British Airways faces escalating bill over IT nightmare as questions build for cost-cutting boss Alex Cruz

 
Rebecca Smith
Thousands of passengers have been affected by disruption at Heathrow and Gatwick
Thousands of passengers have been affected by disruption at Heathrow and Gatwick (Source: Getty)

British Airways is facing a sky-high bill for its global IT meltdown that resulted in hundreds of flights cancelled over the bank holiday weekend.

A power failure on Saturday resulted in mass flight cancellations across London Heathrow and Gatwick airports, causing chaos for 75,000 passengers.

Read more: Global IT meltdown prompts British Airways Heathrow, Gatwick cancellations

BA, which has promised an exhaustive investigation into the causes of the outage, is liable to reimburse thousands of passengers for hotel expenses as well as refreshments.

Experts are forecasting a bill in excess of £100m, with independent aviation analyst Howard Wheeldon saying:

While the cost of reputational damage to British Airways is incalculable at this stage it will be considerable.

I suspect that the minimal cost of recovery and claims costs will be in excess of £120 million. Adding both together, we could be talking double that amount.

He believes the handling of the crisis is “undoubtedly the single worst event in the airline’s history since privatisation”.

Robin Byde, an analyst at Cantor Fitzgerald, said the hit could run to £100m accounting for “compensation, refunds or rebooked flights, additional staffing and related costs, system recovery costs, and passengers choosing another carrier”.

The airline, which is owned by International Consolidated Airlines Group (IAG), sent out chief executive Alex Cruz to face media questions for the first time yesterday, after Cruz had previously posted video updates to Twitter, apologising to passengers.

Cruz, who was brought in to cut costs from fellow IAG-owned lost-cost airline Vueling, has faced a barrage of questions over the incident, including whether cost-cutting had played a part. The GMB union has pointed to technical staff being outsourced from the UK to India.

Wheeldon said those responsible for the outsourcing choices should be “made fully accountable” and “at least some heads” should roll, but BA said the outsourcing move was not to blame and it “would never compromise the integrity and security of our IT systems”.

Meanwhile, Cruz insisted he will not resign over the crisis and cost-cutting was not to blame for the IT troubles.

The reputation cost of the incident will be a further headache for the firm, with Damian Brewer at RBC Capital Markets saying it is “increasingly questionable” to view BA’s trouble as a one-off.

“Across IAG, material operational failures seem to have become a recurring topic,” Brewer said. “This summer it is BA’s IT meltdown, last year Vueling saw a much reported operational collapse over peak summer travel”.

He added that if the root cause is the power shortage as BA has said, this suggests “fundamental management and planning weakness in BA”.

“At present, it appears that BA management have seemingly not taken account of IT risk precedent already seen and already known at other carriers,” Brewer said.

Last August, Delta Air Lines suffered a computer shutdown which grounded flights over several days and cost it $100m (£78m).

Meanwhile, aviation analyst Alex Macheras said: "British Airways' reputation has been on a downward slope for the past year and a half now", with the introduction of cost-cutting measures including the ditching of free food on short-haul flights.

"As it stands, any savings they would have made through these endless cuts would have become somewhat irrelevant this weekend – as this will cost the airline in excess of £100m in just the compensation to passengers alone," he added.

Read more: BA aims to resume most UK flights but warns disruption will continue

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