The frequent fliers who flew too much
latimes.com
latimes.com
In almost every case that I can recall it's been a result of a company having cash flow problems, often preceding bankruptcy. The article mentions that interest rates were high in the early 80s and it allowed AA to expand. They've done well to get away with it for now. Or maybe that's just a function of the cost being significantly high such that the market is small.
In the 80s in Australia there was a chain of health clubs that offered a life membership... shortly before going bankrupt.
This scheme has a number of problems:
1. Why offer frequent flyer miles at all? Those are to incent you to fly more but you can fly all you want anyway. I guess there's the option of giving them away but really you shouldn't get any;
2. Booking flights you never intend to take is obviously a problem. AA staff were complicit in that however;
3. An alternative would be to turn any ticket you buy into a first-class ticket. Free anything creates market distortions. It's nearly always better to have someone chip in something to incent the right behaviour; and
4. Life memberships are silly. If they want to attract the business flyers they were talking about it should be an annual charge.
AA are potentially looking at these people costing them money in the wrong way too. These people are essentially AA ambassadors who have paid for the privilege. How much does AA spend on marketing? How does it compare to the cost of these AAirpass holders? I bet these people otherwise sing AA's praises.
Also, what is the fill rate on first class seats on flights? I think part of the point of first class seats is they don't fill up giving premier passengers the ability to buy tickets on short notice. If so, it's incorrect to view each seat taken by an AAirpass holder as a seat not hold (in much the same way as the RIAA/MPAA view every song/movie downloaded as a one not sold).
Never offer something for a lifetime
Even if the cost of supporting it "forever" is minimal (that is, the complete opposite of what AA has done)
Things like GMail, for example. You may be tempted to do it. Don't
Always put in your terms of use a provision of termination. Of course, be reasonable, for example, allow the user to backup the data given a reasonable timeframe (e.g. Google Health)
I wonder would they do it again with the benefit of hindsight, or did it serve their purpose?
Joyent's CEO was on HN a while back and mentioned that if users on the old FreeBSD boxes want to run on the new illumos boxes, they should send an email to support.
If you'd said "Never offer something for free", which seems to be what people are responding to, I'd have a whole other set of arguments...
Unless cost decrease exponentially over time, like with gmail, in witch storage cost falls down like a stone.
An example of a lifetime-for-fixed-cost product that works is the annuity. Even British consols, perpetuities which pay out forever, are seen as a smart financing method (zero roll-over risk) because they were sensibly priced.
Edit: This also explains why these tickets didn't sell recently at $3 million a piece -- for that money, again assuming a 40 year annuity but a 3% interest rate, you can buy a $1200 ticket twice a week.
I fly once or twice a month and don't buy first class tickets very often; it wouldn't take too much for me to cross $15k (and as a 21-year old my threshold would be $13 061 assuming constant life expectancy). Remember, the marginal cost to you of these flights is more or less zero.
AA saw this as a source of financing so one should really see what rate they seem to have financed themselves at. Let's assume we're slicing above travellers who fly 100 000 miles (between Delta's Platinum and Diamond [3]; I wasn't able to find what the average of the top two tiers in 1981 would have been). Airline price per mile for domestic coach ranges from $0.06 to $1.22 [4]. Let's use $0.58/mile as our conservative guess for the cost of a first class flight. Thus we have an airline financing $350 000 for 39 years at $58 000/year at an internal rate of return of about...16.5%.
If American Airlines really believed in a 16.5% floor on US interest rates they should have started by dropping the first part of their name.
Note that we've ignored that $350 000 buys both you and your cuddly friend a ticket.
[1] http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&#...
[2] http://www.usinflationcalculator.com/inflation/consumer-pric...
[3] http://www.delta.com/skymiles/about_skymiles/benefits_at_gla...
[4] http://online.wsj.com/article/SB1000142405274870454090457545...
I am sure the then CEO and his fleet of execs even got a good deal of rewards for rolling out this scheme.
If companies really want to make up on profits in such a low margin industry the way really is to make travel cheaper and easier. Not offering unlimited plans and then expecting customers to not treat them as such.
I'm not sure an annual charge would necessarily fix the situation for heavy users. It's very similar to the situation of cable and phone companies losing money on heavy users of their service.
The problem cable and phone companies have is that lots of people sign up for unlimited plans when available because of the mental transaction costs of doing anything else. That makes adjusting terms to manage heavy users harder because those adjustments also affect a large slice of customers where the unlimited deal is working as designed.
Just hop on the next train: BahnCard 100 offers 12 months travel on all DB services. It only costs 3,990 EUR for standard class and 6,690 EUR for 1st class.
They also have 25% and 50% discount cards available. The 50% is quite a good deal, as I think I paid mine back within the first week of getting it.
http://www.bahn.com/i/view/DEU/en/prices/germany/bahncard.sh...
