IAG shares sink after long weekend computer failure

Shares in International Consolidated Airlines Group (IAG) dropped sharply after London market's opened after a long weekend where the meltdown of British Airways' computer systems left 75,000 holidaymakers stranded in airports and the airline facing a chunky compensation bill.

On Tuesday, the airline said there were still a significant number of passengers around the world who were still being affected by the IT failure, mainly lost luggage.

All BA flights from Heathrow and Gatwick were grounded on Saturday due to what it called a "global system outage" and while services resumed on Sunday, close to 200 flights were cancelled and delayed to and from Heathrow due to knock-on effects, according to some calculations.

BA could face a compensation bill in the tens of millions of pounds up to around £100m, according to various calculations, when including putting customers up in hotels and resultant lost business.

A statement on Tuesday, it gave an update on the current situation: "We are continuing to make good progress in reuniting bags with customers around the world who were affected by the major IT systems failure on Saturday.

"Although we have already flown many bags to the correct airport, there is still some work to do and we know there are still significant numbers of customers who are yet to receive their luggage.

"We are very sorry for the frustration this situation is causing at a very busy time of year for holidays."

In an interview on the BBC on Monday, BA chief executive Alex Cruz said he would not resign over the issue and denied that last year's IT outsourcing deal to India’s Tata Consultancy Services had been to blame for the problem.

“There was a power surge and there was a back-up system which did not work at that particular point in time. It was restored after a few hours in terms of some hardware changes," he said. "We will make sure that it doesn’t happen again."

However, the weekend's catastrophic IT failure followed a glitch in September with check-in systems which was reported as affecting customers worldwide, but BA insisted only affected check in for flights from the US.

IAG shares sank more than 3.5% in early trading on Tuesday, following the bank holiday the previous day when the Anglo-Iberian group's stock lost ground in Madrid.

Investors were rightly turning a bit cautious, said Neil Wilson at ETX Capital, who felt a better estimate for the cost of the fiasco was nearer €100m, or around 5% of pre-tax profits this year, but "far worse is the reputational damage to the brand".

"There are serious questions for IAG boss Willie Walsh over cost-cutting. A master of slicing back the fat, the outage has investors worried that he’s gone too far. An IT glitch happened in September too, delaying passengers. If it keeps happening investors could lose patience almost as quickly as passengers."

George Salmon at Hargreaves Lansdown agreed that while the costs of compensation and refunds could well run into the tens of millions, "the whole sorry episode has undeniably put a dent in BA’s reputation for delivering a premium service, and the worry for shareholders is that this unquantifiable impact could have longer-term consequences".

He also highlighted that results from Ryanair on Tuesday confirmed that passenger numbers grew 13% last year, and with the Irish carrier's plans to cut its fares by a further 5-7%, "there seems little chance of industry-wide pricing pressures easing anytime soon".