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British Airways owner IAG reports trading update with cost of IT meltdown in focus

IAG posts a trading update while the markets are expected to be volatile as the general election draws closer
British Airways
British Airways is investigating what caused its IT systems failure

British Airways owner International Consolidated Airlines Group (LON:IAG) releases a trading update on Tuesday with the focus on potential further details on the financial impact of its IT systems failure.

A power outage led to an IT meltdown on 27 May, grounding flights from Heathrow and Gatwick and causing delays and cancellations for 75,000 passengers throughout the bank holiday weekend.

IAG, which also owns Aer Lingus, is investigating what caused the power outage.

The carrier is expected to face a £100mln bill for compensation, additional customer care and lost business resulting from the IT failure.

While the group’s trading statement is on traffic statistics for May, it may provide an update on the power outage. IAG is likely to put aside a provision for compensation payments but is yet to confirm how much the incident will cost.

“While there has been much in the way of positive news from IAG in recent updates, especially the growth at Aer Lingus, the market will be focused on the figures and especially any comments about how it may dent profits through issues such as compensation claims,” analysts at The Share Centre said.

Like its sector peers, IAG also faces risks stemming from Brexit, a pricing war between airlines and security worries in Europe.

A weaker pound following the Brexit vote has put pressure on the disposable income of British households and made travelling abroad more expensive. There are also concerns that the UK will be unable to secure a new trade deal with the European Union before leaving the bloc.

Under the current arrangement, airlines based in the EU have the right to fly to, from and within any country in the bloc but Britain will have to revert to World Trade Organisation rules if it can’t secure a new trade deal.

Airlines have also been cutting fares to deal with rising competition while terror attacks in Europe have deterred many people from flying to destinations such as Turkey and Egypt. 

General election countdown...

The general election is fast approaching with voters heading to the polls on Thursday. A new YouGov poll has suggested the Conservatives will fall 21 seats short of an overall majority. the poll said Conservatives would win 305 seats, down from 308 on Saturday and falling short of the 326 needed to gain majority.  Labour Party is on 268 seats, up from 261 on Saturday.

However, the latest ICM/Guardian poll said the Conservatives are 11 points ahead of Labout with an unchanged 45%, compared to Labour’s 34%. 

The pound has weakened on the YouGov's latest polls, suggesting the market favours a Tory win. Many analysts expect the pound to waver ahead of the election.

"Of course, different polls are still giving us a variety of outcomes, with some still pointing to a comfortable majority for the Conservatives, which appears to be the most market friendly scenario," said Oanda's Craig Erlam.

"The memory of 2015 when the Conservatives performed much better than expected may well be helping to support the pound, even as some surveys paint a worrying picture for Theresa May."

 

Announcements due

Interims: Oxford Metrics Plc(LON:OMG); Gooch & Housego PLC (LON:GHH)

Finals: Acal Plc (LON:ACL); GB Group PLC (LON:GBG); WYG PLC (LON:WYG); Carclo PLC (LON:CAR); FreeAgent Holdings PLC (LON:FREE); BP Marsh & Partners PLC (LON:BPM); AO World (LON:AO.)

Trading Statements: Joules Group PLC (LON:JOUL); International Consolidated Airlines Group (LON:IAG)

 

 


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