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Questions Abound as Delta Power Outage Should Have Been Preventable
As Delta returns to normal, questions still linger about the airline industry's technical issues.
By TONY OWUSU
Aug 11, 2016 | 03:25 PM EDT
Stocks quotes in this article: DAL, LUV, UAL, JBLU
On Monday, a fire led to a critical power control module malfunctioning at Delta Air Lines (DAL) Technology Command Center, causing a surge to its transformer and resulting in a subsequent loss of power. That issue was quickly resolved, but some of the company's critical systems failed to switch over to backup power sources.
The systemic failure of Delta's power systems, coupled with the recent failures of some of its competitors' computer systems, raises the question of how preventable Monday's incident was.
The failure of the company's backup systems left Delta, the world's largest airliner by scheduled passengers transported, having to cancel or temporarily ground thousands of flights. Those cancellations could potentially end up costing Delta tens of millions of dollars in the short-term, and untold millions long term if customers put off by their canceled flights.
Most computer systems are protected from losing power by what is known as an uninterrupted power supply (UPS). The apparatus provides emergency power to a system that loses power, as Delta's system did when the small fire caused an electrical system breakdown and the subsequent power outage.
However, whether due to the age of the system, or the fact that the backup power was allowed to have a single point of failure, as opposed to being backed up by redundancies, the bottom line is that the emergency system failed, stranding thousands of passengers.
Airlines have multiple redundancies for in-flight issues, so the fact that they have been failing in an area as fundamentally important as computer systems is disconcerting.
On Tuesday alone, Delta was forced to cancel nearly 800 more flights, about three times more than it had canceled year to date, as the company scrambled to get the right personnel on the right flights as part of the residual effect of Monday's power outage.
"The technical systems that were offline Monday, were sluggish Tuesday, and we anticipate returning to full operation by mid-afternoon today," a Delta spokesperson said in a phone interview Wednesday. "The review of our systems is ongoing."
When asked whether the issue had been fixed for good, Delta's spokesperson informed Real Money that the company is in the process of conducting an audit that would continue over the next few days.
If the system failed due to lack of maintenance then the issue could be oversight. Real Money reached out to the Federal Aviation Administration for comment specifically concerning Delta's backup power system and received the boilerplate comment that the agency disseminated the day of the outages. "The reliability of computer systems that handle passenger ticketing is a business and/or consumer issue, not a safety issue. We have no data that indicates the performance of the ticketing system is in any way related to airline safety issues."
That comment fails to address the issue of the system itself, however. The agency's public affairs office did not respond in time for publication when pressed for further comment. But Delta officials seem to understand the gravity of the issue, even if the federal agency tasked with regulating the industry did not.
When asked why the company's backup systems failed to kick in in an interview with an Atlanta local television station -- Delta is based in Atlanta -- Delta CEO Ed Bastian stated, "That is the same question I have asked our people, believe me, many times in the last two days. We don't have the full answer to that yet." He also added that those answers could take weeks to get.
.@Delta CEO Ed Bastian apologizes to customers for the disruption to the airline's operations today.https://t.co/Fl4mDAbdxN
— Delta News Hub (@DeltaNewsHub) August 8, 2016
Financial Cost
While it still may be too early to calculate exactly how much Monday's power outage will cost Delta, a similar situation Southwest Airlines (LUV) went through last month could provide insight into the financial damage from grounding thousands of flights.
Three weeks ago, Southwest canceled 2,300 flights following a "system outage" that lasted about an hour. The outage resulted in at least $54 million in lost revenue, according to figures that the company released on Wednesday. That figure could rise to as much as $82 million when all costs are tallied.
The revenue hit from refunded tickets, missed bookings, canceled flights, vouchers and more came out to at least $25.7 million. Meanwhile, increased costs from "staff overtime, transportation, hotel and meal accommodations for stranded travelers and crew, and other expenses" could result in charges between $28 million and $57 million.
It took Southwest about three weeks to release the financial impact of the outage, so we may be waiting days or weeks for Delta to come out with its official numbers.
However, Delta has already announced that it is offering full refunds and $200 vouchers to passengers whose flights were canceled or delayed significantly. Stranded passengers were also given the option to re-book flights for any day this week up to tomorrow without being charged a difference in fare. Add in the hotel rooms that Delta offered to pay for and the total price tag from this week's snafu could surpass the charges Southwest will take.
Industry-Wide Issues?
Delta and Southwest aren't the only airlines to have power and computer issues in recent months, signaling that there may be widespread problems within the industry that need to be addressed.
In January, JetBlue (JBLU) had major flight delays after a power failure at one of its Verizon-run data centers caused major flight delays. The airline had issues again in May after a system-wide computer outage forced the airline to rely on low-tech methods to check passengers in for their flights.
In July last year, United Continental (UAL) grounded all of its flights worldwide for two hours, disrupting travel for thousands of passengers, after a router malfunctioned, preventing the airline from ticketing passengers and dispatching crews.
The timing of these outages couldn't be worse for airline stocks that have been struggling so far in 2016 after reaching all-time highs in 2015.
Delta, for example, reached a high of $52.26 in December last year, and the stock is down 30% to $36.48 in 2016, including a nearly 2% drop Wednesday. Meanwhile, Southwest's stock has more than quadrupled over the past four years, reaching an all-time high of $46.29 in October last year. Southwest shares are down nearly 15% in 2016, including a more than 2% drop Wednesday.
The industry's overall quality improved last year, according to the annual Airline Quality Rating study produced by Wichita State University. Industry-wide on-time arrival percentage increased to about 80% in 2015 from 76% the prior year. The industry was able to cut down on mishandled bags -- 3.24 per 1,000 passengers from 3.62 per 1,000 passengers.
Still, the consumer complaint rate rose to 1.9 per 100,000 passengers from 1.38 per 100,000 passengers. Of those complaints, nearly three-quarters were for flight problems, baggage problems, reservation, ticketing and boarding issues, or customer service problems.
"I tend to doubt that these issues will have long-lasting impacts," Brett Snyder of airline industry blog CrankyFlier.com said in a phone interview. "You will start to see an impact if a single airline starts experiencing multiple issues. A single issue like what happened on Monday will cause minimal impact in terms of flier sentiment."
Southwest CEO Gary Kelly described the router failure that resulted in last month's grounded flights as a "once-in-a-thousand year flood." Meanwhile, Delta's Bastian said that other than the loss of a hull or human life, Monday's computer and power outage was the worst case scenario for the company.
Most businesses can only afford one worst-case scenario in a lifetime, and as information about exactly what wrong in both cases trickles out over the coming days and weeks, one can only hope that these two airlines have left the turbulence behind them.
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TAGS: Investing | U.S. Equity | Transportation
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