"The frequent fliers who flew too much"

[Orphia Nay]

"Many years after selling lifetime passes for unlimited first-class travel, American Airlines began scrutinizing the costs — and the customers."

http://www.chicagotribune.com/business/la-fi-0506-golden-ticket-20120506,0,896819,full.story

I found this to be an amusing and interesting story.

There are frequent fliers, and then there are people like Steven Rothstein and Jacques Vroom. [...]

Passes in hand, Rothstein and Vroom flew for business. They flew for pleasure. They flew just because they liked being on planes. They bypassed long lines, booked backup itineraries in case the weather turned, and never worried about cancellation fees. Flight crews memorized their names and favorite meals.

Each had paid American more than $350,000 for an unlimited AAirpass and a companion ticket that allowed them to take someone along on their adventures. Both agree it was the best purchase they ever made, one that completely redefined their lives. [...]

But all the miles they and 64 other unlimited AAirpass holders racked up went far beyond what American had expected. As its finances began deteriorating a few years ago, the carrier took a hard look at the AAirpass program.

Heavy users, including Vroom and Rothstein, were costing it millions of dollars in revenue, the airline concluded. [...]

"We thought originally it would be something that firms would buy for top employees," said Bob Crandall, American's chairman and chief executive from 1985 to 1998. "It soon became apparent that the public was smarter than we were."

[...]

American Airlines lodged court cases against Rothstein and Vroom for violating their contracts (and Vroom countersued), but those cases "were thrown into limbo when American's parent company, AMR Corp., filed for Chapter 11 bankruptcy protection in November."


Did the men make an incredibly canny investment then spoil it by exploiting it?

"In 1990, the airline raised the price of an unlimited AAirpass with companion to $600,000. In 1993, it was bumped to $1.01 million. In 1994, American stopped selling unlimited passes altogether. [...] In 2004, American offered the unlimited AAirpass one last time, in the Neiman-Marcus Christmas catalog. At $3 million, plus a companion pass for $2 million more, none sold."

Did American Airlines have the wrong idea about the unlimited pass?

Doesn't it make the airline look better if there is at least one person in the first class section?

 

[Cleon]

They sold a pass for unlimited travel, and now they're complaining because people are using it?

**** 'em.

 

[TragicMonkey]

The airline actually attempted to bribe, and extort, false accusations from passengers in return for perjury against their own customers? WTF? And they dare to complain about "fraud" from other people?

If American Airlines remains in existence, I'm never flying them again.

 

[Babbylonian]

Well, it's hard to feel too bad for individuals who have $350,000-1,000,000+ to blow on a single [non-primary-home] purchase (however many flights that ends up paying for). Still, I'm skeptical that they were actually costing American millions per year. Unless the flight is fully booked, at most they were costing them the prices of meals and the fuel required to transport their bodies and luggage.

I'd further be interested in knowing what the money they paid up front - which in a way is akin to investing in the company - bought American. $350,000 invested wisely can generate a nice return over time, $1,000,000 obviously even more. Just comparing their flights versus the money paid up front doesn't generate an honest cost analysis.

Finally, if offering these unlimited passes really did end up costing them a ton of money, why wasn't that foreseeable? They could have limited the passes to, say, one round-trip a month and that probably still would have been worth it to someone with the means and desire to trot the globe.

The bottom line is that it should have been easy for them to figure out whether this was a good deal for them or not. Seller beware...

 

[crimresearch]

So how high up did they promote the dolts who failed to do the math in the first place?

'Let's see. if someone buys this pass for $350K, and they and a friend fly 100 times a year, at an average fare of 400 dollars each...and they live for 20 years... and the cost of gas, and planes, and salaries, keeps dropping... Wooo-hoo!! We'll be rich!!'

 

[Cavemonster]

The airline actually attempted to bribe, and extort, false accusations from passengers in return for perjury against their own customers? WTF? And they dare to complain about "fraud" from other people?

If American Airlines remains in existence, I'm never flying them again.

I don't think there's any airlines that don't have something despicable you could say about them.

 

[JeanFromBNA]

Jacques Vroom is a great name for a character in a novel.

 

[Mercurial Artism]

Whoever failed to put a limit to it (which would defeat the point of calling it Unlimited, but they could've called it something else), so that whoever used it would still get their money's worth, but that after X amount of times it would no longer be useful.

Those kinds of disclaimers are all over the place on coupons (e.g. limit one per purchase), free passes, etc. Even for stuff that's pretty cheap, there's almost always some kind of way they limit it to prevent someone from using it to an extreme and getting a much better bargain than the company intended. Trying to make a lawsuit is just a silly desperate measure, it seems.

 

[lionking]

Unless the flight is fully booked, at most they were costing them the prices of meals and the fuel required to transport their bodies and luggage.

That was my thought too. I'm a frequent flier, and it's only the commuter flights which are regularly booked out. Perhaps AA should have said "Unlimited on non- peak flights". This wouldn't have inconvenienced the card holders too much.

I cost my company $20 - 30,000 a year in flights. A card like that, where I could have gone with a colleague often, would have been good value.

 

[Beerina]

"Many years after selling lifetime passes for unlimited first-class travel, American Airlines began scrutinizing the costs — and the customers."\

The state of Michigan offered to gladly pay your baby's college Tuesday in about 17 years if you gave them a couple of thousand dollars today.

