
Frequent fliers who flew too much (2012) - kawera
http://articles.latimes.com/2012/may/05/business/la-fi-0506-golden-ticket-20120506
======
woliveirajr
Company sold tickets for the price they wanted. They made the rules. They
excluded everything that wasn't allowed in those rules.

Time passes and company finds out the deal wasn't so good anymore (or never
was in the first place). So they decide to go after those costumers who are
using the tickets in unexpected ways, but that weren't forbidden.

When the company has an extra profit for your last-minute ticket, or your
cancellation (even when very ahead of time, so that they don't loose some
revenue), it's just business, for-profit, hallelujah. When company does
something that isn't profitable, they try to stretch rules' limits, the
costumer misbehaved, costumers aren't allowed to gain from the company just
because the company miscalculated something.

Yes, it's good to be a company this way.

~~~
AlyssaRowan
Agreed. Hiring someone specifically to try to do an aggressive, audit hatchet-
job on special, star customers that had spent six figures on golden tickets
with them doesn't make this story read very sympathetically for American
Airlines to me.

Perhaps it's naïveté on my part, _expecting_ a business to have some care for
its reputation as well as its bottom line, but as far as I'm concerned, if
you're going to promise an elephant, you'd better at least have a pachyderm on
backorder and not try to wriggle out of it the moment it inconveniences you,
because that just makes you look callous.

~~~
Bartweiss
I can't help but feel that "they broke the rules!" is a hollow argument in a
case like this. Most obviously, because it's not clear they _did_ \- Vroom's
contract didn't prohibit ticket sales, but that was still the grounds for
revocation.

More broadly, though, the issue of selective enforcement is a thorny one. If
you write a contract sufficiently byzantine and ambiguous, any legitimate use
will rub up against the edge of some prohibited behavior. At that point you
have a totally broken agreement - you preserve it for anyone whose behavior
you like, and revoke it for anyone who crosses you.

It's like the issue of selective policing. We live in a world where "don't
commit any rules" isn't a viable answer, because there are endless lists of
ambiguously defined rules on everyday tasks like accessing a computer. So if
someone decides they truly want to pursue you, they can dig up a website where
you mis-entered your birthday, declare it fraudulent misrepresentation, and
try to put you in prison.

If everyone is guilty, the only question is how you decide what to pursue. And
in this case, it's painfully clear that American didn't pursue egregious
violations or frequent offenders, they went after anyone who had taken
advantage of a product they regretted selling.

~~~
blibble
> If you write a contract sufficiently byzantine and ambiguous, any legitimate
> use will rub up against the edge of some prohibited behaviour.

contra proferentem applies in common law, ambiguity benefits the party that
did not write the contract

otherwise there's no reason to ever write a clear contract

~~~
Bartweiss
I think this is why inter-company contracts tend to be clearer and often
_simpler_ than company-employee contracts.

Your average EULA is impossible to follow or even understand because the
company has so much more recourse to the law than the customer - as we see
here, with American violating its own contracts and trusting their legal
weight to make good. The law very sensibly attempts to punish willful lack of
clarity, but (as with patent trolling, and asset forfeiture) it only holds
when everyone can fight a legal case.

~~~
mindslight
A complementary analysis:

A company-company contract is actually a much simpler, self-defined, and
symmetric relationship. Whereas an employer-employee contract must take into
account the huge lump of complexity that is employment law. The company
doesn't really _like_ employment law, so they make every attempt to nullify
it, paralleling its complexity.

EULA drafters are similarly trying to create a whole new body of law,
bootstrapping it using copyright while eroding any consumer rights granted by
copyright. Companies would prefer a much simpler EULA that said "we can revoke
your license at any time for no reason, with no refund". But such a thing
would be rejected by courts. So they attempt to construct such a policy by
following the contour of the law (ie what courts won't reject) as close as
possible.

Regarding the original post, I think American was really just doing the
standard corporate stonewalling (I'm not endorsing this as being morally
right). It seems as if the pass holders would have eventually prevailed in
court, but what actually settled the question was American's filing of
bankruptcy - which made the whole thing moot.

------
belorn
> the lifetime unlimited AAirpass, which started at $250,000 ... In one 25-day
> span this year, Joyce flew round trip to London 16 times, flights that would
> retail for more than $125,000. He didn't pay a dime.

This is the kind of logic that always sound so wrong. He did pay, twice the
amount, in 1994, which in 2012 is worth what, about twice again? So, in 2012
the company is repaying a $250k investment done in 1994.

If this person had spent $250k on air line shares, how much "free money" would
he have been given by the stock market (stocks which is restricted and can't
be completely sold)? Is it more, or is it less, than the marginal cost on all
the travel that he made between 1994 to 2012? It would have made a very
interesting article if it included that.

~~~
ghaff
I don't know about airline shares, but given an S&P 500 index fund, you can
look at it a couple of different ways.

\-- The $250K invested would throw off $20K or so (before taxes) each year on
average without touching the principal.

\-- If that amount had simply been invested in 1994 and allowed to compound,
it would be worth about $1.5M today in today's dollars.

~~~
kilroy123
Huh, then I wonder if it really was worth it then?

