
The frequent fliers who flew too much - ams1
http://www.latimes.com/business/la-fi-0506-golden-ticket-20120506,0,3094073,full.story
======
cletus
It boggles the mind every time I read about one of these "unlimited for life
with a fixed initial cost" products.

In almost every case that I can recall it's been a result of a company having
cash flow problems, often preceding bankruptcy. The article mentions that
interest rates were high in the early 80s and it allowed AA to expand. They've
done well to get away with it for now. Or maybe that's just a function of the
cost being significantly high such that the market is small.

In the 80s in Australia there was a chain of health clubs that offered a life
membership... shortly before going bankrupt.

This scheme has a number of problems:

1\. Why offer frequent flyer miles at all? Those are to incent you to fly more
but you can fly all you want anyway. I guess there's the option of giving them
away but really you shouldn't get any;

2\. Booking flights you never intend to take is obviously a problem. AA staff
were complicit in that however;

3\. An alternative would be to turn any ticket you buy into a first-class
ticket. Free anything creates market distortions. It's nearly always better to
have someone chip in something to incent the right behaviour; and

4\. Life memberships are silly. If they want to attract the business flyers
they were talking about it should be an annual charge.

AA are potentially looking at these people costing them money in the wrong way
too. These people are essentially AA ambassadors who have paid for the
privilege. How much does AA spend on marketing? How does it compare to the
cost of these AAirpass holders? I bet these people otherwise sing AA's
praises.

Also, what is the fill rate on first class seats on flights? I think part of
the point of first class seats is they don't fill up giving premier passengers
the ability to buy tickets on short notice. If so, it's incorrect to view each
seat taken by an AAirpass holder as a seat not hold (in much the same way as
the RIAA/MPAA view every song/movie downloaded as a one not sold).

~~~
raverbashing
This serves as a lesson to startups as well

Never offer something for a lifetime

Even if the cost of supporting it "forever" is minimal (that is, the complete
opposite of what AA has done)

Things like GMail, for example. You may be tempted to do it. Don't

Always put in your terms of use a provision of termination. Of course, be
reasonable, for example, allow the user to backup the data given a reasonable
timeframe (e.g. Google Health)

~~~
natep
Makes me a bit worried for pinboard.io. It's not free, which puts it in a
better position than its competition, IMO, but it's a 1 time only payment. I
hear they're profitable now, though, and have vowed to not go away like
delicious did.

~~~
ConstantineXVI
Pinboard(.in) has a $25/yr "pro" level; believe he's said the pro service is
enough to keep it running for everyone.

------
fpp
A great write-up and a typical example of what you should never do as a
service company.

The monetary damages for AA if at all (if any of their claims are actually
true) is minimal (maybe $10-$20M over 30 years) - the damages to the brand,
corporate recognition and being seen as a company that does not value their
contracts as soon as it benefits their customers, might be of a magnitude
bigger. And even a multiple of that in financial terms and years to repair the
damage being seen as a dishonest organisation.

Faced with such a situation, with "bean counters" telling stories about
something like that being very unprofitable or less profitable than expected
in the first place, one has to use a strategic approach or even common sense.
Particularly in such a situation - we are talking about people who have shown
customer loyalty to AA for more than 30 years - 40M miles - what stories could
they tell and what great advertisement for my airline this would be.

What AA has done here is only to demonstrate that those in charge of such
activities have not the slightest idea of what they are doing and should
immediately be removed from their positions and potentially sued for damages
to the organisation (and this then might be billions).

If AA is clever they re-issue / value all these special air passes and make a
big event out of that.

If you want to see when free air mileage is causing real financial stir-ups
look to Lufthansa (about the same size as AA) - they are currently in a law
suit in Germany being accused of serious fraud in 21M cases (and LH has
already lost this case in the court of first instance) for taking away
frequent flyer miles particularly from their best customers (those with more
than 500K+ well LH is not known for being too generous with the mileage they
provide on FF programs).

One outcome of this court case was that LH told the public that in the moment
they have created accruals of about $4 Billion for not yet used mileage on
their FF program - now that is what I would call some money at stake and not a
few guys inviting people at airports on a free seat / upgrade - a seat that
most likely otherwise would have been empty anyway.

