4 ms·

For the curious, the estimated $350,000 each paid for their pass + companion pass roughly works out to $913,500 in 2012 dollars, if they purchased in 1981. Most

by mef 14y ago

For the curious, the estimated $350,000 each paid for their pass + companion pass roughly works out to $913,500 in 2012 dollars, if they purchased in 1981. Most of the travelers mentioned probably purchased theirs later in the 80s, but before the price increase in the early 90s.

pbhjpbhj 14y ago
The article didn't mention people that bought the lifetime pass and then died the next day/month/year of a heart attack or what-have-you. 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.
- kamaal 14y ago
  The logic for these schemes is always that a vast majority of people enrolling won't really use all that it has to offer. 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.
Danieru 14y ago
Does that factor in compounded interest? I tried asking wolfram alpha but it keeps trying to calculate a mortgage.
- omonra 14y ago
  It uses official rate of inflation to calculate: http://www.wolframalpha.com/input/?i=350000+usd+in+1981+worth+today http://www.wolframalpha.com/input/?i=350000+usd+in+1981+wort...
  - Danieru 14y ago
    But it does not include any compounded interest. If you invested 350K in corporate bonds what would that be worth today? This is much closer to what the ticket buyers actually did.
meric 14y ago
Rather than using the rate of inflation to calculate I suggest using the rate of return on capital. 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?
- mef 14y ago
  Probably makes more sense to use inflation instead of ROC for purposes of putting the cost of the tickets into the perspective of 2012.

by mef 14y ago

pbhjpbhj 14y ago

The article didn't mention people that bought the lifetime pass and then died the next day/month/year of a heart attack or what-have-you. 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.

kamaal 14y ago
The logic for these schemes is always that a vast majority of people enrolling won't really use all that it has to offer. 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.

Danieru 14y ago

Does that factor in compounded interest? I tried asking wolfram alpha but it keeps trying to calculate a mortgage.

omonra 14y ago
It uses official rate of inflation to calculate: http://www.wolframalpha.com/input/?i=350000+usd+in+1981+worth+today http://www.wolframalpha.com/input/?i=350000+usd+in+1981+wort...
- Danieru 14y ago
  But it does not include any compounded interest. If you invested 350K in corporate bonds what would that be worth today? This is much closer to what the ticket buyers actually did.

meric 14y ago

Rather than using the rate of inflation to calculate I suggest using the rate of return on capital. 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?

mef 14y ago
Probably makes more sense to use inflation instead of ROC for purposes of putting the cost of the tickets into the perspective of 2012.