The catastrophic IT failure at British Airways that ruined travel plans for 75,000 people has raised questions about some older airlines’ focus on costs to the detriment of investment in new computer systems.
As British Airways resumed full service Tuesday, shares in its parent company, International Airlines Group, fell more than four per cent as investors appeared to worry that the company’s quality of service may have been undermined by recent efforts to save money. The stock later recovered somewhat to finish the day down 1.3 per cent.
Disaster struck on Saturday, when the company’s computer systems went down and there was no functioning back-up. The airline cancelled all flights and only managed to resume full service on Tuesday.
“Although cost cutting has been good for the share price in the last year, it will come back to bite IAG if it stops them from doing what they are supposed to do: Fly passengers to their destinations,” said Kathleen Brooks, the research director at City Index.
IAG has been battling tough competition, even as it has faced pressure on its earnings from a weaker pound following Britain’s decision to leave the European Union. The company issued a profit warning following the Brexit vote nearly a year ago.
Cost pressures aggravated an already complicated situation. Renewing IT systems is complex, time-consuming and expensive — a factor that prompts many companies to put it off as long as possible, said Loizos Heracleous, a professor of strategy at Warwick Business School.
The problem with IT systems is recurring across the industry, particularly among established airlines. In August, Delta Air lines cancelled hundreds of flights when a power outage likewise knocked out its computer systems worldwide.
Airlines face challenges with their IT systems also due to linkages across their systems. There’s further demand on the…