British Airways meltdown feeds outrage at airline cost cuts
By RICHARD WEISS AND REBECCA PENTY | Bloomberg | Published: May 30, 2017
British Airways' epic meltdown over a busy holiday weekend further fanned public outrage of an industry infamous for its focus on cost cuts over customer service, leaving the U.K. carrier scrambling to explain how a local computer outage could lead to thousands of stranded passengers.
Amid United Airlines' dragging fiasco, mass cancellations at Delta Air Lines and U.S. concerns about terrorists using laptops to down planes, the global aviation industry hardly needed another blow. But then on Saturday morning, a brief power surge knocked out British Airways' communications systems grounding the carrier's entire London operations, leading to days of chaos and putting the new chief executive officer in the hot seat. A full flight schedule is due to resume on Tuesday.
With nearly 600 flights canceled and luggage unable to be dispersed, images and horror stories quickly coursed through social media. Damages for rebooking and compensating customers is estimated at about 100 million euros ($112 million), or about 3 percent of the annual operating profit of parent IAG SA. The shares fell the most in almost seven months as trading resumed in London after Monday's holiday.
The image damage could be even greater as British Airways appears to have no idea how it all happened. "We're absolutely committed to finding out the root causes of this particular event," a grim looking Alex Cruz, the airline's CEO, said in an interview with Sky Television. He did, however, rule out a cyber attack, which suggests the faults are homegrown.
The airline's communications systems are now working again and British Airways will run full flight schedules at London's Heathrow and Gatwick airports on May 30, it said in an emailed statement.
"It is tempting but increasingly questionable to view this as a one-off," said Damian Brewer, an analyst with RBC Capital Markets. "Coming after a spate of other issues, the bad PR and potential reputational aftermath will likely hit future revenues beyond the likely material impact."
While about 95 percent of flights are running, thousands of customers are still being re-routed. More than two-thirds of the 75,000 affected passengers were scheduled to reach their final destination by the end of Monday, Cruz said in a YouTube message. Analysts estimated the number of people due compensation at closer to 170,000.
The crisis puts the spotlight on Cruz, who took charge a year ago after running IAG's Spanish budget unit Vueling for more than nine years.
While Cruz helped Vueling expand into Spain's second-biggest airline, the airline suffered repeated flight cancellations and delays last summer due to a lack of available aircraft and crews. Vueling was the only airline in IAG's portfolio where profit declined last year.
His four-year cost-cutting program at BA includes eliminating almost 700 back-office jobs, outsourcing some technology operations and switching to paid-for food on short-haul flights. The excessive focus on costs is to blame for the latest mess, according to the GMB union.
"They started on this journey to outsource and offshore this work and there have been a number of incidents now that have culminated in what has taken place this weekend," Mick Rix, national officer for civil aviation at GMB, said in a phone interview on Monday.
For passengers, workers and tabloids that have criticized the industry's ruthless cost reductions for years, the disruptions seemed to prove that airlines have gone too far. Daily Mail blamed Cruz and chastised his methods at Vueling, where he outlawed color printing, banned paper towels from washrooms and offered visitors to business meetings only tap water. Critics on social media, meanwhile, questioned whether British Airways deserved to claim itself as the U.K.'s flag carrier after the perpetual cutbacks.
Cruz and the airline were keen to distance themselves from any notion that penny pinching led to the meltdown, saying instead that the outage was caused by damage at U.K. data centers, where work wasn't outsourced.
"Two days later, they are not all back up and running completely, but we are making good progress in our recovery," the airline said in a statement. "We do have a back-up system, but on this occasion it failed."
It's not the first problem involving British Airways. Last September, a computer network failure brought down the carrier's check-in system, causing worldwide service delays, while earlier this month, London Gatwick airport reported problems with its baggage-sorting system.
The latest gaffe 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 U.S., while Ryanair Holdings is increasing feeder operations to connect with long-haul flights to destinations such as New York and Havanna.
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 ($260) 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. Operations were gradually recovering by Monday, when just 50 flights to and from its main London Heathrow hub were canceled and operations were back on schedule at Gatwick.
"It's a tragedy," Cruz said. "We do apologize profusely for the hardship that these customers of ours have had to go through."