
The frequent fliers who flew too much (2012) - douche
http://articles.latimes.com/2012/may/05/business/la-fi-0506-golden-ticket-20120506
======
Patient0
It reminds me of this story:
[http://ftalphaville.ft.com/2015/02/27/2120422/meet-the-
man-w...](http://ftalphaville.ft.com/2015/02/27/2120422/meet-the-man-who-
could-own-aviva-france/)

"When he was seven years old, Max-Hervé George was given a magic ticket by his
father. It lets him turn back the clock, to invest with perfect hindsight week
after week, steadily accumulating a fortune.

The ticket is a life insurance contract and Mr George, now 25, has fought for
years in the French courts to preserve its magic. He could be a billionaire by
the end of this decade and, by the end of the next, his contract would be
worth more than the insurance company which stands behind it, Aviva France.

There is no mystery to the financial magic, however. Instead it is a story of
grand stupidity, of how a French insurer wrote the worst contract in the world
and sold it to thousands of clients.

The company was L’Abeille Vie. In 1987 it began to offer a special deal to its
richer clients, a Fixed Price Arbitrage Life Insurance Contract.

Life insurance is a popular savings product in France, and typically the
customer allocates their money among different investment funds offered by the
insurer. But this contract was not typical: prices for the funds were
published each Friday, and clients were allowed to switch funds at those
prices anytime before the next price was published, even if markets moved in
the meantime.

L’Abeille Vie called this an arbitrage, but really it was a gift. Is the stock
market up this week? Just call your broker to buy it at last week’s price and
pocket the difference." ...

~~~
peteretep
I'm conflicted about this. On one hand, there's a part of me that likes the
fact they're sticking it to a bank. On the other hand, are we benefitting as a
society because of this?

~~~
SEMW
> are we benefitting as a society because of this?

Arguably yes, though indirectly: society benefits from having a legal system
that upholds contracts, even if one of the parties later changes their mind.

Or to put it another way - the harm to society of enforcing a ruinously bad
bargain against one bank is possibly less than the harm that would be caused
by the precedent that banks can sometimes wiggle out of bad bargains they
make.

~~~
peteretep
Maybe. Certainly in the UK there are many cases where "unfair" contracts can't
be enforced, though, which presumably stays as law because it is seen to be
beneficial.

~~~
jessaustin
Beneficial to whom? I won't pretend to know anything about the UK, but in
those places I've lived, any time the law gets "complicated", it's because
someone wealthy has an interest in it being so.

~~~
SEMW
Would you mind having a read of, say, UTCCR[0] and let me know what wealthy
interests you believe it serves? Here's the text:
[http://www.legislation.gov.uk/uksi/1999/2083/made](http://www.legislation.gov.uk/uksi/1999/2083/made)
. As far as I can tell its effect is to tilt the balance strictly in favour of
the consumer, but I'd be interested if you see something I don't.

~~~
jessaustin
I hesitate to comment on another nation's laws, because if it works for them
I'm glad (motes and beams, etc.), but ISTM "shall not be binding upon the
consumer" understates a great deal of legal procedure, nearly all of which
would be increased business for the tort bar. (Which, again, may be less of a
problem for other nations than it is for us.) If 100 consumers feel a contract
term is unfair and so decline to meet their obligations, the firm will file a
suit against e.g. the 20 least likely ones to contest rather than settle,
which is good for the firm's attorneys (or is it barristers?). Etc.
_Eventually_ a consumer will contest the suit under the provisions of this
law. That will entail _more_ court business.

In anticipation of this rigmarole, this law was probably a great one-time
boost for those who rewrite contracts for purposes of risk-management. It
certainly wasn't welcomed by small shopkeepers who enter into relatively
simple contracts with their customers (e.g. to purchase an expensive item on
terms). To compensate, such firms might have told their customers "the new law
means it doesn't matter what's on the contract". Although untrue, that
statement would be plausible enough to generate more sales, at least until
consumers heard enough stories about court cases that they no longer believed
it. Certainly there are consumers who have been helped by this law, but there
are probably others who have been disappointed by it.

------
Jgrubb
A network comparison of the 3rd page with and without uBlock enabled. See if
you can guess which one is which.