~~~
rdtsc
> A great write-up and a typical example of what you should never do as a
> service company.

What I read is that you shouldn't enter into bad contracts. Somebody at AA
screwed up and signed something "for life" without too many provisions put in
for fraud and termination. The damage was done then. Those people should be
found and punished.

> the damages to the brand, corporate recognition and being seen as a company
> that does not value their contracts as soon as it benefits their customers

But don't you think these customers went above and out of their way to abuse
this. Yeah it wasn't in the contract, but selling the empty seat and making a
living out of it. Or booking it under false names. That is fraud for most
common sense definitions of it. In court it might not hold. But I think in the
PR domain AA can redeem itself by just taking the responsibility and admitting
they screwed up setting this up but also exposing what these passengers are
doing and how they are exploiting the company. They can pit every other
customer against them. "You know that time you were gonna fly to Europe with
your wife but there was only one seat available, well it was so and so booking
under a false, name he took your wife's seat!".

~~~
fpp
When was the last time that you shelled out $10k, $100k or like those $500k
(in 1980s terms) for a single person's air travel expenses? With today's real
inflation + financing cost certainly far beyond $2M.

Spending such amounts in the first place demonstrated very strong confidence
and trust into AA and was a very sweet deal for AA as well (I'm sure it still
is even though they are now wanting to get rid off the benefit of their
counter-party / don't want to pay their part of the deal).

Keep in mind that none of those were in their teens when they put out such
amounts so they are now merely coming to the end of their traveling spree.
After all, this is only a life-time deal for those passengers if AA survives
that long (and that wasn't so sure at that point as well).

For that amount - $500k in the 1980s - you could buy a pretty large house that
even after the housing crisis will today still be worth a large multiple of
that. Another example - even with all its ups-and-downs a better indication of
the change in real value of the 500k till today might be e.g. the stock market
with the Dow being below 1k then and now about 13k (this goes both ways and
might also provide an indication for AA's financing cost since then).

But AA seemingly prefers to charge their normal U.S. customer even for luggage
checked in, give vast discounts to their largest corporate customers (TMK the
biggest in the industry - up to 70%), hike up their advertising spending and
cut down in services.

The last figure I've seen is that they increased their spending for online
display ads by 600% to about $27M - I guess a few 100K soft cost (the planes
also fly without those few airpass holders and almost never fly at 100%
capacity) for letting them carry on flying for a few more years and use this
as a demonstration of their great customer service would have been better
spent and provided a better story any online ad could ever tell. In other
words - priceless!

~~~
kamaal
What most companies don't realize is how differently these schemes are
perceived among the masses.

The initial target segment of VIP's, companies purchasing as packages and
business segment of people looks naive and too much of an wrong assumption to
me. You really have to understand the mind of a common man here. How would
your life be if you are told, you can travel infinitely for free your whole
life? Is it worth investing a little extra money for such infinitely free
vacations? I bet it is!

More than the money, I think the company is just irritated that the scheme was
badly gamed and the customers have had the better of them.

------
unimpressive
I think the real lesson here is:

Never offer "unlimited". Because if you promise "unlimited" people will treat
it as "unlimited".

The results usually aren't pretty.

EDIT: As the post below points out, telecoms are a prime example of companies
getting burned on this.

My other go-to example would be all you can eat buffets. I know I've read
about at least one lawsuit over people being kicked for eating too much at a
buffet. (Or in the case of the only result I can get search engines to give
me, too little.)

Of course, in the case of the buffet they're relying on the hope that people
eat less than what they pay to get in on average. And since this sort of
restaurant seems to stay in business that bet must be in the owners favor.

