Information Technology System Failure and Value of Airlines: a Case Study of Airlines in 2016

Abstract

Technology is a critical component of a firm's operations. Technology failures can cause widespread problems in airlines. These failures cause disruptions in flight schedules, cause passengers to be stranded at airports and also increase airline operating costs. The objective of this study is to measure an effect of information technology failures on the firm value of passenger airline companies during the year 2016. In that year, there were cases involving delays and cancellations associated with JetBlue, Southwest, Delta, American, and Virgin America that received significant media coverage. Using the event study methodology, this study finds that the intensity of failures does not seem to affect the firm value as much as the time taken to address it and the presence of other compounding effects. The system failure case provides us with an insight into the effect on market value of airlines especially when they address their issues quickly and efficiently.