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Putting a Price Tag on Airline Service Disruptions

SmarterTravel

In just the past month, there have been two major airline service disruptions, inconveniencing hundreds of thousands of travelers.

On July 20, Southwest delayed or cancelled more than 2,000 flights due to a technology outage. And earlier this week, Delta’s computers crashed, resulting in thousands more flight delays and cancellations over a three-day period. While it’s impossible to put a price on the lost time, stress, and disappointment of the affected passengers, the costs to the airlines themselves can be quantified.

It will be some time before any estimates of the costs of the Delta breakdown are available. But Southwest yesterday issued an 8-K statement, as required by the SEC, which alluded to the July incident and its effect on the company’s revenue and costs for the period. Without providing much in the way of detail, the company expects third-period revenue to be off by 0.5 percentage points, and operating expenses to rise by 3 to 4 percent.

It requires some forensic accounting to translate those numbers into dollars and cents. According to an analysis by the Dallas Morning News, the outage will cost Southwest “at least $54 million.” That’s $25.7 million or more in lost revenue, due to cancelled flights, refunded tickets, and so on, plus at least $28 million in increased costs from hotel and meal accommodations for stranded flyers, staff overtime, and other expenses.

That’s real money. But for Southwest, whose 2015 revenue totaled almost $20 billion, it’s not much more than a rounding error. It could be easily dismissed as just the cost of doing business.

As have most U.S. carriers, flush with profits, Delta and Southwest have been kowtowing to pressure from Wall Street, paying dividends and buying back shares of their own stock. That’s also real money, money that could have been invested in shoring up their systems, to avoid just the sort of meltdowns that have disrupted the trips—the lives—of so many travelers.

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After 20 years working in the travel industry, and 15 years writing about it, Tim Winship knows a thing or two about travel. Follow him on Twitter @twinship.

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