American Airlines fails at forward planning

The airline sold unlimited lifetime travel for $250,000. Thirty years later, they're still paying fo

The LA Times pulls back the veil on what must be one of the worst in a series of bad business choices made by American Airlines. In 1981, it wanted to borrow millions to expand its operations, but was stymied by record-high interest rates. Rather than borrowing on the books, the company looked for alternative ways to raise the moeny, and decided to launch the AAirpass:

It was, and still is, offered in a variety of formats, including prepaid blocks of miles. But the marquee item was the lifetime unlimited AAirpass, which started at $250,000. Pass holders earned frequent flier miles on every trip and got lifetime memberships to the Admirals Club, American's VIP lounges. For an extra $150,000, they could buy a companion pass. Older fliers got discounts based on their age.

The company thought that the biggest customers would be businesses buying the passes for top executives. What they didn't count on was the change in behaviour that being able to take a $125,000 trip to London for free would spark:

[Steven Rothstein] was airborne almost every other day. If a friend mentioned a new exhibit at the Louvre, Rothstein thought nothing of jetting from his Chicago home to San Francisco to pick her up and then fly to Paris together.

In July 2004, for example, Rothstein flew 18 times, visiting Nova Scotia, New York, Miami, London, Los Angeles, Maine, Denver and Fort Lauderdale, Fla., some of them several times over. The complexity of such itineraries would stump most travelers; happily for AAirpass holders, American provided elite agents able to solve the toughest booking puzzles.

In 2007, the airline finally realised that the people they had sold unlimited passes to – which peaked at a price of $1.01m before being discontinued in 1994 – were costing them upwards of $1m every year. So they started to crack down.

It seems like there should be a moral to this story, but I'm not sure what it is. Perhaps that if you set marginal prices below marginal costs, someone is going to take advantage of that. Perhaps that if you want to borrow some money, just get a loan from a bank like everyone else. Or perhaps, given American have started stripping passholders of their perks, that the house always wins.

George Clooney in Up In The Air. The actor plays a man with 10 million air miles.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Former Home Secretary Jacqui Smith: Theresa May is the Tory leader Labour should fear

George Osborne is not inevitable as the next Tory leader – and Theresa May could be the one to see him off.

Some people believe that Theresa May has had her day as a Tory leadership contender, but she is a woman who has been underestimated throughout her career. Furthermore, as Angela Merkel, Tessa Jowell, Margaret Hodge and Harriet Harman will tell you, we are in the day of the (slightly) older woman politician. And, while Margaret Thatcher was certainly not an advocate for more Tory women, her legacy is a Conservative party who would not find it impossible to countenance another woman in charge. Could that be May?

Throughout her political career, May has never been seen as “a rising star”. She was involved in politics at Oxford University having gained a place from her grammar school, but was not particularly pushy or sparkling future leader material. She worked in banking for a period and was a councillor in Merton. She fought two unwinnable seats before finally getting elected to parliament in 1997. So no easy, gilded rise through the party for her. Being on the receiving end of some of the misogyny found in all parties’ selection procedures may have been the spur which led her to declare the Conservatives the “nasty party” in her famous 2002 conference speech as party chair under Iain Duncan Smith’s leadership. She is a bit of an outsider, willing to argue that her party had to change and to reach out beyond its natural supporters. She is no Robert Halfon-style, blue-collar Conservative, but nor is she a “posh boy” – perhaps the perfect positioning for a future leader.

Thatcher prided herself on being an ‘honorary man’ – no feminist solidarity for her. However, May is much more comfortable supporting other women – she is an advocate of the Tory party’s efforts to find more women candidates. As party leader, she might well find ways to appeal to the older women who tend to vote, but have not always been attracted by the “calm down, dear” machismo of the current  Tory leadership.

A winning party leader will have to command the political centre-ground. May is no rightwing ideologue. She shows little passion for eye-catching policy announcements and has rarely, in recent years ventured beyond her Home Office brief to express strong views or a sense of the direction she would like to take the country in. The British public may not be attracted by demagoguery, but they will need a clear idea of what a May leadership would believe in and do. This could be an even greater barrier to actually getting elected within the Conservative party to begin with. For example, May has largely avoided the issue of Europe. She did make a speech last year criticising the stifling effect of European Union regulation, but the context was interesting. Some saw this as an attempt to broaden her appeal within the party, but it was also made at the time when she was attempting to win support to opt back in to a range of EU justice and home affairs measures including the European arrest warrant, which the government had opted out of in a grandstanding gesture. She may have to make ideological gestures to win  Tory support, but is fundamentally pragmatic.

However, that is not to say that she is not willing to be brave in taking on those who she feels need challenge. Her “nasty party” speech was one such example, but more recently she was willing to offer some home truths to the Police Federation at its conference. This was certainly at a time when the Fed was already weakened by internal divisions and the police was dogged by scandal. But, as any Home Secretary knows, the conference can be an unpleasant and surly event and it shows mettle to take them on in this arena.

Her time as one of the longest serving home secretaries is a double-edged sword for an aspiring Conservative leader. Being Home Secretary is a serious and difficult job – holding onto it for as long as she has means that nobody could doubt her credentials to take one more step up the ladder. Dealing with the security, cross-government issues and “events” which are the bread and butter of Home Secretaries is possibly a better qualification to be Prime  Minister than the more controlled environment of the Treasury. However, the all-encompassing seriousness of the role also makes it more difficult to win support as a future leader or prime minister. Being Home Secretary with the current policy portfolio is essentially about stopping bad things from happening. It does not leave a lot of time to make the wider political arguments or to engage in the “hopey, changey’” thing which many would look for in a future leader.

She has made mistakes – alienating the civil service in a particularly cavalier shifting of the blame onto senior Border Force official Brodie Clark for supposed weaknesses in border security when the fault was in her policy decisions. She has shown bad judgement and a lack of imagination in sticking with a crude immigration cap which achieves the double whammy of being impossible to deliver and perverse in the impact of trying to.

There is no doubt that May is not a clubbable or particularly warm person so has not built up a cadre of enthusiastic supporters. She has lost some good ministers from the Home Office, like Nick Herbert and Pauline Neville-Jones, suggesting that she may not excel at building the sort of team spirit needed to win a leadership bid and maintain the ‘machine’ necessary to be a successful leader.

However, she has built her career so far on not being a “natural” for each of the political jobs she has held. She has outperformed expectations and has some of the ingredients necessary to move the Tory party on from the dilettante gentleman, amateur approach of David Cameron. It is a record and an approach which just might attract both the party and those voters who Labour so desperately needs to win back. Don’t write her off yet.

This essay is from Face-Off, a series of linked articles on the next Conservative leader.