Member-only story
American Airlines’ $40 Million Mistake Which Still Haunts Them Today
The airline nearly put itself out of business and is still suffering the consequences.
In 1981, the American airline industry was going through some drastic changes. After the introduction of the Airline Deregulation Act 1978, American Airlines reported a loss of $76 million.
They needed to gather some capital for expansion but interest rates were at an all-time high so instead, the company’s directors decided to use their customers to raise the funds.
Someone in the marketing department had a great idea: they would issue a lifetime free first-class pass to their wealthiest customers. It was to be completely limitless, with no terms and conditions attached. The person holding the pass could fly at any time, to any place, as many times as they wanted after paying a one-time fee. Initially, the fee was set at $250,000 (or around $700,000 in today’s money).
Now, this may seem expensive, but for a wealthy individual who travels a lot, it was a really good investment. Plus, for an extra $150,000, holders were able to add a companion pass allowing someone else to travel with them on all their trips.
