British Airways chaos wipes £360m off the value of owner IAG as boss says he won't resign

Photo / Ross Setford

Almost £360 million (NZ$654m) has been wiped off the value of International Airlines Group following the catastrophic computer systems failure at British Airways that caused havoc for holidaymakers and left the carrier facing a hefty compensation bill.

Shares in BA-owner IAG, which is listed in both London and Madrid, slumped by 2.8pc as investors were left counting the cost of the IT meltdown which led to hundreds of flights being cancelled or delayed and left an estimated 75,000 passengers stranded.

The fall knocked about €410m ($648m) off the market capitalisation of IAG in Madrid. Its London-listed stock is expected to follow suit tomorrow morning when trading resumes after the Bank Holiday.

It came as BA chief executive Alex Cruz faced questions for the first time since the crisis began on Saturday morning, in which he refused to resign and refuted suggestions that cost-cutting measures had contributed to the turmoil, which continued to cause disruption to flights today.

Willie Walsh, the boss of parent company IAG, which also owns Spanish airlines Vueling and Iberia as well as Ireland's Aer Lingus, has not commented or been seen despite the calamity at his company's biggest airline.

The 51-year-old Mr Cruz said in a series of television interviews that "we absolutely profusely apologise" for the chaos but disputed claims by the GMB union that the systems failure could have been avoided if BA had not outsourced hundreds of IT jobs to India's Tata Consultancy Services last year in an effort to save money.

Instead he blamed the computer outage on a power surge at a BA data centre near Heathrow, and the failure of its back-up systems. A cyberattack has been ruled out.

Cruz was previously boss of budget carrier Vueling, where he earned a reputation for ruthlessly cutting costs, and 18 months ago took the helm at BA where he has also concentrated on slashing overheads to help the flag carrier compete with no-frills rivals such as Ryanair and easyJet.

Controlling costs has been an overarching focus for Walsh, who as BA chief orchestrated the 2011 merger of the British flag carrier with Iberia to create FTSE 100 giant IAG. Previously, as boss of Aer Lingus he acquired the nickname "Slasher Walsh" after he cut 2,500 jobs.

IAG has not yet estimated the financial hit it will suffer from paying compensation to customers, loss of revenues, the cost of repatriating baggage and ensuring its planes are at the correct airports.

Nevertheless, City analysts have started to assess the damage, with Citigroup today forecasting IAG will take a €100m (NZ$158m) knock and stockbroker Goodbody estimating an €82m hit. IAG posted adjusted operating profits of €2.54b (NZ$4b) last year.

"British Airways' IT failure over the weekend is clearly a PR nightmare and will take a real focus in terms of handling customer's complaints and compensations claims in order to rebuild trust and confidence with the public," Goodbody's Mark Simpson said.

The flight chaos has been particularly damaging to BA as it struck over the busy long weekend and at the start of the half-term holidays for many schools.

Even before this crisis, some BA customers have been angered by money-saving measures pursued by Cruz, including the decision to abandon free food and drink on short-haul routes. BA is not alone among airlines in having suffered from flight disruption caused by computer system outages in the last year.

But RBS Capital Markets analyst Damian Brewer has said BA's apparent failure to have learnt lessons from rivals problems "suggests fundamental management and planning weakness".