They took it and spent it and left it to future politicians to find the money.

 

[Beerina]

"Many years after selling lifetime passes for unlimited first-class travel, American Airlines began scrutinizing the costs — and the customers."

http://www.chicagotribune.com/business/la-fi-0506-golden-ticket-20120506,0,896819,full.story

I found this to be an amusing and interesting story.



American Airlines lodged court cases against Rothstein and Vroom for violating their contracts (and Vroom countersued), but those cases "were thrown into limbo when American's parent company, AMR Corp., filed for Chapter 11 bankruptcy protection in November."


Did the men make an incredibly canny investment then spoil it by exploiting it?

"In 1990, the airline raised the price of an unlimited AAirpass with companion to $600,000. In 1993, it was bumped to $1.01 million. In 1994, American stopped selling unlimited passes altogether. [...] In 2004, American offered the unlimited AAirpass one last time, in the Neiman-Marcus Christmas catalog. At $3 million, plus a companion pass for $2 million more, none sold."

Did American Airlines have the wrong idea about the unlimited pass?

Doesn't it make the airline look better if there is at least one person in the first class section?

I'm not understanding where they think they're losing money. Aside from the drinks and food, which the money easily covers many times over, the fuel cost is no different, they carry a body on the plane, doesn't matter where it sits.


If they're pushing out others in first class who would have paid, then that is a sort of loss, but their calculus earlier was to get the profit out of it early on. In crappy times, with empty first class seats, it worked for them. In good times when first class is full, well, that's an issue, but 64 seats spread over thousands of flights a day? Please.

 

[MG1962]

I'm not understanding where they think they're losing money. Aside from the drinks and food, which the money easily covers many times over, the fuel cost is no different, they carry a body on the plane, doesn't matter where it sits..

The fuel cost is actually a major component in these calculations - with luggage easy run to 250 pounds. But I would agree the food and facilities would be a major factor.

Another thought - I know some airlines maintain a passenger to crew ratio in first class. Adding one extra passenger may see the airline having to pay for an extra staff member on the flight

 

[Careyp74]

Well, it's hard to feel too bad for individuals who have $350,000-1,000,000+ to blow on a single [non-primary-home] purchase (however many flights that ends up paying for). Still, I'm skeptical that they were actually costing American millions per year. Unless the flight is fully booked, at most they were costing them the prices of meals and the fuel required to transport their bodies and luggage.

I'd further be interested in knowing what the money they paid up front - which in a way is akin to investing in the company - bought American. $350,000 invested wisely can generate a nice return over time, $1,000,000 obviously even more. Just comparing their flights versus the money paid up front doesn't generate an honest cost analysis.

Finally, if offering these unlimited passes really did end up costing them a ton of money, why wasn't that foreseeable? They could have limited the passes to, say, one round-trip a month and that probably still would have been worth it to someone with the means and desire to trot the globe.

The bottom line is that it should have been easy for them to figure out whether this was a good deal for them or not. Seller beware...

I was wondering that too, the real cost versus the worth of the money back then compared to the worth today.

Also, they were racking up frequent flyer miles with this deal? Come on now, this airline is much stupider than I thought.

 

[rustypouch]

They sold a pass for unlimited travel, and now they're complaining because people are using it?

**** 'em.

This.

 

[tyr_13]

They are also probably assuming that the people would have still flown paying full price for all the flights they did without the program. This is almost certainly untrue.

 

[ZirconBlue]

Pretty douchey behavior on the part of the airline, IMO.

 

[Ian Osborne]

Reminds me of Hoover's free flights fiasco.

 

[Mycroft]

They sold a pass for unlimited travel, and now they're complaining because people are using it?

**** 'em.

Yeah, it's hard to understand the airlines thinking on this. Of course people buying into a deal like this will expect to get more value over time. Also, isn't it likely they also sold some of these super-tickets to people who didn't use them that much?

 

[luchog]

The companies that offer these sorts of "unlimited" deals do so knowing that the average punter will rarely use up the market price value of the service, let alone achieve any significant discount. That's why you see so many places, from the corner gym, to museums, to airlines offering "unlimited" passes for a large up-front cost. There will be an initial spike in use, then it will taper off and only see occasional use, if at all, from that point.

Take the "lifetime membership" at your local gym as an example. "Lifetime" members are going to start out going a few times a week, but will taper off, and be lucky if they show up once a week, or once a month. Between the time they get the membership, and the time they stop using it, it would have cost them less to get a monthly pay-as-you-go membership, than they paid for the "lifetime" card; which means a big profit for the gym. On top of that, those with monthly memberships are more likely to go regularly, or to simply cancel when they realize that they're not actually using what they're paying for.

That's why so many companies offer loss-leader rebates. They know that most of the punters are too lazy to go through the effort of filling out the forms and mailing in the paperwork to claim the rebate; so they're able to clear out last year's model quickly, while not actually losing much, if anything.

This time, it blew up on them.

 

[superfreddy]

The two guys featured in the article were unjustly making money from the program. They were charging people to fly with them, clearly going against the way the program was designed. AA had the right to be upset about the loss of income