I hypothesize that business owners use this logic and offer unlimited only to
watch it crash and burn all over their profit margins. From what I can tell,
buffets appear to be the exception; not the rule.

~~~
sans-serif
All you can eat buffets work because there's a physical limit to how much you
can consume in a meal. It's comparable to a one-day train pass not a lifetime
membership.

~~~
kamaal
All you can eat buffets at $x a month kind of schemes perfectly fit this case.

The catch in such businesses is they serve repeated food, often spicy and
oily. Which makes them unhealthy. By that, they effectively manage to make
their customers eat less and increase their profits.

Except that to keep customers in the game, at times they do serve good food at
some period.

------
ilamont
There is always going to be a subset of people who are adept at finding ways
around promotions and special offers, or the systems meant to regulate them.
In addition, most companies don't understand how customers will react to
contests and special offers.

For instance, when iTunes first launched, Pepsi had a promo that involved
codes on the underside of 20oz plastic bottle caps that could grant free
songs. Someone figured out that if you turned the bottle upside-down and at a
certain angle before opening it, you could see the code and enter it into
iTunes to determine if you got a free song. If the code was a dud, you could
return the drink or sell it to someone else. Someone ended up putting the
diagram on the Web. The promo ended not long afterwards.

There are also folks who figure out extreme hacks that can result in truly
oversized rewards. I call this the "crates of cheese" phenomenon, after an
airline promotion I read about that awarded people x frequent flier miles for
purchasing a package of cheese. The rate was way too generous, and the
marketing people setting up the promotion never anticipated that people would
literally go out to buy crates of cheese to get cut-rate flights.

EDIT:

Crates of cheese:

<http://consumerist.com/2006/11/buy-cheese-fly-for-free.html>

Pepsi/iTunes:

[http://www.methodshop.com/gadgets/tutorials/hackpepsi/index....](http://www.methodshop.com/gadgets/tutorials/hackpepsi/index.shtml)

~~~
martingordon
Another notorious scheme was people buying $1 coins from the US Mint (which
included free shipping) with their credit card and depositing the coins in
order to pay off the credit card.

~~~
orborde
I don't quite understand the purpose here. Is the idea that you can keep
rolling your credit card debt forward interest-free indefinitely?

~~~
reginaldo
No... From what I read people would get rewards from the credit card. So they
bought say $10,000 in coins and deposited the coins back before the end of the
billing cycle, winning a $200 cashback reward. That $200 is what the person
doing this would profit.

That "hack" has the nasty characteristic of probably making everybody lose,
maybe more than the $200 the guy was getting.

I imagine shipping was not free for the government, which also probably paid
the credit card operator a fee. The credit card operator is losing money by
paying rewards on a bogus transaction.

~~~
bdonlan
The credit card company doesn't lose money. They charge a settlement fee to
the government, which more than covers the cost of the rewards program. So
only the government (ie, the taxpayers) lose out here.

~~~
WildUtah
The taxpayers also don't lose out because the mint makes the coins and mails
them and pays the credit card settlement fee for less than the face value of
the coins.

Nobody loses, except people who object to the subtle inflation by seigniorage.
The Federal Reserve can control that anyway.

------
cperciva
A few years ago Air Canada offered a new trial product: unlimited-travel
flight passes. If you were willing to limit your travel to a small region, you
could get one for only a few thousand dollars. Some enterprising individuals
picked these up and proceeded to take as many as a dozen flights per day on
short-hop routes... racking up frequent flyer points for every flight.

Six months later, the unlimited-travel flight passes were introduced as a
permanent addition to Air Canada's travel options, with one slight tweak: You
now get a fixed number of frequent flyer points per month, independent of how
many flights you take.

