Easy Risk Management Can Prevent Costly Errors (Ask United Airlines)
A roundtrip flight to Hong Kong for less than $50 may sound too good to be true, but a glitch on the United Airlines website back in June let customers get a ticket for just four miles points, plus fees. Three simple tips that any company can apply to risk management could have prevented this glitch and the PR nightmare that followed.
Wed, September 05, 2012
CIO — United Airlines just can't win. Last week a data center hardware failure grounded caused nine cancellations and 580 delays. Recently, too, the carrier's computer systems let members of its Mileage Plus frequent traveler program book reservations involving either a connection or a final destination in Hong Kong, for travel in the first-class cabin (where purchased tickets can go for more than $15,000), for as little as four—yes, four—miles roundtrip.
This programming glitch remained active for many hours on Sunday, June 17. While no one outside of United and the United States Department of Transportation (DoT) knows for sure how many tickets were booked under this discount, well-placed sources told NBC News that the number was in the thousands. Indeed, on many flight dates, the entire first-class cabin (up to 12 seats on some routes) showed booked.
Consider the revenue implications of this glitch. Even by the most conservative measurement standards, United stands to miss out on hundreds of thousands, if not millions, of dollars in sales opportunities if these tickets are allowed to stand. A costly error, any way you slice it.
As part of the airline's cleanup process, the lion's share of these tickets were unilaterally cancelled by the airline about a week after the glitch was corrected, although some individuals who booked reservations travelled within the next few days, and their reservations were honored.
(Full disclosure: I booked four of these tickets, but they were later cancelled by the airline, so I have not made any sort of gain on this transaction. If the tickets are re-instated as part of a future settlement, that may change, but as of this writing the transaction has been unwound. I simply illustrate it here as a teachable moment.)
Either way, United Airlines did not set itself up for success. The carrier managed to let a gaping hole emerge in its booking procedures, caused a situation that involved regulatory compliance through the DoT's new mistake fare rules, allowed some of its most profitable products to be unavailable for sale for paying customers for days because of this error and risked a public relations firestorm by unilaterally unwinding transactions it considered invalid. It was not a good week at headquarters for sure.
Of course, not all of us run airlines, nor do we run airline IT departments. However, this public example can certainly be instructive of what can happen when good systems do bad things. Furthermore, watching United's situation and its response can teach us ways to avoid the same consequences in our own businesses. Here are three points to consider: