The frequent fliers who flew too much (2012)

http://articles.latimes.com/2012/may/05/business/la-fi-0506-golden-ticket-20120506

by douche • 11 years ago

108 70 11 years ago

articles.latimes.com

DiabloD3• 11 years ago

From May 5th 2012

theumask• 11 years ago

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• 11 years ago

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?

lmm• 11 years ago

I found the headline interesting and then on following the link realized I'd read it already. So it would have been nice to have a (2012) so I could've realized it was a repeat sooner.

SmellyGeekBoy• 11 years ago

The point is that older articles are usually datestamped on HN.

lnanek2• 11 years ago

It is a repost, though. I've seen this posted before various places over the years. I'm not really interested in old content I've read multiple times before.

JoshTriplett• 11 years ago

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• 11 years ago

As an example of another promotion that went wrong:

https://en.wikipedia.org/wiki/Hoover_free_flights_promotion

koyote• 11 years ago

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).

NamTaf• 11 years ago

How does Hoover apparently not have anyone who understands the concept of Total Cost of Ownership? If there's a cheaper TCO that involves having a vacuum cleaner, then people are going to buy the vacuum cleaner and throw it away!

danieltillett12• 11 years ago

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• 11 years ago

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.

danieltillett12• 11 years ago

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

notahacker2• 11 years ago

It makes some sense to offer open ended packages, but not when the value of the open ended packages is far too high for anyone to consider buying it if they didn't expect to significantly overuse it. And $250k really isn't that much money in terms of first class tickets, or in the scope of an airline's cost base.

I suspect the owners of the passes were more characterised by having the sort of occupations where they could effortlessly stump up free cash, and a lot of time or requirement to travel, and probably a fondness for first class too. Most people with a mind for opportunistic life hacks don't have $250k to invest in future airline tickets.

Lawtonfogle• 11 years ago

If a company makes promises that it can't keep, then what.

If the company is allowed to break the promise, then it benefits at the cost of trust. Not merely trust in the company, but trust in general. This ends up being a cost on all other entities (actual or legal) who will ever depend on trust. In short, it is a form of theft.

simoncion9• 11 years ago

"...the stupidity of AA for selling these tickets..."

From the article:

"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. ...

[T]he marquee item was the lifetime unlimited AAirpass, which started at $250,000. ... For an extra $150,000, they could buy a companion pass. Older fliers got discounts based on their age.

When American introduced the AAirpass in 1981, it saw a chance to raise millions of dollars for expansion at a time of record-high interest rates."

From Wolfram Alpha:

  $400000 (1981 US dollars) in 2015
  equals:
  $1.059 million (2015 US dollars)
  (based on Consumer Price Index)

These individuals each gave American Airlines more than a million dollars for expansion during a time when it was really hard to get money from banks. In exchange for their investment, they got a lifetime, unlimited travel ticket for two. (Notice that older investors were permitted to invest LESS to get the same benefits, in recognition that an older person would realize less benefit from the compensation.)

AA was looking for non-traditional investors. I think that unlimited air travel for two for the rest of the investor's life is a reasonable alternative to a cut of the company's profits for a one-million dollar outlay, don't you?

danieltillett12• 11 years ago

Some of the holders of these tickets racked up over a million dollar a year of travel! Multiple this by 30 years and it was stupid.

peteretep4• 11 years ago

I have tried and failed to find data on what that would be worth if you'd bought AAL stock instead. Maybe someone else can find historical AAL prices?

amelius• 11 years ago

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• 11 years ago

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.

Patient0• 11 years ago

It reminds me of this story: http://ftalphaville.ft.com/2015/02/27/2120422/meet-the-man-w...

"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." ...

peteretep4• 11 years ago

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?

dangerlibrary• 11 years ago

Hoping for benefits of the stock market that aren't captured by businesses or investors is a good definition of 'picking through scraps.'

SEMW3• 11 years ago

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.

chasing3• 11 years ago

Rich guy gets deal only offered to the rich that allows them to go from merely rich to extravagantly rich while contributing nothing to society. And it happens to be legal!

If we were talking about a Wall Street financial predator, people would be squealing for change. In fact, they have been. But this guy seems to get a pass for "sticking it to the man" or something.

It's weird.

CPLX• 11 years ago

As the article mentions things like insurance and long term investments, annuities, stock certificates, and the like, are the ones where it makes the most sense to be the most exacting in enforcing contract terms. That's essentially the nature of the business, and in a world where people can hedge two massive sums of money against each other for hundredths of a percent gains and so on, it does make sense for the financial system to decide that this level of precision should be considered inviolate.

There is precedent for the argument that very long term arrangements (sometimes called "Methuselah Trusts"[0]) involving compounding interest should be prohibited or changeable in some circumstances but the lifetime of a single person would really never fall into that category.

Also of note in this specific instance, the "error" on the banks part is not a case of overlooked fine print, obliviousness to an extreme edge case situation that seems highly implausible, or a customer acting in somewhat bad faith or wastefully, which you could argue gifting first class tickets to random strangers is.

In this instance the whole point of the investment was to allow wealthy purchasers to make backward looking adjustments to a held investment portfolio. Which is, in fact, exactly what has happened.

[0] http://www.nickbaily.com/nick_bailys_002/2015/01/the-dangers...

peteretep4• 11 years ago

    > this story

That article appears to be repeated, with no paywall, here:

http://www.iii.co.uk/investment/detail?code=cotn:AV-.L&displ...

Bootvis• 11 years ago

You should be be able to get a free account at FT Alphaville so it's not a paywall (but still annoying).

Jgrubb• 11 years ago

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

teh_klev• 11 years ago

From last time around:

https://news.ycombinator.com/item?id=3936310

nemo44x• 11 years ago

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.

simoncion9• 11 years ago

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.

danieltillett12• 11 years ago

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.

Spooky23• 11 years ago

Back in 1981, 30 year treasuries were yielding 14% (http://www.nytimes.com/1981/08/08/business/treasury-bill-rat...) 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?

danieltillett12• 11 years ago

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.

pitnips• 11 years ago

"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?

markbnj• 11 years ago

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• 11 years ago

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

davmre• 11 years ago

I'd imagine you're always free to leave, in a legal sense, at the cost of missing your flight. The airline's ability to deny boarding gives you a strong incentive to cooperate.

The frequent fliers who flew too much (2012)

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