You May Hate Delta Now, but Here’s Why You’ll Be Back
It’s been a messy summer for U.S. airlines and their passengers, with half the Big Four carriers suffering technology meltdowns over the past month. July and August are peak season for airlines in terms of passenger loads, making the type of systemwide glitches that befell Delta Air Lines Inc. and Southwest Airlines Co. all the tougher to navigate since almost every flight is full.
The IT woes caused Dallas-based Southwest to scrub more than 2,300 flights from July 20-24, and Atlanta-based Delta had just over 1,500 canceled flights as of Tuesday midday, with more cancelations possible, along with delays. The company said it had scrubbed 300 flights as of Tuesday morning to help “reset” its operation. “We are doing everything we can to return our operation to normal reliability, but we do expect additional delays and cancellations,” a Delta senior vice president said in a statement.
In Southwest’s case, the partial failure of a router on July 20 will cost tens of millions of dollars, according to a company executive. Delta has yet to provide an estimate of what its outage will cost, although it’s likely to exceed the damage done to Southwest. In a client note issued on Tuesday, Buckingham Research Group said the power system failures were “a one-off event beyond management’s control, in our view. Consequently, it’s possible insurance could be involved to foot some or maybe all of the bill,” analyst Dan McKenzie wrote. The firm didn’t adjust its estimates of the airline’s third-quarter results.
So, in the end, despite days of media coverage and proclamations of global calamity, the financial damage to the carriers will be minimal. As for the powerlessness and rage experienced by thousands of stranded passengers, and the vows of "I’ll never fly this (expletive deleted) airline again," the reality is they will. Neither airline is likely to suffer a long-term hit to sales or their passenger counts.
“The traveling public has a short collective memory, and unless Delta makes this a habit, the company should emerge unscathed,” said David Primo, an associate professor of business administration at the University of Rochester’s Simon Business School. Jim Corridore, an analyst with S&P Global Market Intelligence, agreed: “We think that, as long as there are no repeat occurrences of the issue, Delta should not see major customer defections or investors adding an extra risk premium to the shares.”
So get it out of your system now. This is why your desire for consumer retribution will be short-lived:
Airlines own their hubs
When suitably dominated by an airline, a modern air hub is a cash cow, a fortress that no interloper dare encroach, lest the beast be aroused. Consider Dallas-Fort Worth, a metropolis American Airlines Group Inc. virtually “owns.” In the same vein, if you live in Atlanta, Detroit, Utah, Minnesota, or anywhere near Georgia, you probably belong to Delta. And if you’re aiming to avoid the behemoth airports in Chicago, Dallas, Houston, or Los Angeles, you likely are claimed by Southwest, which focuses on the smaller airports in those cities.
Consolidation is king
The U.S. airline industry is effectively an oligopoly, with four carriers controlling almost 90 percent of the market. While competition does exist and fares haven’t soared uniformly, thanks to such ultra-low-cost carriers as Spirit Airlines Inc., U.S. travelers have fewer airline choices than they did a decade ago. Is switching airlines an option? Not really.
The tech isn’t a total disaster
Whatever losses these periodic events cause—and they happen to every airline at some point—it’s not enough to cause a radical, industrywide overhaul of the basic information technology systems. The IT paradigm is set, and it generally works. Any major quibbles concerning airline technology habits generally revolve around redundancy, testing, and other safeguards to critical systems.
Southwest offers two free checked bags
If you are financially pinched or have children, this is huge. Even when Southwest can obtain the $15 or $25 bag fee others charge as part of their base fare, the walk-up hit of $50 or $100 at the airport counter is a sticker shock for many. And Southwest executives have been consistent for years in their view that being an industry outlier on bags is a clear competitive advantage. So be mad—but like Arnold Schwarzenegger, you’ll be back.
We’re kind of cheap, to be blunt
Delta is offering $200 vouchers for all passengers who were stuck longer than three hours on Aug. 8. It’s a financial commitment that struck many people on social media as generous—and one that means most of the angry passengers will be flying Delta again. For its part, Southwest extended a fare sale after its router flub and allowed customers to rebook plans at the original fare they paid. And to be fair, U.S. airlines awash in cash just work much better than they did in decades past, when technology wasn’t nearly as capable and airline managers were forced to pinch pennies on everything. Relative to past eras, this actually is a “golden age” for U.S. airline travel.
“We will emerge from this event stronger and better,” Southwest Chief Executive Officer Gary Kelly told employees in a July 29 memo. “We aren’t perfect—nobody is and no company is. When things like this happen, we have to own up to it, seek the truth, and face the facts. We are doing this, and we won’t stop in our constant pursuit of improvement.”