~~~
ghaff
Well, if you're flying First/Business internationally every week anyway,
you'll spend more than $20K/year pretty quickly. The question is what value
you're actually getting out of it.

Tangentially, this is one of the reasons that reward miles/points are so hard
to value. Your stay at that fancy resort would have cost $10K had you booked
it on your own dime--but would you actually have done that on your own dime?
Anecdotally, I find that I do get some incremental pleasure/benefit out of
things that I use rewards to get but often not so much that I would have
actually paid the cash value for them.

------
pixelbath
One thing that bothers me: Much of the value calculation assumes the seats
taken by these lifetime pass holders would always be 100% utilized and never
empty. I don't think the opportunity cost is nearly as high as the article
states, but I think that AA losing tons of money is more a result of other
poor financial decisions than issuing around 60 lifetime passes.

~~~
noonespecial
Taxes and airport fees are easily 20% (and that's just for US domestic) of the
cost of a ticket which the airline had to eat every time these golden ticket
holders flew (or even booked?).

These fees unpredictably and radically increased over the time since the
golden tickets were issued as well. There's more in the soup than just the
marginal cost of the physical seat occupation.

~~~
scarmig
Do the taxes and fees scale linearly with the cost of the ticket? I would
guess that as seats become more expensive, the amount taxes and fees comprise
of the total goes down.

~~~
delinka
Are taxes a flate rate, or a percentage?

~~~
ghaff
Fees and taxes are a mix though, at least with domestic coach, they scale to
within a few percentage points with the price of the ticket--about 15%
overall. International has quite a few more fees. Overall they added up to
about 25% with a recent US-UK flight.

~~~
ubernostrum
British Airways is notorious for its "fuel surcharge", which is not a
government-imposed tax. It's just an extra fee they tack on to make sure the
low advertised ticket price ends up costing you enough for them to make a
profit.

The worst is when you use frequent-flier miles to book with them; you still
have to pay the "fuel" surcharge, which guarantees they get an amount, in
cash, equal to an economy-class fare even for your "free" ticket.

~~~
gubby
The first part is not true. When you look at flights on BA.com, in their
journey planner, that price is the final price, to the penny.

------
gricardo99
Reminds me of the guy who gamed a pudding air-miles promotion to great
benefit:

[http://gizmodo.com/how-an-engineer-earned-1-25-million-
air-m...](http://gizmodo.com/how-an-engineer-earned-1-25-million-air-miles-by-
buying-1339646546)

~~~
pif
Wonderful read, thanks!

~~~
ubernostrum
Obligatory warning that this wouldn't work the same way today, at least in
terms of getting you frequent-flier status with an airline. Airlines have
learned to give out two classes of "miles": one class is _only_ redeemable for
tickets (or transferrable to rental cars, etc.), and those are handed out like
candy. The other class earns the enduring status levels that get you things
like complimentary first-class upgrades, and can only be earned by actually
flying (the frequent-flier community calls them "BIS" \-- "Butt-In-Seat" \--
miles), or in some cases by spending $20k+/year on their affiliated credit
card.

Also my favorite gimmick of all time, another now-closed loophole, was someone
who realized the US Mint will sell you dollar coins at face value, with free
shipping for orders over a certain amount. So buy, say, $X worth of dollar
coins for $X with free shipping, charge to your airline-affiliated credit
card, go deposit them in your bank and immediately pay off the card. For the
cost of the time you spent placing the order and going to the bank, you get X
frequent-flier miles.

~~~
ghaff
> or in some cases by spending $20k+/year on their affiliated credit card.

There may be examples but I'm not aware of airlines that give you status
through credit card spending today. The one sorta exception I know of is that
United does currently waive their qualifying dollar spend requirement for some
status levels given sufficient spend on an affiliate card.

~~~
ubernostrum
They don't directly give you status, but in addition to waiving dollar-spend-
on-tickets requirements, there are cards which convert part of their
redeemable-only mileage earning into status-qualifying mileage earning when
you hit spend thresholds.

Before the American Airlines merger, you could get to low-level status on US
Airways this way. Sign up for or renew a lounge membership, and you got 5,000
qualifying miles. Then hit both spend thresholds on the Barclays affiliated
credit card, and 20,000 miles from that would convert to qualifying, putting
you at 25k for the year, good for Silver Preferred.

I believe it's still possible on Delta to reach Silver Medallion status, in
the first year you have their top-end Reserve Amex, by hitting bonuses and
spend thresholds that award or convert to qualifying miles.

------
ghaff
Quite the interesting read. It sounds as if there was some rather questionable
behavior on both sides. That said, it's a good lesson about a couple of
things:

\- Be careful about grabbing revenue today in exchange for incurring not well
understood costs more or less indefinitely into the future.