Airlines used to think this way - the marginal fuel cost for a seat was something like $10 (essentially it only costs you at takeoff). But then airport improvement fees, security fees, faa upgrade fees meant that they were paying out $100s for passengers who were travelling for free.
"unlimited for life with a fixed initial cost" products
Rothstein, Vroom and other AAirpass holders had long been
treated like royalty. Now they were targets of an
investigation.
http://en.wikipedia.org/wiki/Stark_Law
http://en.wikipedia.org/wiki/Medicare_fraud
Some of the asserted frauds are actually crimes. Some of them are in a gray area and arguably abusive, like Rothstein. Some are really just attempts at innovative business models. Whatever the reason, though, if you are costing the government a lot of money, you are going to get hit with a Medicare fraud investigation. It doesn't matter if it's because your product is amazing and the cost is due to organic growth. All that matters is how much money it's costing the government.
Somewhat similarly, welfare was aimed at a tiny fraction of "the deserving poor" but was poorly worded/thought out and thus inadvertently changed the social contract and thereby actively grew the number of poor moms. At the time it was created, having a kid out of wedlock was strongly taboo. Poor single moms were thus mostly widows. The authors apparently could not imagine it becoming more socially acceptable to have children out of wedlock.
I worked at bigco for five years. Similarly shortsighted wording for contracts and the like is pretty rampant from what I have seen.
This is true, but the real problems with Social Security began when Lyndon Johnson combined the Social Security fund, then entirely separate, with the rest of the federal budget. Instead of maintaining a very close eye on how much money was coming in and going out for Social Security, there was no longer any urgency to keep that money around. In other words, money taken out of paychecks for Social Security was spent on everything else, and Federal income taxes were paid out as Social Security.
But thanks for contributing.
You are thinking of life expectancy at birth, which averages in childhood death.
SS only pays people who worked for at least a few years, so life expectancy for people who reach age ~20 is much higher.
Even now, the system faces not a crisis, but a need for adjustments. In the 2030s, incoming taxes are expected to be at approximately 75% of payouts. If no changes are made, once the trust fund is exhausted, people will continue receiving at least 75% of their entitlement indefinitely.
On the other hand, the government is not quite a 'corporation,' and isn't entirely subject to those kinds of notions, is it?
Didn't say it wasn't. Try not randomly reshuffling the words. You'll get a much clearer picture of what I actually said.
disclosure: non-American with no knowledge of your welfare scheme
On the other hand, that strategy is working fine for Twitter...
> disclosure: non-American
Which may explain why you're not familiar with the particulars of the meme I refer to, but does not excuse randomly shuffling my words.
> with no knowledge of your welfare scheme
Social Security is not a "welfare scheme", it is a government-administered pension program. Everyone who has paid into the system, from the very poor to Bill Gates and Warren Buffet, is entitled to benefits at retirement in proportion to their contributions.
I have no opinion regarding the solvency of social security.
This is getting way off topic, but the lower and middle class portions of the Bush tax cuts, for example, contribute way more to the deficit than those for the upper class. And your claim doesn't really square with the trend of more % of all income taxes being paid by the top percentiles over time.
The wage base will need to be adjusted to reflect these changes. The last time it was changed was 20 years ago under Reagan.
30 years ago, to the nearest decade. That was the change in Social Security policies that raised my retirement age and the tax rate that I pay into the system. My standard retirement age is just after Medicare "exhausts," that is runs out of accumulated funds to pay full benefits to people who have been paying into the system for their entire working lives.
The original New Deal guys had mechanisms in place to deal with those sorts of things. But in order to keep funding in place for the Vietnam War and other things, the Congress accelerated cost of living adjustments in the 60s and 70s -- basically using Social Security as a political tool.
Since adjustments were made long ago, many other tweaks have affected Social Security. Welfare reform pushed folks who were chronic public assistance recipients onto the SSDI rolls. The ceiling for payroll tax adjustments hasn't kept up with inflation. And of course, the Obama administration decided to cut the payroll tax in the short term to stimulate the economy.
Most people my age (35 and younger) believe that they can't rely on social security for their retirement. It takes some meta thinking to go a step above and realize that this line of reasoning is leading to a self-fulfilling prophecy, meaning we are unlikely to fight for a system we think is doomed.
All hogwash of course. Productivity is at least an order of magnitude or two higher today than it was in the depths of the Great Depression. Most staples like food, clothing, transportation and even shelter are cheaper now than they were 75 years ago, adjusted for inflation. We have no way to predict how high productivity will be in 2030, when social security will supposedly encounter "problems".
This all dwarfs any increase in lifespan, desired affluence, or cost of medical care we are likely to encounter (once real progress and cures begin happening, instead of the phantom progress we are experiencing in tech bubbles).
People complain more about the self-funding social security payroll tax of 6% than they do about the 3% rents charged by credit card companies. Heck some people spend more on their smartphone, cable and internet plans than they do on social security.
