American’s Tricky Problem: Tickets for Life

So you want to raise cash as an airline?

What do you do?

Why not sell a First Class ticket that gives a passenger unlimited first class travel for life

The Los Angeles Times reports that this is what American Airlines did in 1981. Aviation Gas was cheap and interest rates high. The airline wanted cash. So for $US250,000, 64 passengers bought a ticket which allowed them to travel as often as they wanted in first class. For an extra $150 000 you could take a companion. It was called the AAirpass program.

The airline did not pass on the taxes associated with the ticket (mistake #2)

On top of that AAirpass passengers could accumulate frequent flyer miles on their free rides (mistake #3). They also got unlimited access to the Admirals Club (American’s airport lounge) for life.

As taxes rose, aviation fuel increased in price and American teetered in the edge of bankruptcy, they discovered that their canny first class fliers had found every loop hole possible!  American in 2007 began looking for ways to see if actual rules linked to the AAirpass were being broken.

They found that some passholders

  • were getting a million dollars worth of air travel every year (oops).
  • were “renting out” their companion passes eg flying people on the companion ticket for a fee. The passenger paid less than they normally would for a first class seat, the AAirpass holder received cash and American lost revenue from a first class seat
  •  were upgrading strangers at airports using their companion pass as a “feel good” exercise
  • making reservations and then cancelling at the last minute costing the airline valuable revenue

American cancelled some of their passes in 2008. These customers are now in court suing the airline. The customers are claiming they acted within the rules. American is claiming they breached them.

Whatever the outcome, I doubt you can buy an AAirpass today.!

 

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Comments

  1. I feed bad for AA with any abuses. However, they made a bad bet. Unfortunately, sometimes you win and sometimes you lose. But to alienate arguably your most loyal customers is silly.

    Is the cost of enforcement really greater than the marginal cost of these flights? AA considers lost revenue as part of the losses on the programs, but lets face it, are pass holders really going to go to Paris 80 times if it wasn’t free? And Admirals club? AMEX platinum gets you in, and the $1 worth of beer they drink is hardly the reason the airline is bankrupt.

    Better AA settles and tries to have customers pay the taxes and fees on all trips than this public shaming of their best frequent fliers. Besides, with all the miles, they likely will still have free lifetime travel!

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