~~~
seanmccann
It looks like Air Canada still has an unlimited pass but it's quite expensive.
There are several but for example there's a pass called "transcontinental"
that costs 3,322 per month for 3 months. It includes most western Canadian and
American cities. You have to do at least 5-6 roundtrips per month to make it
worthwhile.

~~~
cperciva
5-6 round trips if you book two months ahead of time and pick the cheapest
flights, maybe, but only 3 round trips if you only book a few days ahead and
pick the flights which are most convenient for you. Flight passes are aimed at
people who do a lot of flying and optimize for convenience rather than price.

------
coleca
These calculations of the airlines "losses" on these pass holders strikes me
as similar to the software industry's claims of billions of losses due to
piracy, counting all pirated copies as lost revenue, even if the pirate would
have never purchased the software in a perfect world.

Did they realize that if these guys are taking up what would have otherwise
been an empty first class seat that it really costs the airline almost nothing
(just the increase in jet fuel costs due to their weight and anything they
might eat)? It's not like there were special flights just for these guys, they
are scheduled flights.

I know folks that work as baggage handlers for just a few hours a week so they
can buy $5 unsold tickets anywhere they want. This program is not that
different from what they offer their employees, except for the first class
designation.

~~~
MBCook
According to the article, some of these people would book dozens of seats then
cancel them at the last minute (with no cost) when they decided they didn't
want to go.

On flights no one was taking, this wouldn't have been much of an issue. But on
flights that are regularly full, this could have easily prevented normal
paying customers from purchasing the seats.

~~~
excuse-me
Regular full-price business tickets let you do this anyway - that's why
flights are overbooked.

Airlines prefer not to overbook first and business class - because these are
the sort of customers you don't want to piss off - which is why there are
normally upgrades available.

With 3hour checkin requirements it's got a lot easier for the airlines to
manage who is missing up front and pick the tactically best customer in cattle
class to upgrade - or just to sell the upgrades, sometimes they even sell them
after you get onboard.

------
gruseom
Casa Sanchez on 24th St in the Mission (SF) offered lifetime burritos to
anyone who would get their logo tattooed on their body. IIRC, it was an
attention-getting stunt that they didn't expect anyone to take them up on. But
a lot of drug addicts happily did and they had to discontinue the offer. This
was in the late 90s. I wonder if anyone still gets free burritos on that
basis.

~~~
andrewpi
Details on this: <http://on.wsj.com/onLCZN>

~~~
gruseom
Interesting, thanks!

I knew Martha Sanchez a bit (she's not the person in the picture) because her
husband had a reptile store called Ross's Reptiles that was situated under our
apartment a block away. My kids used to go down there to play with the bearded
dragons. Needless to say to anyone who knows the neighborhood, it was not the
greatest location for a reptile store. It's a beauty salon now.

------
kamaal
What really was going on in the heads of these executives when they offered
these schemes? Let me tell you something if I'm offered something for free for
lifetime, than I'm going to use that as defined. Its free, for lifetime. You
shouldn't be too surprised if customers treat it as such.

During my college days here in Bangalore, we would get a bus pass. My college
was a little far away from my home, there was a college bus. But I preferred
taking the public transport, you know why? Because for a paltry sum of 500
rupees I could travel unlimited any time during the day, any day during the
year with unlimited supply of buses. On the other hand the college bus used to
cost 10,000 rupees and you could take the bus on college working days, morning
pick up and drop. Needless to say the clever students figured out within an
year that the public transport pass was a lot better. These days I hear many
companies are offering bus passes to employee instead of the company
transport. Because of the kind of advantage they offer.

I see the same mistake being made by most clubs by offering lifetime
membership on as meagerly sums as 50,000(Country club). This is a potential
for disaster, Weekends are boring and other wise costly in Bangalore.
Entertainment in multiplexes is pure rip off, eating out isn't cheap either.
With all this, I would say most people would squeeze such schemes as much as
they can for their benefit. And if they do, you should be too surprised.

If I ever got this free pass, I would get visas to the better part of the
world. And this pass will now be my gateway to unlimited vacations, attending
developer conferences around the world, traveling endlessly to see new places,
meeting friends and relatives settled abroad. And why shouldn't I? Air tickets
in my country are really expensive(for foreign travel), and I have never been
outside India, not even once. I would like to travel around the world and any
such scheme would make my job a lot easier.

People aren't doing anything illegal, and in fact doing just what you offered
them. This isn't fraud.