I really worry for the future of our society, when we freely give up all of the gains made in the 20th century like 40 hour work weeks, rights to privacy, shared public land and other resources like the airwaves, immigration for the huddled masses, and most importantly shared sacrifice and that our society is only as strong as the weakest among us, all the things that Americans used to believe in. We think we are somehow better or wiser than the people some respectfully call the Greatest Generation, who survived the depression, then fought in WWII and died for the standard of living we enjoy today.
We're better than this, especially here in such a mecca of ideas and enlightenment.
"Someone just told me that living outside the US for 5 years could disqualify me for Social Security benefits - I told them that I never expected to get them anyway.
It's been said upthread, but this pervasive attitude shows that the rich and their propagandamiesters are winning.
Straight talk on Social Security[2]:
'Here’s what Social Security is not:
- going broke;
- a Ponzi scheme;
- expected to stop paying out benefits in your lifetime;
- bankrupting our nation or future generations.'"
[1] http://www.metafilter.com/115423/My-FaithBased-Retirement#43...
[2] http://www.rollingstone.com/politics/blogs/national-affairs/...
Right now a social security payments surplus is subsidizing many other government programs, when that subsidy ends within the next decade it will cause hardship.
More so, social security is on a glide slope to begin running an absolute deficit in about 25 years. At that point the trust fund will be emptied and there won't be as much money coming in as going out. That's a pretty serious problem.
Medicare is even worse off, by a huge margin.
Yes, we can change medicare and social security and perhaps fix these things, but right now the train is on a set of tracks which are aimed directly at the edge of a cliff. We can also potentially balance the whole budget and pay down our debt as well, but that isn't happening either. Look at the EU and their budgetary crises right now. The public doesn't want to pay down their debts, they don't want "austerity measures", they don't want to pay their bills, they want benefits to remain forever high regardless of whether that's financially feasible. And they are willing to vote and riot to have their way.
Social Security and Medicare are not sustainable in their current forms. Period. They need fixing. Period. Fixing them will be really motherfucking hard (politically and financially) for our country. Period.
For many people (the subset of the working poor who end up living a long time) this is absolutely the case. For many other people (those with a below average lifespan or substantially above average career earnings) Social Security is a terrible deal and has no chance under the current formula of paying them back what they put in. Even if you don't count what their employers had to contribute, which might otherwise have been spent on higher wages.
It seems inevitable that the SS payroll tax cap will be lifted without substantial changes to the benefit formula, which will make it an even worse deal for, say, the median earner with a post-graduate degree.
That doesn't demonstrate that it's a bad program, just that's it's redistributive and we should be honest about that fact. A smart, productive 35-year old should absolutely not rely on Social Security for her retirement, assuming she doesn't want her lifestyle to drop off a cliff at age 68 or whatever the retirement age is by then.
The flaw that exists in the current discourse regarding Social Security is that the program is framed as a retirement program. It is not. It is "end of life insurance". In fact, one correct term to use in describing programs such as Social Security is "Social Insurance":
That's not how social security works. The benefit curve drops off dramatically in relation to the "pay-in" curve:
http://www.ssa.gov/oact/COLA/piaformula.html
And again, things will get worse when, seemingly inevitably, the payroll tax cap is lifted without substantially modifying the "bend points". A dollar you contribute to SS on your earnings over $56,000 is worth half the benefits of a dollar contributed under that amount.
People complain more about the self-funding social
security payroll tax of 6% than they do about the 3% rents
charged by credit card companies. Heck some people spend
more on their smartphone, cable and internet plans than
they do on social security.
We have to be clear on whether it's supposed to be a great deal for everyone, or whether it's meant to be a redistributive program.
If it's supposed to be a great deal for everyone, ok, well, I have a different opinion. Let me opt out. You can continue to use it.
Alternatively, if it's supposed to be a redistributive program, well, then you might see why people complain about it. If it's redistributive, by definition some will pay in more than they get out, and others will pay in less than they get out.
All that the rational critics of Social Security, Medicare, and Medicaid want is the ability to opt out, in the same way we can switch from AT&T to Verizon. Right now you can only opt out via the very high friction process of moving and giving up citizenship.
"For life" is a particularly egregious example, but these sort of conflicting incentives are everywhere. It's one reason I've been so happy with the popularity of pay-as-you-go models in, e.g., AWS.
I've always been leery of "unlimited" hosting for a monthly fee because your incentives aren't exactly aligned with the host. NearlyFreeSpeech.net, for example, highlights that fact in their marketing materials that since it's pay-per-use, the more successful your site is, the more money they make, so it's win-win.
Netflix and home broadband also suffer from these problems.