[https://i.imgur.com/iHZI27O.png](https://i.imgur.com/iHZI27O.png)

------
danieltillett
I am not sure which is worse - the stupidity of AA for selling these tickets
or their pathetic attempts to get out of the contract when they realised they
were idiots.

~~~
netcan
I dunno. Seems a bit harsh.

These are not unlike other open ended packages where the seller expects to
come out ahead, on average. Slightly further afield, it reminds me of
yesterday's thread on reedit. They revoked their unlimited free speech policy,
so that they could stop hosting some really nasty stuff.

Some people said "but you promised unlimited free speech forever."

I don't know if there is a clean judgement you can make. promises should be
made in good faith and kept. If a company makes promises that it can't keep,
then what. Sometimes you hit a sort of promise bankruptcy.

I think that's the case here.

On a complete tangent… The owners of these passes are probably an interesting
bunch. (A) I think their brains are wired for quirky beat the system thinking.
(B) You have to have a mind for opportunistic life hacks, in order to jump on
this.

~~~
danieltillett
Yes I was rather harsh [1]. The honourable thing for AA to have done would
have been to buy back the tickets at their current value, not try and find a
way to weasel out.

1\. I am biased as I have hated AA ever since they decided to put me on some
secret list (the SSSS list) for no reason which means anytime I flew AA I
would be put through the wringer.

Edit. For those interested here is the details about the ssss list [2]. I am
not sure what my "crime" was, but I suspect it was because I often flew one
way (around the world tickets). The crazy thing is it is airline specific as I
am not on the list with any other airline.

2\.
[https://en.m.wikipedia.org/wiki/SSSS_rating](https://en.m.wikipedia.org/wiki/SSSS_rating)

~~~
simoncion
> I have hated AA ever since they decided to put me on some secret list (the
> SSSS list)

Can you prove that AAL did this? If you can't, then this is absolutely _not_
the fault of AAL. This is the fault of DHS or TSA.

Peruse the various air travel articles on the papersplease.org blog for more
info. (I wish I could give you good search terms, but some recent relevant
articles don't contain the term "SSSS". Maybe try "Secondary Screening"?

~~~
danieltillett
How could I possibly prove AA put me on this list? All I can say is only AA
has me on this list, so this would suggest AA put me on their own SSSS list.
It means that when I fly I actively avoid AA if at all possible. I haven’t
flown with AA for around 5 years so I don’t know if I am still on the list,
but I am not on it with any other airline.

The worst episode I had was when the TSA forgot to mark off my boarding pass
after I went through security. At the boarding gate the AA staff freaked out,
called security, and in front of the other passengers I was dragged out of the
airport and back through security. I was then left with running through the
airport to catch my flight. I just managed to get back to the gate before the
plane left.

------
markbnj
Typical behavior from a large corporation trying to wiggle out of a bad deal,
but this...

>> At check-in, American agents detained Mukharji and escorted him to a
private office.

... caught me by surprise. Agents of an airline can detain you?

~~~
scott_karana
I suspect most people would just comply without realizing they're able to
decline. Particularly if they're in a foreign airport.

------
Spooky23
Back in 1981, 30 year treasuries were yielding 14%
([http://www.nytimes.com/1981/08/08/business/treasury-bill-
rat...](http://www.nytimes.com/1981/08/08/business/treasury-bill-rate-
at-14.54.html)) So you really need to figure out what the total cost of
borrowing millions at 20% interest is compared to the cost of goods sold for
flights.

The other key factor is the marketing value. AA sold these tickets for years,
presumably they had some sort of value, perhaps as an incentive for point
junkies to aspire to?

~~~
danieltillett
AA sold these tickets for a long time after interest rates came down. They
didn’t even both to prohibit people from selling their companion tickets to
others, or making multiple booking that could be cancelled at the last minute.
This was not a well thought out idea.

Even if it was a good idea, the way they went around trying to break their own
contract was not very good. The best way to handle something like this is
recognise you made a mistake and buy back the tickets from their owners at
their current market value.

------
JoshTriplett
Similar things happened to hosting companies that sold "lifetime" hosting,
though at least in that case it would have been possible to bound future costs
per unit time (and thus cover it with an annuity or equivalent). But in this
case, the cost was entirely unbounded.