~~~
konceptz
If I had an unlimited air pass w/companion, I would pick you up.

Which is(was) the beauty and spirit of the offer.

------
driverdan
As someone who did 39 flights in 3 months last year using JetBlue's
Bluepass[1] I'd LOVE a lifetime unlimited pass. It's pretty clear the prices
they were charging were far too low, especially for first class.

If I had an unlimited pass I'd probably average 2-4 flights per week, many
international. It's even more practical when you have unlimited access to
their lounge. Take a red eye and shower at the lounge and you just saved a day
of hotel expenses.

1 - <http://bluepassers.com/users/expertdan>

~~~
citricsquid
Do you know of any similar products that exist for Europe? I'm in England and
would love to fly all over Europe (and have been considering it for a while)
but having a bluepass type thing would make it even more attractive. My google
searches produce nothing so I'm not too hopeful :(

~~~
brodd
There's always Eurail (<http://www.eurail.com/>)

~~~
dalke
"Only non-European residents can use a Eurail pass." An English resident would
need to get InterRail.

But see the cautions at
[http://en.wikipedia.org/wiki/InterRail#Decreasing_attractivi...](http://en.wikipedia.org/wiki/InterRail#Decreasing_attractivity)
. Going from London to Paris by train requires a 75€ supplement on ~50€/day
pass. The one-way price is 123€. While there is some savings because you can
go on additional trains afterwards, France also charges a supplement for
InterCity trains and has a seat quota.

------
tantalor
> Cade hatched a plan to confront Mukharji at London's Heathrow Airport. At
> check-in, American agents detained Mukharji and escorted him to a private
> office.

What agents? Detained under whose jurisdiction?

~~~
duaneb
I was actually more freaked out by the fact that the company withheld flights
and, essentially, blackmailed the customer into saying he payed for the
ticket. I would have sued.

~~~
togasystems
As a serious question, what would you actually try to accomplish by suing?
Monetary gain or a morale one?

~~~
pavel_lishin
My motivation would be a punitive one for the company in question.

------
michael_fine
The problem with this is that people are self sorting. Only the people who
intend to fly a lot will buy this. The airline loses money because there is a
disparity of information. You know in general how much you will fly, whereas
the airline only knows averages. This is very similar to Bill Clinton's Pay
off college loans with percentage of 20 years' income program. That didn't
work because people had general idea's about their future career path. So, a
future government worker may elect to use it, whereas a future investment
banker will not.

~~~
cjy
I agree this is the problem. In economics it is called "adverse selection" and
is particularly problematic for insurance.

------
marshray
One has to question the competence of the executives who would sell a contract
that obligates the company to nearly unlimited liability forever for a fixed
one-time payment. Particularly in such a low margin industry as an airline.

~~~
guan
The article states that interest rates were high back then. If you assume that
the buyers would use them for 40 years on average, and use a cost of capital
of 15%, these things would make sense if the cost of providing the flights was
expected to be less than about $37,000 per year. Change the assumptions to 30
years and 20%, and that figure becomes about $50,000. It’s not insane for the
airline to think that typical buyers’ flights would cost less than that,
especially since the marginal cost of even a first class seat would be low. It
is true that the same people, who are probably rich, might have bought full
price tickets anyway, but then again they might have traveled on other
airlines.

~~~
marshray
_especially since the marginal cost of even a first class seat would be low_

The cost all depends on whether or not they would have two spare first class
seats to throw away on someone (and his bag) that they are never going to get
a dime from again. Even then they could use those seats to offer upgrades to
loyal business/coach customers.

$37,000 per year doesn't go very far when divided by the price of two first-
class tickets.

I think this is a classic case of short-term vs long-term thinking.

------
mef
For the curious, the estimated $350,000 each paid for their pass + companion
pass roughly works out to $913,500 in 2012 dollars, if they purchased in 1981.
Most of the travelers mentioned probably purchased theirs later in the 80s,
but before the price increase in the early 90s.