So when AA argues they 'lose millions' they are really saying that if they could sell this persons First Class seat to someone else on short notice they would make more money. But that assumption glosses over the fact that folks fly First with mileage upgrades, or get 'bumped' from coach on an over sale situation, or book way in advance and pay less. Since there isn't any discussion about what the average seat price is for First Class on the same flight when no AirPass member is flying, it didn't feel like they were being particularly objective with regard to price.
The fact that they could not sell AirPass + Companion for $3M (which according to them would have the owner 'ruining' AA in year 2 at this rate) seems to me to validate my feeling that they are over pricing their 'loss' here.
The monetary damages for AA if at all (if any of their claims are actually true) is minimal (maybe $10-$20M over 30 years) - the damages to the brand, corporate recognition and being seen as a company that does not value their contracts as soon as it benefits their customers, might be of a magnitude bigger. And even a multiple of that in financial terms and years to repair the damage being seen as a dishonest organisation.
Faced with such a situation, with "bean counters" telling stories about something like that being very unprofitable or less profitable than expected in the first place, one has to use a strategic approach or even common sense. Particularly in such a situation - we are talking about people who have shown customer loyalty to AA for more than 30 years - 40M miles - what stories could they tell and what great advertisement for my airline this would be.
What AA has done here is only to demonstrate that those in charge of such activities have not the slightest idea of what they are doing and should immediately be removed from their positions and potentially sued for damages to the organisation (and this then might be billions).
If AA is clever they re-issue / value all these special air passes and make a big event out of that.
If you want to see when free air mileage is causing real financial stir-ups look to Lufthansa (about the same size as AA) - they are currently in a law suit in Germany being accused of serious fraud in 21M cases (and LH has already lost this case in the court of first instance) for taking away frequent flyer miles particularly from their best customers (those with more than 500K+ well LH is not known for being too generous with the mileage they provide on FF programs).
One outcome of this court case was that LH told the public that in the moment they have created accruals of about $4 Billion for not yet used mileage on their FF program - now that is what I would call some money at stake and not a few guys inviting people at airports on a free seat / upgrade - a seat that most likely otherwise would have been empty anyway.
What I read is that you shouldn't enter into bad contracts. Somebody at AA screwed up and signed something "for life" without too many provisions put in for fraud and termination. The damage was done then. Those people should be found and punished.
> the damages to the brand, corporate recognition and being seen as a company that does not value their contracts as soon as it benefits their customers
But don't you think these customers went above and out of their way to abuse this. Yeah it wasn't in the contract, but selling the empty seat and making a living out of it. Or booking it under false names. That is fraud for most common sense definitions of it. In court it might not hold. But I think in the PR domain AA can redeem itself by just taking the responsibility and admitting they screwed up setting this up but also exposing what these passengers are doing and how they are exploiting the company. They can pit every other customer against them. "You know that time you were gonna fly to Europe with your wife but there was only one seat available, well it was so and so booking under a false, name he took your wife's seat!".
Spending such amounts in the first place demonstrated very strong confidence and trust into AA and was a very sweet deal for AA as well (I'm sure it still is even though they are now wanting to get rid off the benefit of their counter-party / don't want to pay their part of the deal).
Keep in mind that none of those were in their teens when they put out such amounts so they are now merely coming to the end of their traveling spree. After all, this is only a life-time deal for those passengers if AA survives that long (and that wasn't so sure at that point as well).
For that amount - $500k in the 1980s - you could buy a pretty large house that even after the housing crisis will today still be worth a large multiple of that. Another example - even with all its ups-and-downs a better indication of the change in real value of the 500k till today might be e.g. the stock market with the Dow being below 1k then and now about 13k (this goes both ways and might also provide an indication for AA's financing cost since then).
But AA seemingly prefers to charge their normal U.S. customer even for luggage checked in, give vast discounts to their largest corporate customers (TMK the biggest in the industry - up to 70%), hike up their advertising spending and cut down in services.
The last figure I've seen is that they increased their spending for online display ads by 600% to about $27M - I guess a few 100K soft cost (the planes also fly without those few airpass holders and almost never fly at 100% capacity) for letting them carry on flying for a few more years and use this as a demonstration of their great customer service would have been better spent and provided a better story any online ad could ever tell. In other words - priceless!
The initial target segment of VIP's, companies purchasing as packages and business segment of people looks naive and too much of an wrong assumption to me. You really have to understand the mind of a common man here. How would your life be if you are told, you can travel infinitely for free your whole life? Is it worth investing a little extra money for such infinitely free vacations? I bet it is!
More than the money, I think the company is just irritated that the scheme was badly gamed and the customers have had the better of them.
Most people have some sense of fairness and would probably agree that selling the empty seat or say booking it under a made up name just doesn't seem right. So AA could successfully turn this around make quite a few people sympathize with it.
Companies use this as a bait to catch fish, assuming unlimited plans won't be treated as such and that will translate to some profit. Isn't this fraudulent assumption to begin with at the first place.
