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.
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.”
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.
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.”