5 ms·

A great write-up and a typical example of what you should never do as a service company. The monetary damages for AA if at all (if any of their claims are actu

by fpp 14y ago

A great write-up and a typical example of what you should never do as a service company. 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.

rdtsc 14y ago
> A great write-up and a typical example of what you should never do as a service company. 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!".
- fpp 14y ago
  When was the last time that you shelled out $10k, $100k or like those $500k (in 1980s terms) for a single person's air travel expenses? With today's real inflation + financing cost certainly far beyond $2M. 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!
  - kamaal 14y ago
    What most companies don't realize is how differently these schemes are perceived among the masses. 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.

by fpp 14y ago

rdtsc 14y ago

> A great write-up and a typical example of what you should never do as a service company. 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!".

fpp 14y ago
When was the last time that you shelled out $10k, $100k or like those $500k (in 1980s terms) for a single person's air travel expenses? With today's real inflation + financing cost certainly far beyond $2M. 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!
- kamaal 14y ago
  What most companies don't realize is how differently these schemes are perceived among the masses. 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.