~~~
meric
Rather than using the rate of inflation to calculate I suggest using the rate
of return on capital.

Let's say that for 5 years, AA was able to return 50% on its capital (massive
growth in the sector), after that it is the rate of inflation.

In that case the benefit for the passes to AA in todays dollars's (assuming
3.25% inflation): (350000 x 1.5^5) x 1.0325^25 = $5912563.906.

We use the rate of company's return on capital rather than inflation. Here's
why:

Imagine you own a stock trading company that can double the money risk-free in
its bank account every 12 months. Wouldn't it make sense to borrow money as
long as the interest rate was < 100%, because the benefit of those funds would
be 100% - the rate of return on capital of your company?

~~~
mef
Probably makes more sense to use inflation instead of ROC for purposes of
putting the cost of the tickets into the perspective of 2012.

------
tantalor
> In September 2007, a pricing analyst reviewing international routes focused
> the airline's attention on how much the AAirpass program was costing,
> company emails show.

They offered this product for decades without ever measuring how much it cost?
Did everybody skip that day in business school?

------
learc83
It looks like AA is using the retail price of these flights when calculating
how much money these customers are costing them, instead of the actual cost.

What's the actual cost in terms of fuel, service, and occupied seating?

The only way using the retail price makes sense is for fully booked flights,
and since first class is rarely full, AA's numbers look extremely inflated.

~~~
potatolicious
> _"What's the actual cost in terms of fuel, service, and occupied seating?"_

I have some familiarity with airline pricing... and the answer is... _very_
close to the retail price of said flight. Seriously, there's a good reason why
airlines are always teetering near bankruptcy. Their margins are lower than
even cut-rate retail.

Slightly OT, but it's also the reason why Hipmunk doesn't stand a chance in
the long run unless they branch out into selling, well, things that aren't
flights. The margins for resellers is practically non-existent.

> _"and since first class is rarely full"_

Ah, but first class is almost always full. Few people who fly in first
actually pay for first-class fare. First class, in its modern incarnation, is
more of a loyalty tool than an actual product. How many business travelers do
you see in First nowadays? And how many work for companies that would actually
pay for a First-class fare? Not too many. Airlines use first class seats to
curry loyalty from frequent flyers, along with alliance benefits for frequent
international travelers.

~~~
tptacek
Specifically: airlines use first class seats to get business travelers to book
flights on their airline at higher coach fares when many lower fares are
available on other airlines.

------
Irishsteve
They say Michael Dell has one of these passes. He should personally deliver
laptops every now and then. Good PR

------
imjk
I remember watching a documentary on Mark Cuban where he says that this
unlimited flight pass was the first thing he purchased when he sold
Broadcast.com. I'm sure he began flying via personal jet shortly after.

~~~
mhartl
I saw that, too; it's from an interview at TechCrunch50 in 2008. You'll see
that he actually bought the lifetime pass _before_ Broadcast.com. Most people
don't realize that Cuban was already rich when he started work on
Broadcast.com, and came _out_ of early retirement to do it. He didn't have
buy-the-Mavericks money until Broadcast sold to Yahoo! at a bubble-era
valuation, but he had buy-an-AAirpass money (and then some) long before that.
I especially like the story of how he once used his pass to kick Magic Johnson
off a flight. "That's how I roll!" Here's the full video:

<http://www.techcrunch50.com/2008/mark_cuban.php>

------
scotty79
That shows how much terms of service are worth. If company doesn't want to
provide services any more then they just accuse you of fraudulent behaviour
(even if you do nothing forbidden in terms of service) and cuts your service.
They also sue you for good measure. You can contersue them but your case gets
stuck in court because of procedural reasons and you are left without service
you were promised for years.

------
cmbaus1
What irks me about this is how AA is handling these clients. They are looking
at the cost in today's dollars, not the advantage of having that money in 198x
dollars. If AA had simply bought 30 year bonds with the income they received
from the program, they would have probably come out ahead.

