Sunday, May 6, 2012

An Economics Lesson For American Airlines

LA Times:
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.

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.

"We thought originally it would be something that firms would buy for top employees," said Bob Crandall, American's chairman and chief executive from 1985 to 1998. "It soon became apparent that the public was smarter than we were."

The unlimited passes were bought mostly by wealthy individuals, including baseball Hall-of-Famer Willie Mays, America's Cup skipper Dennis Conner and computer magnate Michael Dell.

Mike Joyce of Chicago bought his in 1994 after winning a $4.25-million settlement after a car accident.

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.
If you are going to drop $250,000, you are damn sure going to try to get your money's worth.  Much like what people say about health care, that if people don't have to pay for it, they'll use much more than they need.  However, for me, flying is like health care in the opposite way, I'm not going to do it unless I have to. 

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