Let me tell you most people will side with what you describe as 'opportunists' and 'abusers'. Because unlimited plans of all types - Phone calls, internet data plans, unlimited buffets, gambling, lottery all work on assumption of making up on volume assuming decline in consumption on an average.
If the company can't handle the unpredictable aspect of such a business they shouldn't offer such plans at the first place.
www.businessinsider.com/most-hated-companies-america-2011-6#8-american-airlines-12
Remember at 80s interest rates when AA made this deal those passengers were taking a real gamble compared to putting that $500K in the market and just paying list for the tickets - compared to making AA an interest-free loan.
No,
There is a reason why those are called free unlimited lifetime services. There is a price you pay for it. And there is deal you sign on. Now within the framework of all this anything you do is legal and fine. If at any time later the company felt this was wrong, then sorry this was a case of somebody goofing up on the contract.
At most this is stupidity on the part of the company, not a case of fraud on the customer.
But, at the same time, AA was operating under some assumptions, and that was that there won't be abuses like these going on. Now even though the contract says this and that, wouldn't your agree that selling the extra seat or booking it under a false name, in mind of most people is equivalent to abuse? I am using a common sense definition that appeal to some sense of "fairness" in everyone. Not the legal definition of it.
So to recap, AA was stupid for not fixing up the contract correctly, BUT these passengers, if this goes to the media or jury can be made to look like opportunists who are ruining and destroying a company. At least there is a PR opportunity there for AA that is contrary to what the grand-parent posted, that this is a 100% PR loss for AA and the PR loss is actually worth the $10mil/year or so loss from these customers.
Please, I mean I agree with you about the abuse to an extent. But I can't imagine for a moment, how some one can go about things like this which involve tens of millions of dollars without proper paper work.
This sort of a scheme shouldn't ideally get out without reviews with the legal department. I mean any thing like this should really have some clauses for handling traditional definitions of fraud.
This looks plainly stupid on behalf of the company. I still don't see customers responsible for the abuse. Its like a lottery, If I win a lottery then the lottery company must not complain I am taking home millions after investing merely some $10. If that is what should worry them, then they shouldn't offer the lottery at the first place.
Never offer "unlimited". Because if you promise "unlimited" people will treat it as "unlimited".
The results usually aren't pretty.
EDIT: As the post below points out, telecoms are a prime example of companies getting burned on this.
My other go-to example would be all you can eat buffets. I know I've read about at least one lawsuit over people being kicked for eating too much at a buffet. (Or in the case of the only result I can get search engines to give me, too little.)
Of course, in the case of the buffet they're relying on the hope that people eat less than what they pay to get in on average. And since this sort of restaurant seems to stay in business that bet must be in the owners favor.
I hypothesize that business owners use this logic and offer unlimited only to watch it crash and burn all over their profit margins. From what I can tell, buffets appear to be the exception; not the rule.
The catch in such businesses is they serve repeated food, often spicy and oily. Which makes them unhealthy. By that, they effectively manage to make their customers eat less and increase their profits.
Except that to keep customers in the game, at times they do serve good food at some period.
For instance, when iTunes first launched, Pepsi had a promo that involved codes on the underside of 20oz plastic bottle caps that could grant free songs. Someone figured out that if you turned the bottle upside-down and at a certain angle before opening it, you could see the code and enter it into iTunes to determine if you got a free song. If the code was a dud, you could return the drink or sell it to someone else. Someone ended up putting the diagram on the Web. The promo ended not long afterwards.
There are also folks who figure out extreme hacks that can result in truly oversized rewards. I call this the "crates of cheese" phenomenon, after an airline promotion I read about that awarded people x frequent flier miles for purchasing a package of cheese. The rate was way too generous, and the marketing people setting up the promotion never anticipated that people would literally go out to buy crates of cheese to get cut-rate flights.
EDIT:
Crates of cheese:
http://consumerist.com/2006/11/buy-cheese-fly-for-free.html
Pepsi/iTunes:
http://www.methodshop.com/gadgets/tutorials/hackpepsi/index....
5% is basically always either category-limited (Gas, sometimes restaurants) or limited to a trivial (<$5k/yr) spend.
I personally do the American Express Starwood card, since I value Starwood points (1 per $1 in general, and some other bonuses for hotels, gas, etc.) at about $0.025-$0.04. You can also convert SPG points into FF miles at a rate better than unity.
Back in the day, paying for space segment ($200k/mo) on a business credit card meant never having to pay for a hotel suite or airline ticket.
The Chase Amazon card is also 3% on Amazon purchases, which basically means 3% on every mailable product in the world. I think it also gets you 3% on Amazon Web Services purchases...I doubt Dropbox or Netflix pay their bills with that card, but it would be amazing :)
That "hack" has the nasty characteristic of probably making everybody lose, maybe more than the $200 the guy was getting.
I imagine shipping was not free for the government, which also probably paid the credit card operator a fee. The credit card operator is losing money by paying rewards on a bogus transaction.
