Frequent fliers who flew too much (2012)
articles.latimes.com
articles.latimes.com
Time passes and company finds out the deal wasn't so good anymore (or never was in the first place). So they decide to go after those costumers who are using the tickets in unexpected ways, but that weren't forbidden.
When the company has an extra profit for your last-minute ticket, or your cancellation (even when very ahead of time, so that they don't loose some revenue), it's just business, for-profit, hallelujah. When company does something that isn't profitable, they try to stretch rules' limits, the costumer misbehaved, costumers aren't allowed to gain from the company just because the company miscalculated something.
Yes, it's good to be a company this way.
Perhaps it's naïveté on my part, expecting a business to have some care for its reputation as well as its bottom line, but as far as I'm concerned, if you're going to promise an elephant, you'd better at least have a pachyderm on backorder and not try to wriggle out of it the moment it inconveniences you, because that just makes you look callous.
More broadly, though, the issue of selective enforcement is a thorny one. If you write a contract sufficiently byzantine and ambiguous, any legitimate use will rub up against the edge of some prohibited behavior. At that point you have a totally broken agreement - you preserve it for anyone whose behavior you like, and revoke it for anyone who crosses you.
It's like the issue of selective policing. We live in a world where "don't commit any rules" isn't a viable answer, because there are endless lists of ambiguously defined rules on everyday tasks like accessing a computer. So if someone decides they truly want to pursue you, they can dig up a website where you mis-entered your birthday, declare it fraudulent misrepresentation, and try to put you in prison.
If everyone is guilty, the only question is how you decide what to pursue. And in this case, it's painfully clear that American didn't pursue egregious violations or frequent offenders, they went after anyone who had taken advantage of a product they regretted selling.
That sounds like a totally fantastic agreement, at least from the issuer's point of view and ignoring potential PR problems.
It's hideous, and as someone else pointed out illegal if you can make the claim stick (ambiguity is meant to favor whoever didn't write the contract), but still a great business move.
contra proferentem applies in common law, ambiguity benefits the party that did not write the contract
otherwise there's no reason to ever write a clear contract
Your average EULA is impossible to follow or even understand because the company has so much more recourse to the law than the customer - as we see here, with American violating its own contracts and trusting their legal weight to make good. The law very sensibly attempts to punish willful lack of clarity, but (as with patent trolling, and asset forfeiture) it only holds when everyone can fight a legal case.
A company-company contract is actually a much simpler, self-defined, and symmetric relationship. Whereas an employer-employee contract must take into account the huge lump of complexity that is employment law. The company doesn't really like employment law, so they make every attempt to nullify it, paralleling its complexity.
EULA drafters are similarly trying to create a whole new body of law, bootstrapping it using copyright while eroding any consumer rights granted by copyright. Companies would prefer a much simpler EULA that said "we can revoke your license at any time for no reason, with no refund". But such a thing would be rejected by courts. So they attempt to construct such a policy by following the contour of the law (ie what courts won't reject) as close as possible.
Regarding the original post, I think American was really just doing the standard corporate stonewalling (I'm not endorsing this as being morally right). It seems as if the pass holders would have eventually prevailed in court, but what actually settled the question was American's filing of bankruptcy - which made the whole thing moot.
I remember reading that this is huge part of how the Russian government does corruption. The rules to operate a business are very complicated and expensive to follow, but you can get unofficial permission to flout them.
More pragmatically, it's why I'm wary of purchasing any "unlimited" or other deal where a back-of-the-envelope estimate suggests the deal is so good the company is losing money on me. It may seem like a great deal for me, but I know that eventually the company may wake up and start looking for every possible excuse to kill the deal, cancel my account, get me in trouble to end the offer, etc, etc. Especially because even if they're in the wrong, it may not be worth it to hire a lawyer to prove it. In the worst case, I may never recoup my investment, in the best case, I may merely break even or make a small profit that doesn't really reflect the hassle and time I put into it.
