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  • Writer's pictureKirk Hartley

Externalizing Costs of Failure – American Airlines Fails to Fly to London – No Back Up

A brief rant brought on by American Airlines failing to fly this morning to London. The usual song and dance – "equipment failure" and no back up plane available. So, because American cuts costs by not having backup planes, hundreds of people are now wasting a day, and wasting lots of money that had been spent based on the idea of being on a certain flight at a more or less certain time. In my case, for example, I paid far more for a morning flight than I would for an evening flight. Now I’m stuck with an evening flight at the morning price. Thus, the airline externalizes to consumers the costs of its failures.

One wonders how many modern businesses would survive if they were forced to bear the full costs of their products and their service failures. Consider, for example, the tobacco industry – it could not possibly survive if it paid the annual $ 1.5 trillion cost of cancers and other diseases caused by smoking. Consider Comcast and other cable vendors – their systems fail and disrupt other businesses and residences, but they are not required to issue credits for their failures. And when theiris a failure in their low quality, cheap devices, we bear the time cost of figuring it out, going to pick up a new one, and then playing installation technician. The same principle applies for Apple’s failure prone devices, especially the highly breakable Iphone. The same is true for many more businesses.

No wonder businesses spend hundreds of millions lobbying to avoid regulation – they cannot afford to pay full the costs of their failures.

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