On Sunday August 7th 2016 Delta airlines suffered an IT outage. Earlier in the summer SouthWest airlines suffered similar.
My calculation, at the bottom of the post, suggests that this cost DELTA at least 60 Million USD in lost capacity – not counting the damage to the brand and additional costs associated with handling customer enquiries.
IT and the business are inseparable in the 4th industrial revolution. For many years there have been moves to outsource IT, drive down its cost and to make it standard and commoditised. For utility IT this made sense. It was a cost of doing business. It was a necessary qualifier attribute but conveyed no competitive advantage. If your copy of Microsoft Word was slightly faster than mine, it was unlikely that you’d capture more business or be able to charge more.
The outsourcing movement was used to drive this process, often awarding contracts to low-cost service centres in Eastern Europe or India.
In my view cloud based services – such as Microsoft 365 and Salesforce.com will become the norm for utility IT services and remove most of this responsibility from the IT department which will, as a consequence, go the way of the typing pool. In 25 years new entrants to the workforce will scratch their heads wondering what the point of the IT department was.
The world is, however, changing and changing rapidly. IT is becoming embedded into the core operational process of business. And executives that don’t understand IT will not succeed for long. Any company that perpetuates the phrase “IT and the Business” or any IT department that talks of “The Business” as if it were something separate from the IT function will go the way of the dinosaurs.
I don’t know if Delta outsourced its IT, or what the cause of the issue was. But it is clear that the situation was mismanaged before the outage (Reliability and resilience: no hot-backup, or hot disaster recovery ). This calls into question either the competence of those charged with planning operations or the business decision to not invest in technology and systems. Either way this is a failure of management to grasp the importance of IT in the primary operations of the business. Just because you don’t understand it doesn’t make it simple, or mean the problem can be ignored. Airlines are pretty good at maintaining aircraft, there are international standards for how it should be done and inspection audits making sure it is. Perhaps we need something similar for IT?
On this occasion it was a risk management failure where the loss of IT functionality impacted availability and utilisation of assets. My guess would be though that there are many areas where IT could be applied to the primary business to drive increases in efficiency and reliability. If management is unable to understand the business case or appoint competent management for IT resilience it is unlikely that they are exploring these more nuanced applications of IT.
The airline industry is not alone.
Put this into business context
In 2015 Delta operated an average of 5,400 flights per day, so about 15% of flights were grounded on Monday. Assuming that these planes were now in the wrong position some of them would have to reposition empty (let’s say 50%). Passengers rebooked who were scheduled to fly on a grounded flight (and Delta allowed all passengers to rebook any flight scheduled for Monday). Let’s say 30% of all Monday’s passengers (those on grounded flights and a similar number who took the precaution) took the place of fare paying passengers on later days.
Then we have a utilisation impact on aircraft of:
15% of one day capacity for cancellations
7.5% of one day capacity for repositioning
30% of one day capacity for rebooking.
52.5% of one-day’s capacity utilisation (in the height of busy season) was lost due to a systems outage.
Assuming 350 flying days this is then 0.525/350 = 0.15% capacity hit for this outage.
Last year’s revenue for Delta was 40Bln USD.
My “back of the envelope” calculation suggests that this systems outage cost DELTA $60Million USD in lost utilisation.
The brand has been impaired so future passenger numbers are likely to be lower than they would have been (at least for a while, especially as they could not even take bookings on Monday). Add to this the additional cost of media relations and customer complaint handling and we’re looking at a $100m problem.
Oh and if you are a European Union passenger you are entitled to 600 Euro’s in compensation too.
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