Three random examples:
(1) I signed up for Santander's crazy extra20 deal where you get $20 a month for having a checking account. They lied to me (of course I asked this) and told me even if the promotion ended I'd be guaranteed to be grandfathered in forever as long as I kept the account open and met the conditions ($1500 direct deposit monthly and two bill pays per month). A year and a half later they announced they were closing all extra20 accounts and converting them to normal accounts. While I made a couple hundred bucks off it, taking all the time and hassle involved, I'd consider it just slightly better than a wash, which is much worse than the original offer. Not complaining or anything as I knew what I was getting into, just an example of this phenomenon.
A lot of incentive offers are kind of similar. Mad respect to those people with nerves of steel who make a living off of churning credit card offers.
(2) Rent controlled or stabilized apartments sound awesome but could be kind of scary. The more time passes, the better a deal it becomes for you.... and the more incentive the landlord has to try to stalk and harass you to find an excuse to evict you, and the more you may need to retain an attorney and deal with increasing hassles. Is it worth it? Maybe, maybe not. Rent can be very expensive, but so can legal costs. Do you want your home to be the center of anxiety in your life instead of your refuge from it?
(3) Any kind of unlimited storage or bandwidth. You have no idea what the secret magic number is where if you go past it, they'll start looking at you funny trying to find an excuse why you're technically violating the ToS, or degrade your service and find an excuse why it's OK that they degraded it, etc, etc
This is the kind of logic that always sound so wrong. He did pay, twice the amount, in 1994, which in 2012 is worth what, about twice again? So, in 2012 the company is repaying a $250k investment done in 1994.
If this person had spent $250k on air line shares, how much "free money" would he have been given by the stock market (stocks which is restricted and can't be completely sold)? Is it more, or is it less, than the marginal cost on all the travel that he made between 1994 to 2012? It would have made a very interesting article if it included that.
-- The $250K invested would throw off $20K or so (before taxes) each year on average without touching the principal.
-- If that amount had simply been invested in 1994 and allowed to compound, it would be worth about $1.5M today in today's dollars.
Tangentially, this is one of the reasons that reward miles/points are so hard to value. Your stay at that fancy resort would have cost $10K had you booked it on your own dime--but would you actually have done that on your own dime? Anecdotally, I find that I do get some incremental pleasure/benefit out of things that I use rewards to get but often not so much that I would have actually paid the cash value for them.
These fees unpredictably and radically increased over the time since the golden tickets were issued as well. There's more in the soup than just the marginal cost of the physical seat occupation.
The worst is when you use frequent-flier miles to book with them; you still have to pay the "fuel" surcharge, which guarantees they get an amount, in cash, equal to an economy-class fare even for your "free" ticket.
It would be more reasonable just to say that the opportunity cost of a free seat they gave away in the past is more than the airlines expected for various reasons (higher load factors, higher ticket prices).
http://gizmodo.com/how-an-engineer-earned-1-25-million-air-m...
Also my favorite gimmick of all time, another now-closed loophole, was someone who realized the US Mint will sell you dollar coins at face value, with free shipping for orders over a certain amount. So buy, say, $X worth of dollar coins for $X with free shipping, charge to your airline-affiliated credit card, go deposit them in your bank and immediately pay off the card. For the cost of the time you spent placing the order and going to the bank, you get X frequent-flier miles.
There may be examples but I'm not aware of airlines that give you status through credit card spending today. The one sorta exception I know of is that United does currently waive their qualifying dollar spend requirement for some status levels given sufficient spend on an affiliate card.
Before the American Airlines merger, you could get to low-level status on US Airways this way. Sign up for or renew a lounge membership, and you got 5,000 qualifying miles. Then hit both spend thresholds on the Barclays affiliated credit card, and 20,000 miles from that would convert to qualifying, putting you at 25k for the year, good for Silver Preferred.
