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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Lord Sainsbury pulls funding from Progress and other political causes

The longstanding Labour donor will no longer fund party political causes. 

Centrist Labour MPs face a funding gap for their ideas after the longstanding Labour donor Lord Sainsbury announced he will stop financing party political causes.

Sainsbury, who served as a New Labour minister and also donated to the Liberal Democrats, is instead concentrating on charitable causes. 

Lord Sainsbury funded the centrist organisation Progress, dubbed the “original Blairite pressure group”, which was founded in mid Nineties and provided the intellectual underpinnings of New Labour.

The former supermarket boss is understood to still fund Policy Network, an international thinktank headed by New Labour veteran Peter Mandelson.

He has also funded the Remain campaign group Britain Stronger in Europe. The latter reinvented itself as Open Britain after the Leave vote, and has campaigned for a softer Brexit. Its supporters include former Lib Dem leader Nick Clegg and Labour's Chuka Umunna, and it now relies on grassroots funding.

Sainsbury said he wished to “hand the baton on to a new generation of donors” who supported progressive politics. 

Progress director Richard Angell said: “Progress is extremely grateful to Lord Sainsbury for the funding he has provided for over two decades. We always knew it would not last forever.”

The organisation has raised a third of its funding target from other donors, but is now appealing for financial support from Labour supporters. Its aims include “stopping a hard-left take over” of the Labour party and “renewing the ideas of the centre-left”. 

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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