What's going on?

Following a weekend of cancelled flights stemming from an IT failure, the stock price of British Airways� parent company, IAG, fell almost 1.5% on Tuesday as investors digested the mess.

What does this mean?

Virtually every British Airways flight due to leave London�s two busiest airports was cancelled on Saturday following what the company said was a �power surge� affecting its computer system. British Airways is on the hook for a number of costs, including a hefty bill for passenger compensation. But the bigger damage might be longer-term as customers link recent cost-cutting initiatives at the airline with a marked decline in customer service.

Why should I care?

For markets: It�s a tough time to be a traditional European airline.

Air France is beset with labor problems, Alitalia just declared bankruptcy and now British Airways takes a big reputational hit. Meanwhile, European discount carriers, like Ryanair and EasyJet, are expanding (Ryanair announced further expansion plans on Monday). Even in the long-haul space � once the preserve of legacy airlines like British Airways � the upstarts are making inroads as Norwegian Air and others have expanded their overseas routes. Ryanair has also said it will act as a connecting airline for certain low-cost long-haul operators.


The bigger picture: We�re about to get a case study in the importance of a brand.

For many years, British Airways had the reputation of a premier airline: you got a free drink, even on short-haul flights, and a reserved seat so that your boarding process didn�t resemble a mosh pit at a Metallica concert. However, in recent years British Airways has consciously pursued a strategy to more closely match its �discount� competitors, cutting its operating costs as well as ticket prices. Gradually, its reputation for better customer service has eroded and this past weekend�s events will almost certainly hasten that. The question, for investors, is whether it really matters � whether people will still just book the cheapest flight for their next adventure.