Nobody loses, except people who object to the subtle inflation by seigniorage. The Federal Reserve can control that anyway.
Here's someone who bought $15,000 in coins: http://advancedriskology.com/the-day-i-bought-15000/
I remember going to the casino and taking out a $5000 cash advance and then paying it back the same night. For about $2 in interest you got 5000 aeroplan, or air miles. I did that each weekend for 20 weeks until I got enough miles for my trip to Australia.
http://www.cbc.ca/news/canada/british-columbia/story/2010/09...
http://www.reddit.com/r/funny/comments/t7ma1/so_my_roommate_...
This makes sense for exactly nobody. Large companies are never even going to notice the $2000 that the USB consortium charges for a VID, and of course, not even the most massive international conglomerates are ever going to ship 65,536 different models of USB peripherals.
Meanwhile, the guy in the garage with an idea and a shoestring budget only needs one PID. But he either can't afford the $2000 or has much more immediate uses for it.
So an enterprising company in Holland immediately bought a single VID and started reselling the PIDs for about US $20 each. The USB Implemeters' Forum hit the roof, revoked the VID, and threatened to sue, but because their agreement didn't explicitly disallow PID resale, there was nothing they could do. It wasn't as if they could ever reassign that VID to any paying customer.
So I guess it's a good thing for the rest of us that large organizational gatekeepers are so often run by morons.
Nice story, thanks.
"In 1996, I had a little record label, so I got a UPC barcode account, so I could put unique UPC barcodes on my CDs. I had to pay $750 to the Universal Code Council to get a company account, but that meant I was allowed to create 100,000 products under my account. Musician friends asked how, so I showed them how, but also said they could use one of my product IDs.
At first, I did this for free, as a favor, until friends started sending strangers my way. Because it took a little work to generate the number, create their EPS/TIFF graphic barcode, and keep track of their unique IDs forever, I charged $20.
Over the next 12 years, this made me almost $2 million."
Which company does this? I may end up getting some from them.
Edit: Yep, they did indeed change it. Relevant text from the VID acquisition form:
> The USB Implementers Forum is the authority which assigns and maintains all USB Vendor ID Numbers. Each Vendor ID Number is assigned to one company for its sole and exclusive use, along with associated Product ID Numbers. They may not be sold, transferred, or used by others, directly or indirectly, except in special circumstances and then only upon prior written approval by USB-IF. Unauthorized use of assigned or unassigned USB Vendor ID Numbers and associated Product ID Numbers are strictly prohibited.
Link in Finnish, but scroll down for pictures: http://www.pulu.org/pro/1-1500-litraa-pepsia-ja-sony-vaio-s5
Then they decided to get 'creative'. They offered people flights that involved multiple inconvenient changes, or gave passengers in the south of England flights that left from the North of Scotland and v.v. They set up fake call centers who would ring customers up and tell them that the flight had been changed and send them to the wrong airport, they would send others long complex legal forms to sign which in the small print actually waived the prize.
The result after paying out a few million quid in tickets, several 100,000 in fines and a lot of annoyed customers - is that 20years later the company that was the generic term for vacuum cleaner in the UK is now known mostly for the con.
Six months later, the unlimited-travel flight passes were introduced as a permanent addition to Air Canada's travel options, with one slight tweak: You now get a fixed number of frequent flyer points per month, independent of how many flights you take.
So Monday morning I'd fly to Toronto for the market open and Friday after the close I'd fly back.
I even made a few trips home midweek for 12-24 hours of visiting time for appointments.
I other news Air canada have announced the development of a new left-hand right-hand communications system will will hopefully allow the transmission of ideas from one side of the CEO's brain to the other.
Did they realize that if these guys are taking up what would have otherwise been an empty first class seat that it really costs the airline almost nothing (just the increase in jet fuel costs due to their weight and anything they might eat)? It's not like there were special flights just for these guys, they are scheduled flights.
I know folks that work as baggage handlers for just a few hours a week so they can buy $5 unsold tickets anywhere they want. This program is not that different from what they offer their employees, except for the first class designation.
On flights no one was taking, this wouldn't have been much of an issue. But on flights that are regularly full, this could have easily prevented normal paying customers from purchasing the seats.
Airlines prefer not to overbook first and business class - because these are the sort of customers you don't want to piss off - which is why there are normally upgrades available.
With 3hour checkin requirements it's got a lot easier for the airlines to manage who is missing up front and pick the tactically best customer in cattle class to upgrade - or just to sell the upgrades, sometimes they even sell them after you get onboard.
I was not aware this was a thing.
