed 170,000. Compensation claims could reach 82 million Euros and reduce
IAG’s operating profit in 2017 by about 2.7 percent, according to Goodbody.
Customers who were sent away from Heathrow and Gatwick on
Saturday were told to find hotels on their own for reimbursement later by
British Airways. Payments will include 200 pounds per night for lodging, 50
pounds round trip between the airport and the hotel, and as much as 25 pounds
for refreshments, according to leaflets from the company.
Hotels surrounding the airports at times charged more than
1,000 pounds for a night, according to the Sunday Telegraph.
“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.”