------
martingordon
JetBlue offered something similar, albeit in a much more limited fashion,
through it's All You Can Jet program. It cost $499 (no travel on Fri/Sun) or
$699 (travel any day) and gave you unlimited flying for a month. It looks like
they had the program in 2009 and 2010, but discontinued it after that.

They later introduced 3-month unlimited flying passes from Long Beach, CA (to
select destinations; $1299) and from Boston (passes available for both limited
and all destinations; $1499/$1999).

------
richdougherty
Does this remind anyone of unlimited data plans?

~~~
bergie
Only if you consider operator capacity as scarce as seats in an airplane

~~~
wisty
And if the airline can secretly put you on a Greyhound bus if they think
you're flying too often.

------
dlitwak
You have to prepare for how the worst user will abuse your system, and
American didn't. They should have done the calculations based on a worst case
scenario.

I've heard of people refer to it as the "Penis Problem", referring to
Chatroullette's inability to stop perverts from exposing themselves on their
service: lesson is that whatever service you provide you need to think about
that 1% of the population will abuse it, and possibly ruin it for everyone
else.

And this is just plain stupid for not having any opt-out clauses, or ability
to revoke a pass, or setting any cancellation ground rules. Seems like they
could have done a lot to stop this from getting out of hand, but were too
incompetent to do so.

------
kijin
Holy crap, 40 million miles? That's over 1,600 trips around the world (1,850
if you use nautical miles) and nearly halfway to the Sun.

~~~
Retric
40 million miles @600 MPH = 66,666 hours in the air or 7.6 years. Granted, you
can sleep in the air, but I still think there is some multiplies involved in
that number.

~~~
kijin
> _you can sleep in the air_

Interesting scenario: A millionaire blows all his assets in a bad investment.
Now he's homeless, but he still lives in luxury thanks to his AA unlimited
membership. He always schedules his flights so that he can enjoy a good
night's sleep in the comfy, fully reclining first class seat.

(And then Leo DiCaprio plugs him into the Inception machine, and now Leo has
7.6 x 20 x 20 x 20 = 60K years to play with!)

~~~
kamaal
Add to this drinks, free food,VIP lounges and other goodies you can buy
frequent flyers programs.

Looks like they just handed over investment options(More like lotteries, in
which you are guaranteed to win) with guaranteed returns along with luxury in
nearly everything.

What really was going in the minds of the people who drafted this scheme?

------
powertower
The real moral of this story is that if you offer a lifetime pass, put in a
buy-back clause in the contract... That at any time you can buy it back from
the customer at 2-3x the price he/she paid. No need to make this complicated.

~~~
excuse-me
That would involve logical thought and perceiving the future effect of
business decisions.

This is an AIRLINE we are talking about!

------
rdl
It seems like the biggest risk in buying an unlimited airpass is that the
airline will go bankrupt. AMR did (29 NOV 2011, the last of the legacy
airlines to do so...), although I'm not sure if that invalidated the passes.

------
droithomme
AA made a bad deal for short term cash. But the contract was valid and the
people did not violate terms of the contract. Their investigations were done
in bad faith and their cancellations of the contracts fraudulent.

~~~
kamaal
Isn't this the same like raising money in an IPO. The investors buy the stock
only once but are eligible for dividends and other incentives like stock
splitting for lifetime.

Anything with the term 'unlimited' looks dangerous to me.

------
ShabbyDoo
I fly Southwest weekly and pay for my own travel, so I have an incentive to
think about optimal purchasing schemes. There are some strategies which I am
surprised are not made less appealing through relatively small fees:

1\. When paying full-fare, flights are fully refundable. Not sure when you are
flying home? Just book a bunch of flights. Even with the restricted fares, you
get 100% back in SWA credit which can be used for the same person for one
year. I'm surprised they don't have a 24 hour cancellation policy as I'm sure
they lose money when flight sell-out and last-minute, full fare passengers
book on other airlines. Even a $20 fee would provide incentive to cancel
redundant flights.

2\. Frequent flier points can be used to book restricted fares as effectively
fully refundable -- if you cancel, you get the points back. So, just book-up a
bunch of segments before prices go up in case you need them. There might be a
$2.50 (yes, under three dollars) fee associated, but it's immaterial.

3\. If you "miss" your flight and get to the airport within two hours of its
scheduled departure, you can fly standby on the next one. There's an incentive
to book a mid-afternoon flight (usually less expensive than, say, a 6:00 PM
one), "miss" that flight, and standby on the more expensive one.

All-in-all, I don't abuse the rules much. Mostly, the lack of any fees for
missing my Monday morning flights makes me less interested in showing up at
the airport too early. I'm simply surprised that SWA doesn't provide me with
small incentives to change my behaviors in ways which would help them
immensely. Conversely, their website seems to have a bunch of O(N) or worse
algorithms w.r.t. number of trips taken -- a huge annoyance to their most
valuable customers.

