1) This is a tragically short-sighted way to look at the cost of these tickets. You cannot look at the retail price of the service; you must look at its actual cost.
2) What is a better compensation for a one-million-dollar investor to whom you don't wish to give a share of the company?
In the end even AA came to the conclusion that these tickets were sold far too cheap.
As I have posted already I don't cut AA much slack because of what they did to me, but the essence of stupidity is selling something far below its true value because you did not consider how others might use it.
AA put me on the SSSS list. I am not on this list with any other airline so I blame them. Maybe they were following some sort of stupid rule imposed by someone else, but if so why only AA.
More complicated because of the way first class travel works. Somewhere between* 10% and 50% of (domestic) first class seats are filled by paying passengers. So the other 90% - 50% are either empty, or filled with elite flyers who paid for an economy ticket and got upgraded.
So in almost every flight, the real cost to AA is the cost of having a golden ticket passenger filling a 1st class seat, vs. having either an empty seat or elite upgrade passenger filling that seat.
In either case, the actual cost to the airline is far far less than the actual cost of a 1st class ticket.
No, but the tickets were worth far more than what AA sold them for. The best guess of what they were really worth is their last attempt to sell them when nobody was willing to pay the price.
> No, but the tickets were worth far more than what AA sold them for.
This is short-sighted.
There's opportunity cost to be considered. AAL needed money at the time they were granting the tickets to investors. The way to figure out the total benefit of the tickets to AAL is to consider what would have happened if AAL had not used the tickets as investor compensation and had instead:
1) gotten the same amount of money from regular banks
2) entirely gone without the money
This is neither an easy analysis nor a straightforward one.
I would also expect the penny-pinchers of a in-danger-of-failing company to forgo such an analysis, and instead play the "These lifetime tickets granted as investor compensation are costing us too much! We have no choice but to renege!" card.
Bearing in mind that the tickets were sold on an ad hoc basis over the course of more than a decade, and each individual pass sale represented a negligible sum compared with American's running costs, I suspect (2) was a surprisingly attractive option. When airlines actually need to raise funds, they borrow big, and have plenty of high value assets to secure lending against, and plenty of scope to refinance when interest rates come down.
It's pretty difficult to view this as a smart fundraising strategy as opposed to a questionable promotion with ridiculously loose terms.
But ultimately neither the odd $xxx,xxx in revenue from a frequent flier nor the implied $xxx,xxx per annum foregone from the promotion's biggest abusers are likely to have made a great deal of difference to AAL.
The logic in your comment seems sound. However -according to the article in the OP- when this program was first created bank loans had very high interest rates. I can't verify the truth of this statement, so I have to take it on face value.
Also, don't forget that the low end of the lifetime unlimited flights program cost between $600k and $700k, and the high end (flights for two) cost a little more than one million USD in inflation-adjusted dollars.
To speak to your first two paragraphs:
It could be argued that AA could have discontinued the program in the 1990's or so... maybe they should have, I have no idea. But that would not have freed them from their existing obligations.
To speak to your third paragraph:
AA is being rather dishonest when they use the retail price of services to demonstrate the impact of this program. They really have to quote the actual cost, which -I'm sure- can be difficult to determine.
If one is attempting to stir up sentiment for one's decision to renege on a lifetime contract, I suspect that one would want to do as little honest analysis as possible. :P