I believe it's still possible on Delta to reach Silver Medallion status, in the first year you have their top-end Reserve Amex, by hitting bonuses and spend thresholds that award or convert to qualifying miles.
Strictly speaking, that's against the policy of most credit cards, which normally charge a premium for anything equivalent to a "cash advance", because of rewards among other reasons.
This is genius.
It also helps the economy. Banks hate putting small value cash into circulation - a $1 note for example 'costs' a bank the same amount to stock in a cashier desk as a $20 note in terms of space and time needed, leading to much complexity from central banks of how to get money into circulation. Coins have a pretty good amount of time in circulation, notes of low denominations don't, don't know about dollars (probably with a long tail as used as currency in many developing economies) but a £5 note has an average circulation lifetime of around 3 months before it is too crumpled, water stained, and plain worn out.
- Be careful about grabbing revenue today in exchange for incurring not well understood costs more or less indefinitely into the future.
- Characteristics like unlimited/completely free/etc. can lead to unexpected behaviors that are pretty far outside the norm.
Bobby Bonilla[1], middling former baseball player for the Mets, who cut a deal when being released by the Mets that they wouldn't have to pay him the balance of his contract now, but would have to pay 5X as much over 25 years, ten years hence. Thus a baseball player who hasn't taken the field in 15 years is making a cool $1.19 million.
In 1976, the ABA finally collapsed, and arranged a merger with the NBA[2]. There were six remaining ABA teams, but the NBA would only accept four. The Indiana Pacers, New York Nets, Denver Nuggets and San Antonio Spurs were chosen to join the NBA. The two remaining teams, the Spirits of St. Louis and the Kentucky Colonels, disbanded. The owner of the Colonels reached a buyout agreement with the other ABA owners for $3 million, plus another couple from selling off rights to his players. On the other hand, the Silna brothers, who owned the Spirits, cut a deal to fold their team in exchange for $2.2 million, plus a 1/7th share of the television revenue of the four remaining ABA teams, in perpetuity. This probably seemed like a bargain in the mid-70s, when NBA Finals games were being shown on tape-delay. However, as the league expanded in popularity, that TV money exploded, to the tune of tens of millions of dollars a year.
[1] https://en.wikipedia.org/wiki/Bobby_Bonilla
[2] https://en.wikipedia.org/wiki/American_Basketball_Associatio...
http://fivethirtyeight.com/features/bobby-bonilla-was-more-t...
They concluded that, by the time his contract is paid off, he'll have received total compensation in line with the market rate for a player of his caliber. The deferred payments also opened up payroll space immediately, allowing the Mets to make successful roster acquisitions.
[1]http://law.justia.com/cases/federal/district-courts/FSupp/17...
- The program starts in 1981.
- One of the executives that was there from 85-94 noted right away the customers were costing them money.
- They raised the cost in 1991
- They raised the cost again in 1994
- And finally terminated the program in 2004.
The company ran this for 20 years knowing full well since its inception that it was costing the company money and did nothing about it? I have absolutely ZERO remorse for what the customers got away with, none. The fact they had to play dirty pool to revoke them just shows how incompetent the executives were that were running the company.
It's staggering to think they let a handful of customers practically bleed the company dry, while continuing to sell these in a sad attempt to generate revenue for the company.
It reminds me of the guy who has a life insurance policy that allows him to invest the amount covered in stocks at prices 1 week in the past knowing what the future performance would've. The insurance company that purchased the one that issued that really wants to get out of it, but they have been unsuccessful. I recall that it is estimated that by the time he dies, his estate will be worth more than the insurance company due to that policy.
At least American Airlines can take consolation in the fact that the total losses from their mistake will be limited by the ticket holders eventually dying naturally. In that insurance company's situation, the policy holders dying will ruin them.
* http://news.bbc.co.uk/2/hi/business/3704669.stm
Worth reading if you have a minute and are not familiar with it. The story beggars belief.
https://hn.algolia.com/?query=Frequent%20fliers%20who%20flew...
Wow.