~~~
CamperBob2
You realize that even the cheapest tickets on Southwest can be rescheduled,
right? There is no need to book refundable seats unless you think you might
actually want the _cash_ back.

------
wilecoyote
"Become a member to keep on reading". Answering "No thanks" gets me to the
home page. What am I supposed to be discussing? This is embarrassing, can we
agree to discuss things that everybody can read?

The recent comment I saw about linking to one-page URL's was a great
suggestion, but this is more egregious. Perhaps source quotations with
submissions ala read later, etc. This would also provide a significant
advantage for searching and reading HN archives.

------
tnash
Wow. You can't make this crap up. I love this: "Revenue Integrity Unit". I
guess that's politically correct for "How do we screw over customers to make
more money?"

------
vinayan3
It makes no sense for a business to offer this. I'm surprised it has taken
them this long to finally do something about it.

~~~
excuse-me
Really? It's the late 80s, interest rates are pushing 20%, you are an airline
with a credit rating that makes a drug addict look like a safe bet.You are
flying with 50% empty first class seats.

You offer a $1M (at today's RoC adjusted rate) ticket for fat cats to fly
whenever they want - as a way of covering next months payroll.

You figure that these people will get bored after a couple of flights/year.
But you don't know that airport and security charges are going to start
costing you $100/seat and you forget that these people will retire and decide
that flying first class around the world is more fun than golf.

------
dhaivatpandya
I really, really want to buy one of these.

------
Pkeod
I think there are times when selling a lifetime account makes sense. Such as
an infrequently used service where the lifetime value of a customer isn't too
high. So pricing above the lifetime value would work. For a highly used
commodity it does not make sense.

------
loverobots
_Rothstein made 3,009 reservations in less than four years, almost always
booking two seats, but canceled 2,523 of them._

Until I read this I was cursing AA. Now it seems like they are trying to cost
AA even more money, on purpose. It may be legal but definitely not cool

------
steilpass
Am I the only one thinking that it's unethical? Because of your carbon
footprint.

------
andrewfelix
Oh the humanity! After flying 10's of millions of miles a few wealthy
individuals are no longer able to fly to the Louvre on a whim.

Meanwhile my neighbours and I have to catch a bus that is always late, often
doesn't arrive and leaks when it rains.

~~~
CamperBob2
_Meanwhile my neighbours and I have to catch a bus that is always late, often
doesn't arrive and leaks when it rains._

The only difference between you and said wealthy individuals is that they are
richer than 99% of everyone who has ever walked the earth, while you are only
richer than about 95%. I'm sure that after a few moments' contemplation of
this fact, you will conclude that corporate ethics and business integrity are
important values to uphold, even when dealing with "rich" customers.

~~~
Retric
I think your underestimating things, someone that can dump 350k on one of
these is probably richer than around 99.99% of humans who have ever lived.

~~~
kamaal
Actually like somebody else mentioned, its more on the lines $993K by today's
measurement. More like $1 million.

An ordinary person would consider himself lucky to end up having $1 million at
the end of his life. Let alone investing something like $1 million just on air
travel.

