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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Theresa May’s Brexit speech is Angela Merkel’s victory – here’s why

The Germans coined the word “merkeln to describe their Chancellor’s approach to negotiations. 

It is a measure of Britain’s weak position that Theresa May accepts Angela Merkel’s ultimatum even before the Brexit negotiations have formally started

The British Prime Minister blinked first when she presented her plan for Brexit Tuesday morning. After months of repeating the tautological mantra that “Brexit means Brexit”, she finally specified her position when she essentially proposed that Britain should leave the internal market for goods, services and people, which had been so championed by Margaret Thatcher in the 1980s. 

By accepting that the “UK will be outside” and that there can be “no half-way house”, Theresa May has essentially caved in before the negotiations have begun.

At her meeting with May in July last year, the German Chancellor stated her ultimatum that there could be no “Rosinenpickerei” – the German equivalent of cherry picking. Merkel stated that Britain was not free to choose. That is still her position.

Back then, May was still battling for access to the internal market. It is a measure of how much her position has weakened that the Prime Minister has been forced to accept that Britain will have to leave the single market.

For those who have followed Merkel in her eleven years as German Kanzlerin there is sense of déjà vu about all this.  In negotiations over the Greek debt in 2011 and in 2015, as well as in her negotiations with German banks, in the wake of the global clash in 2008, Merkel played a waiting game; she let others reveal their hands first. The Germans even coined the word "merkeln", to describe the Chancellor’s favoured approach to negotiations.

Unlike other politicians, Frau Merkel is known for her careful analysis, behind-the-scene diplomacy and her determination to pursue German interests. All these are evident in the Brexit negotiations even before they have started.

Much has been made of US President-Elect Donald Trump’s offer to do a trade deal with Britain “very quickly” (as well as bad-mouthing Merkel). In the greater scheme of things, such a deal – should it come – will amount to very little. The UK’s exports to the EU were valued at £223.3bn in 2015 – roughly five times as much as our exports to the United States. 

But more importantly, Britain’s main export is services. It constitutes 79 per cent of the economy, according to the Office of National Statistics. Without access to the single market for services, and without free movement of skilled workers, the financial sector will have a strong incentive to move to the European mainland.

This is Germany’s gain. There is a general consensus that many banks are ready to move if Britain quits the single market, and Frankfurt is an obvious destination.

In an election year, this is welcome news for Merkel. That the British Prime Minister voluntarily gives up the access to the internal market is a boon for the German Chancellor and solves several of her problems. 

May’s acceptance that Britain will not be in the single market shows that no country is able to secure a better deal outside the EU. This will deter other countries from following the UK’s example. 

Moreover, securing a deal that will make Frankfurt the financial centre in Europe will give Merkel a political boost, and will take focus away from other issues such as immigration.

Despite the rise of the far-right Alternative für Deutschland party, the largely proportional electoral system in Germany will all but guarantee that the current coalition government continues after the elections to the Bundestag in September.

Before the referendum in June last year, Brexiteers published a poster with the mildly xenophobic message "Halt ze German advance". By essentially caving in to Merkel’s demands before these have been expressly stated, Mrs May will strengthen Germany at Britain’s expense. 

Perhaps, the German word schadenfreude comes to mind?

Matthew Qvortrup is author of the book Angela Merkel: Europe’s Most Influential Leader published by Duckworth, and professor of applied political science at Coventry University.