Stock market shrugs off BA passenger misery

BA strands 75,000 passengers, produces an explanation as solid as a paper aeroplane, and sees its reputation trashed. This triple whammy was surely enough to poleaxe the share price of IAG, BA’s parent. Except it did nothing of the sort. The morning markdown on Tuesday quickly produced buyers, and by Wednesday lunchtime the price was back to last Friday’s close. Even with the company wading in for its buyback programme, this looks a curious response by the market. After all, compensation claims could top GBP100m, while the damage to a reputation already dented by irritating cost-cutting measures will take years to restore. Yet the market’s response is not irrational. The conclusion traders drew was that the misery inflicted and the incompetence shown doesn’t really matter. The world’s major airlines have a powerful position in a growing industry. If it is not quite an oligopoly on long-haul, there is at least an argument that they are not competing so hard as to damage the bottom line. Bloomberg’s Matt Levine has a theory that since the major US airlines are largely owned by the biggest fund management groups, it’s in their interest to see all carriers’ earnings improve. “An airline that cuts fares or spends money on better service to win market share isn’t necessarily doing its shareholders any favours.” He quotes airline analyst Jamie Baker at JPMorgan Chase that competition nowadays has more to do with winning an investment grade rating, or entry into the S&P 500, than with serving customers.<br/>