\- Characteristics like unlimited/completely free/etc. can lead to unexpected
behaviors that are pretty far outside the norm.

~~~
douche
This kind of reminds me of a couple of situations in the sports world:

Bobby Bonilla[1], middling former baseball player for the Mets, who cut a deal
when being released by the Mets that they wouldn't have to pay him the balance
of his contract now, but would have to pay 5X as much over 25 years, ten years
hence. Thus a baseball player who hasn't taken the field in 15 years is making
a cool $1.19 million.

In 1976, the ABA finally collapsed, and arranged a merger with the NBA[2].
There were six remaining ABA teams, but the NBA would only accept four. The
Indiana Pacers, New York Nets, Denver Nuggets and San Antonio Spurs were
chosen to join the NBA. The two remaining teams, the Spirits of St. Louis and
the Kentucky Colonels, disbanded. The owner of the Colonels reached a buyout
agreement with the other ABA owners for $3 million, plus another couple from
selling off rights to his players. On the other hand, the Silna brothers, who
owned the Spirits, cut a deal to fold their team in exchange for $2.2 million,
plus a 1/7th share of the television revenue of the four remaining ABA teams,
in perpetuity. This probably seemed like a bargain in the mid-70s, when NBA
Finals games were being shown on tape-delay. However, as the league expanded
in popularity, that TV money exploded, to the tune of tens of millions of
dollars _a year_.

[1]
[https://en.wikipedia.org/wiki/Bobby_Bonilla](https://en.wikipedia.org/wiki/Bobby_Bonilla)

[2]
[https://en.wikipedia.org/wiki/American_Basketball_Associatio...](https://en.wikipedia.org/wiki/American_Basketball_Association%E2%80%93National_Basketball_Association_merger)

~~~
ghaff
And of course it's even easier to make a decision that makes you look like a
savvy businessman today while kicking costs or potential costs down the road
when they're likely to be someone else's problem.

~~~
ubernostrum
538 had an analysis of Bonilla's contract recently:

[http://fivethirtyeight.com/features/bobby-bonilla-was-
more-t...](http://fivethirtyeight.com/features/bobby-bonilla-was-more-than-
the-patron-saint-of-bad-contracts/)

They concluded that, by the time his contract is paid off, he'll have received
total compensation in line with the market rate for a player of his caliber.
The deferred payments also opened up payroll space _immediately_ , allowing
the Mets to make successful roster acquisitions.

~~~
douche
I thought that they also thought that they were getting higher rates of return
with their Madoff investments than the deferred interest of his contract?

------
at-fates-hands
Okay, so let me get this straight. . .

\- The program starts in 1981.

\- One of the executives that was there from 85-94 noted right away the
customers were costing them money.

\- They raised the cost in 1991

\- They raised the cost again in 1994

\- And finally terminated the program in 2004.

The company ran this for 20 years knowing full well since its inception that
it was costing the company money and did nothing about it? I have absolutely
ZERO remorse for what the customers got away with, none. The fact they had to
play dirty pool to revoke them just shows how incompetent the executives were
that were running the company.

It's staggering to think they let a handful of customers practically bleed the
company dry, while continuing to sell these in a sad attempt to generate
revenue for the company.

~~~
ryao
I am not a lawyer, but these tickets look like a pyramid scheme to me. If I
were an attorney and worked for American Airlines, I would consider claiming
it was illegal for them to offer that to get out of it. I know that courts
tend not to let companies out of bad deals, so that might make a bad situation
worse.

It reminds me of the guy who has a life insurance policy that allows him to
invest the amount covered in stocks at prices 1 week in the past knowing what
the future performance would've. The insurance company that purchased the one
that issued that really wants to get out of it, but they have been
unsuccessful. I recall that it is estimated that by the time he dies, his
estate will be worth more than the insurance company due to that policy.

At least American Airlines can take consolation in the fact that the total
losses from their mistake will be limited by the ticket holders eventually
dying naturally. In that insurance company's situation, the policy holders
dying will ruin them.

~~~
philwelch
His estate (or beneficiary) should just assume ownership of the insurance
company then. Insurance is a good business, as long as you don't have any
other policies like that on the books.

~~~
ryao
They do, but none are as large as liability as his as he is very good at
maximizing it.

------
jgw
I don't think any discussion of "misguided promotional offers" is complete
without a mention of Hoover's "free flight" fiasco:

* [http://news.bbc.co.uk/2/hi/business/3704669.stm](http://news.bbc.co.uk/2/hi/business/3704669.stm)

Worth reading if you have a minute and are not familiar with it. The story
beggars belief.

------
acqq
Clicking on the "past" gives the previous bigger discussions, one with 70 and
another with 200 comments.

[https://hn.algolia.com/?query=Frequent%20fliers%20who%20flew...](https://hn.algolia.com/?query=Frequent%20fliers%20who%20flew%20too%20much&sort=byPopularity&dateRange=all&type=story&storyText=false&prefix&page=0)

------
sogen
At school one class focused on analyzing cost of promotions... and a company
this huge DID NOT calculate long-term profitability?!?

Wow.

~~~
ghaff
I'm guessing that they did but they used bad assumptions. For example, I could
see them doing a query to see how often their most frequent flyers flew and
using that number or some multiple thereof. It likely never occurred to them
that "unlimited free" would completely change the way that some people would
use the service.