I knew Martha Sanchez a bit (she's not the person in the picture) because her husband had a reptile store called Ross's Reptiles that was situated under our apartment a block away. My kids used to go down there to play with the bearded dragons. Needless to say to anyone who knows the neighborhood, it was not the greatest location for a reptile store. It's a beauty salon now.
http://en.wikipedia.org/wiki/Rocket_from_the_Crypt#Formation
During my college days here in Bangalore, we would get a bus pass. My college was a little far away from my home, there was a college bus. But I preferred taking the public transport, you know why? Because for a paltry sum of 500 rupees I could travel unlimited any time during the day, any day during the year with unlimited supply of buses. On the other hand the college bus used to cost 10,000 rupees and you could take the bus on college working days, morning pick up and drop. Needless to say the clever students figured out within an year that the public transport pass was a lot better. These days I hear many companies are offering bus passes to employee instead of the company transport. Because of the kind of advantage they offer.
I see the same mistake being made by most clubs by offering lifetime membership on as meagerly sums as 50,000(Country club). This is a potential for disaster, Weekends are boring and other wise costly in Bangalore. Entertainment in multiplexes is pure rip off, eating out isn't cheap either. With all this, I would say most people would squeeze such schemes as much as they can for their benefit. And if they do, you should be too surprised.
If I ever got this free pass, I would get visas to the better part of the world. And this pass will now be my gateway to unlimited vacations, attending developer conferences around the world, traveling endlessly to see new places, meeting friends and relatives settled abroad. And why shouldn't I? Air tickets in my country are really expensive(for foreign travel), and I have never been outside India, not even once. I would like to travel around the world and any such scheme would make my job a lot easier.
People aren't doing anything illegal, and in fact doing just what you offered them. This isn't fraud.
Which is(was) the beauty and spirit of the offer.
If I had an unlimited pass I'd probably average 2-4 flights per week, many international. It's even more practical when you have unlimited access to their lounge. Take a red eye and shower at the lounge and you just saved a day of hotel expenses.
But see the cautions at http://en.wikipedia.org/wiki/InterRail#Decreasing_attractivi... . Going from London to Paris by train requires a 75€ supplement on ~50€/day pass. The one-way price is 123€. While there is some savings because you can go on additional trains afterwards, France also charges a supplement for InterCity trains and has a seat quota.
What agents? Detained under whose jurisdiction?
And kudos to Murkharji for resisting AA's attempt to press a confession out of him to use against Vroom.
It was later revealed that Vroom was in fact violating the rules, but the ends don't justify the means. Sam Mulroy and Auyon Mukharji didn't do anything illegal that I'm aware of, so why were they being detained?
The cost all depends on whether or not they would have two spare first class seats to throw away on someone (and his bag) that they are never going to get a dime from again. Even then they could use those seats to offer upgrades to loyal business/coach customers.
$37,000 per year doesn't go very far when divided by the price of two first-class tickets.
I think this is a classic case of short-term vs long-term thinking.
I tried asking wolfram alpha but it keeps trying to calculate a mortgage.
This is much closer to what the ticket buyers actually did.
Presumably AA made some good money at that modern equivalent $900k rate on those that didn't optimise their usage.
We're not seeing the full story financially here.
Take the unlimited buffets for example. How it generally works is if you are offered unlimited buffets at $x a month. Then the restaurant can repeatedly serve you repeated food, oily, spicy and unhealthy. Of course in while to keep you in the game they can serve you good food. But by this they can make you eat less and increase their profits compared to a per meal deal. Every once in a while this doesn't workout and people eat like pigs, and you lose out.
Same with telecom companies, the assumption they make is not everyone has the time for unlimited calls. Now there are people sitting next to me who talk to their girlfriends/boyfriends for hours everyday. There are also guys whom I know who download stuff from torrents 24x7 365 days an year.
Same with health clubs. Entertainment of weekends is expensive. So unlimited plans don't do well.
In this case it was a classic goof up. Free travel opens a flood gate to unlimited vacations.
Let's say that for 5 years, AA was able to return 50% on its capital (massive growth in the sector), after that it is the rate of inflation.
In that case the benefit for the passes to AA in todays dollars's (assuming 3.25% inflation): (350000 x 1.5^5) x 1.0325^25 = $5912563.906.
We use the rate of company's return on capital rather than inflation. Here's why:
Imagine you own a stock trading company that can double the money risk-free in its bank account every 12 months. Wouldn't it make sense to borrow money as long as the interest rate was < 100%, because the benefit of those funds would be 100% - the rate of return on capital of your company?
They offered this product for decades without ever measuring how much it cost? Did everybody skip that day in business school?
What's the actual cost in terms of fuel, service, and occupied seating?
The only way using the retail price makes sense is for fully booked flights, and since first class is rarely full, AA's numbers look extremely inflated.
I have some familiarity with airline pricing... and the answer is... very close to the retail price of said flight. Seriously, there's a good reason why airlines are always teetering near bankruptcy. Their margins are lower than even cut-rate retail.
Slightly OT, but it's also the reason why Hipmunk doesn't stand a chance in the long run unless they branch out into selling, well, things that aren't flights. The margins for resellers is practically non-existent.
