Why the CrowdStrike Outage Hit Delta So Hard

But while competitors like United and American Airlines were able to bounce back just days later (United canceled nearly 1,500 flights by comparison), Delta was still floundering. A Thursday note from Bernstein Research sheds light on what went so wrong.

Delta grounded about 30 percent of its flights over the weekend of July 19, according to the note, while United canceled about 12 percent and American canceled about 5 percent. The main reason for this is Delta’s heavy reliance on its Atlanta hub, where about 20 percent of the airline’s flights transit—the percentage is higher than most major airlines and their respective hubs—which has meant that Delta travelers with canceled flights were mostly concentrated in one location.

“When you talk about what Atlanta is to the Delta network, it’s just more important and has more traffic connecting through it than what you see on other networks,” said note author and Bernstein senior analyst David Vernon. wealth.

The airline also has a higher average number of seats per aircraft than its competitors, Vernon and co-author Justine Laufer argued, meaning it has more passengers to accommodate during times of crisis. Historically, however, more customers compared to other airlines has been an advantage for Delta. But this time around, the airline’s more diverse aircraft fleet has made transferring customers to different flights from different models and manufacturers more difficult.

Identifying the rationale behind Delta’s vulnerability won’t erase summer’s hardships. In addition to having to eat millions of dollars in losses from canceled flights, Delta has been fighting with CrowdStrike over who is to blame for the aftershocks. Bastian argued that CrowdStrike did not offer to help the beleaguered airline, which he said was heavily dependent on Microsoft and CrowdStrike. Technology companies responded in kind, arguing that Delta failed to take responsibility for its own technological shortcomings and that its competitors relied more heavily on Microsoft and CrowdStrike technology but did not suffer the same consequences. The airline announced in late August that its chief operating officer, Michael Spanos, would be leaving the company, although Spanos told Bastian of his plans to leave before the disruption took place. Spanos was named CEO of Outback Steakhouse’s parent company last month.

Schadenfreude capitalism

But to make matters worse for Delta, not only did competitors shrug off CrowdStrike’s disruption more easily, they may have even benefited from Delta’s misfortunes. JetBlue Airways raised its revenue outlook on Thursday, citing “increased revenue from reaccommodating customers affected by other airlines’ cancellations,” in addition to streamlined operations and a healthy summer travel season. JetBlue was not heavily affected by the outage.

“While some of the positive adjustments may have been temporary as the carrier picked up some passengers affected by CrowdStrike in July, the carrier’s overall update looked encouraging,” Citi analyst Stephen Trent said in a note.

Among the reasons Bernstein’s research cites for Delta’s disproportionate suffering, none have to do with the airline being at a technological deficit that would put it at a fundamental disadvantage in cases of mitigating incidents like the CrowdStrike outage . Southwest suffered this fate in 2022, when the airline canceled nearly 17,000 flights after a brutal winter storm, but was unable to recover from the crisis due to outdated software.

Non-aircraft capital spending was strong for Delta, accounting for about 2.25 percent of its revenue in 2023, compared to the industry average of 2 percent, the note said. It suggests a sufficient investment in IT – more than 1 billion dollars. While Delta’s wide range of planes hurt it during the CrowdStrike outage, it also helped the company maintain an 83.5 percent on-time rate for its flights, outperforming its competitors, according to data obtained by Bernstein from the Department of Transportation.

Additionally, while Delta’s network and its Atlanta hub were negative for the airline after the CrowdStrike outage, it ultimately continues to serve as a profit center, Vernon argued. “Any airline would cut off their own arm for a hub in Atlanta,” he said. The geographic location serves as a major connector between US cities and is within a two-hour flight of 80% of the US population. It is the busiest airport in the world.

The real test of Delta will be how it reacts if a similar accident happens again, and how well its long-term investment will serve passengers who want to give the airline another chance.

“This is a one-time loss of revenue,” Vernon said. “The question is, will they stay away or come back? Does the benefit of Delta service, the benefit of Delta’s rewards program, and the quality of experiences keep people coming back?”

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