------
gadders
As an example of another promotion that went wrong:

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

~~~
koyote
Wow, I had never heard of that one before.

What were they even thinking? How could that have ended well in any way? I
wonder if there's more to that than the Wikipedia article tells (like a
disgruntled exec who wanted to take the company down with him before he left
or something).

------
teh_klev
From last time around:

[https://news.ycombinator.com/item?id=3936310](https://news.ycombinator.com/item?id=3936310)

------
amelius
I think we should just pay for what we use.

Special loyalty programs just mess up the transparency of the market. And they
can cause other problems as well, as illustrated in the article.

~~~
blfr
Paying for usage appeals to nerds but most people don't know how much of the
service they do/will use and have been burned by overage fees. They prefer to
pay for the service that fits their need (talk to your family for as long as
you want) rather than a utility (pay 2¢ a minute) even if the utility would
turn out to be cheaper in the long run. We know that, we sell on the benefit,
right?

Especially that the prices should fluctuate if you were to pay for what you
use. A taxi at night is already more expensive, and electric energy is
sometimes cheaper but this should apply smoothly (but not necessarily
predictably) to nearly every service: surge pricing everywhere and forever.

The added cognitive burden and transaction costs simply aren't worth it a lot
of the time so you get various all inclusive offers instead that have to
favour some outliers.

------
nemo44x
This is why you don't test in production.

With any "all you can eat" scenario - especially high valued ones, it may be
best to cap the number of participants so you can at least observe their
behavior and cap your risk. It would also help with price discovery so you can
truly calculate the value you are offering and price accordingly.

~~~
simoncion
What else is a proper compensation to a (inflation-adjusted) 1 million dollar
investor to whom you don't want to grant a share of the company?

Edit: To the downvoters: This is a serious question, not snark. Folks are
claiming that these tickets were a stupid idea. If you read the article, you
discover that these tickets were _compensation_ to million-dollar _investors_.
AA _needed_ that money. They had to give _something_ to get it. If they were
to give something other than those tickets, what should it have been?

Remember that someone who has a million dollars laying around will _expect_
that they get more than a million dollars out of their investment. That's
generally how investment works.

~~~
danieltillett
I am voting you up since you are asking a serious question. The tickets were
underpriced for what they offered. What AA should have done is auction off the
tickets and let the market decide what they were worth.

~~~
basseq
It doesn't sound like they sold tons of tickets (e.g., demand wasn't that
high), so unless they severely capped the number of tickets (which they
probably should have done _anyway_ ), an auction wouldn't have yielded very
different numbers.

~~~
danieltillett
The fact they increased the ticket prices a lot over the years suggests that
the early tickets were very underpriced. When you sell something totally new
and potentially open ended then it is always wise to get as much validation as
possible from the market before setting the price.

~~~
basseq
I didn't say they were underpriced. An auction doesn't solve for accurate
price without significant demand, which they didn't have. (The Hoover example
elsewhere in this thread is counterfactual example.)

Note also that even though AA estimated that the passes (for certain
individuals) "were costing it millions of dollars in revenue", no one bought
one for $3M in 2004. The value of an unlimited pass is directly tied to how
much you'd use it. A handful of individuals were at the far end of the bell
curve.

~~~
danieltillett
A Dutch auction [1] would be the way I would auction of these passes. This way
you find out the top price that the people on the far end of the bell curve
think the pass is worth.

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

~~~
basseq
Dutch auctions work with one item (or multiple items where a single buyer
would want _n_ items of a limited supply: see eBay). That still wouldn't solve
the problem in this case: remember, they didn't _run out_ of passes. They sold
every one they could at the offering price. Where there are multiple buyers,
no rational buyer is going to look to pay a premium.

------
pitnips
"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."

How is that even possible? Did he never actually leave the airport?

------
DiabloD3
From May 5th 2012

~~~
theumask
And? What's your point? I've found this story interesting, it shows that each
time there is a possibility to exploit an opportunity like that it will be
exploited, the greed and lack of consideration for other people will prevail.

~~~
gdy
Imagine a reverse situation: a man buys this lifetime ticket and dies in a car
accident a month later. Do you think the company would return the money to the
grieving relatives or they would exploit this opportunity with typical greed
and lack of consideration for other people and keep the money?