> "and since first class is rarely full"
Ah, but first class is almost always full. Few people who fly in first actually pay for first-class fare. First class, in its modern incarnation, is more of a loyalty tool than an actual product. How many business travelers do you see in First nowadays? And how many work for companies that would actually pay for a First-class fare? Not too many. Airlines use first class seats to curry loyalty from frequent flyers, along with alliance benefits for frequent international travelers.
They later introduced 3-month unlimited flying passes from Long Beach, CA (to select destinations; $1299) and from Boston (passes available for both limited and all destinations; $1499/$1999).
Imagine everyone having unlimited internet data plans running torrent downloads 24x7 365 days a year.
I've heard of people refer to it as the "Penis Problem", referring to Chatroullette's inability to stop perverts from exposing themselves on their service: lesson is that whatever service you provide you need to think about that 1% of the population will abuse it, and possibly ruin it for everyone else.
And this is just plain stupid for not having any opt-out clauses, or ability to revoke a pass, or setting any cancellation ground rules. Seems like they could have done a lot to stop this from getting out of hand, but were too incompetent to do so.
Interesting scenario: A millionaire blows all his assets in a bad investment. Now he's homeless, but he still lives in luxury thanks to his AA unlimited membership. He always schedules his flights so that he can enjoy a good night's sleep in the comfy, fully reclining first class seat.
(And then Leo DiCaprio plugs him into the Inception machine, and now Leo has 7.6 x 20 x 20 x 20 = 60K years to play with!)
Looks like they just handed over investment options(More like lotteries, in which you are guaranteed to win) with guaranteed returns along with luxury in nearly everything.
What really was going in the minds of the people who drafted this scheme?
They looked for special offers and booked months in advance and stayed at 1 of two local motels for 15+ years. On average it cost them about 10,000GBP/year (say $16K) with all their heating, laundry, etc paid for. They worked out it would have cost 10x that much to be in a nursing home.
Touchingly the local staff had become friends with the couple and did their personal laundry, kept 'their' room reserved with their own personal touches etc.
Even more sensibly when management found out about this 'abuse' - they spun it into a big 'just like home' and 'the motel your grandma would be happy stay in' story and got a big boost.
We were building a site in Chile and had service techs flying from the UK several times a month - who ended up with free business upgrades for life!
This is an AIRLINE we are talking about!
Anything with the term 'unlimited' looks dangerous to me.
1. When paying full-fare, flights are fully refundable. Not sure when you are flying home? Just book a bunch of flights. Even with the restricted fares, you get 100% back in SWA credit which can be used for the same person for one year. I'm surprised they don't have a 24 hour cancellation policy as I'm sure they lose money when flight sell-out and last-minute, full fare passengers book on other airlines. Even a $20 fee would provide incentive to cancel redundant flights.
2. Frequent flier points can be used to book restricted fares as effectively fully refundable -- if you cancel, you get the points back. So, just book-up a bunch of segments before prices go up in case you need them. There might be a $2.50 (yes, under three dollars) fee associated, but it's immaterial.
3. If you "miss" your flight and get to the airport within two hours of its scheduled departure, you can fly standby on the next one. There's an incentive to book a mid-afternoon flight (usually less expensive than, say, a 6:00 PM one), "miss" that flight, and standby on the more expensive one.
All-in-all, I don't abuse the rules much. Mostly, the lack of any fees for missing my Monday morning flights makes me less interested in showing up at the airport too early. I'm simply surprised that SWA doesn't provide me with small incentives to change my behaviors in ways which would help them immensely. Conversely, their website seems to have a bunch of O(N) or worse algorithms w.r.t. number of trips taken -- a huge annoyance to their most valuable customers.
The recent comment I saw about linking to one-page URL's was a great suggestion, but this is more egregious. Perhaps source quotations with submissions ala read later, etc. This would also provide a significant advantage for searching and reading HN archives.
You offer a $1M (at today's RoC adjusted rate) ticket for fat cats to fly whenever they want - as a way of covering next months payroll.
You figure that these people will get bored after a couple of flights/year. But you don't know that airport and security charges are going to start costing you $100/seat and you forget that these people will retire and decide that flying first class around the world is more fun than golf.
Until I read this I was cursing AA. Now it seems like they are trying to cost AA even more money, on purpose. It may be legal but definitely not cool
Meanwhile my neighbours and I have to catch a bus that is always late, often doesn't arrive and leaks when it rains.
The only difference between you and said wealthy individuals is that they are richer than 99% of everyone who has ever walked the earth, while you are only richer than about 95%. I'm sure that after a few moments' contemplation of this fact, you will conclude that corporate ethics and business integrity are important values to uphold, even when dealing with "rich" customers.
An ordinary person would consider himself lucky to end up having $1 million at the end of his life. Let alone investing something like $1 million just on air travel.