Business Blog: Hoover’s Business Insight Zone

Scenario: You run British Airways. You spend many years and billions of dollars to kit out a state-of-the-art terminal in your busiest hub. And then it all goes kablooey in the most humiliating possible way. What do you do?

British Airways Plc canceled 50 flights at London Heathrow airport’s new Terminal 5 and brought in U.S. courier firm FedEx Corp. to help reunite passengers with about 20,000 delayed bags.

A bit of good news: Calling in FedEx, while no doubt a blow to BA’s pride, at least reflects that BA understands that the top priority for now is to reduce the baggage backlog, almost regardless of cost or considerations of pride. If you want furious — furious — customers, (1) talk up your new high-gloss terminal, (2) lose their bags, and then (3) take your sweet time reuniting bags and customers. BA, at least, is making a public show of trying to mitigate item #3.

The airline scrapped 13 percent of scheduled flights from the terminal on the sixth day of disruption at Europe’s busiest airport. Another 50 flights will be canceled tomorrow, British Airways spokeswoman Amanda Allan said.

BA says it’s doing this as a “firebreak” measure — i.e. it’s canceling these flights now so that it can get a grip on the problem for the longer haul. Not a bad idea, if the alternative is to get behinder and behinder.

Cancellations caused by the failure of the 4.3 billion-pound ($8.5 billion) terminal’s computerized baggage system total more than 300 since it opened on March 27. The number of bags waiting to be reunited with their owners has risen by about one-third in the past two days, though the airline is now making progress in working through the backlog, British Airways said. [...]

British Airways, whose Chief Executive Officer Willie Walsh says he accepts responsibility for the chaos, rose as much as 8.25 pence, or 3.5 percent, to 242.5 pence and was trading at 242 pence as of 11:37 a.m. in London. The stock has dropped 22 percent this year, reducing its value to 2.79 billion pounds.

My goodness, what might have happened to the shares if Walsh hadn’t “accepted responsibility”? [Thank you for indulging me in a moment of snark.]

The airline had been counting on Terminal 5, which took 20 years to plan and build, to help ease journeys and retain passengers put off by Heathrow’s overcrowding. The company took possession of the complex in September from BAA Ltd., which is owned by Madrid-based Grupo Ferrovial SA, starting what it described as “exhaustive” customer trials that month.

A piece of advice: don’t ever use “exhaustive” again in this case. If the system broke down immediately in the face of, you know, normal passenger traffic, then the trials weren’t exhaustive enough. Q.E.D. And even if, in some abstract sense, they were exhaustive, saying so only adds insult to injury for all those passengers whose bags were lost.

Following the failure of an automated baggage screening system, bags that have been unloaded at Heathrow are being re-screened manually. In some instances, this requires the luggage to be driven to London Gatwick airport for the security checks.

Amazing. Just . . . wow. (In case you’re not familiar with the suburban geography, Heathrow is only about 15 miles from Gatwick, but it’s not the world’s quickest 15 miles.)

[...] The disruption may cost the carrier as much as 50 million pounds, Andrew Fitchie, an analyst at Collins Stewart in London with a “buy” rating on the shares, said in a note to clients yesterday. It will clip annual earnings by three-to-five pence a share, he said. [...]

British Airways, Europe’s third-biggest carrier, is already the continent’s worst for lost luggage and the second-worst for delayed bags, according to the Air Transport Users Council.

You wonder if this Heathrow meltdown is going to be the turning point for BA. If Walsh really accepts responsibility for this, then he or other top managers in the company will exit. The opening of Terminal 5 was not the sort of thing you throw together and see if it works: it involved enormous outlays of money, energy, and time — and it’s simply unacceptable that these delays would hit it so hard and so fast. Walsh has already acknowledged this in a crow-eating statement.

What I would hope to see: Walsh comes out with a much bolder statement, once BA has rectified the current Terminal 5 problems, that his airline will make itself #1 in baggage handling. Something along these lines could do the trick:

“Our passengers deserve the best treatment, right in line with British Airways’ tradition of customer service. The breakdown of the baggage system at Terminal 5 is unacceptable, and shows us that we still have a long way to go to give our customers the service they deserve. We’ve fixed the problems in baggage handling at Terminal 5, but that’s not enough for us: we’re going to keep improving our baggage handling until we’re second to none in the industry. And please don’t take our word for it — watch what we do instead.”

You think?

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Story source: Bloomberg.

(Photo by terminal5insider.)