Pricing F*ckups: How American Airlines’s unlimited ticket offer lost them millions ????

Every business gets it wrong sometimes. It comes with the territory of pricing experimentation. But how do you recover? I wanted to dig into some infamous pricing mistakes and uncover what lessons we can learn from their mistakes.

First up: American Airlines

What they did ??Launched Unlimited AAirpass, a $250k lifetime first-class ticket for any trip any time.

During a tough period, AA needed cash but interest rates were at record highs. So, they decided to raise cash by selling their wealthiest customers an unlimited ticket.

28 people managed to snag an AAirpass, including none other than Mark Cuban, who said it was “one of the best purchases [he’s] ever made.”

Another AAirpasser, Steve Rothstein, bought his pass in 1987.?

Over 25 years, he took 10,000+ flights, including:

?? 1,000 flights to New York City

?? 500 flights to Los Angeles

?? 500 flights to San Francisco

?? 500 flights to London

?? 120 flights to Tokyo

?? 80 flights to Sydney

?? 80 flights to Paris

?? 50 flights to Hong Kong

How AA f*cked up ??The deal was too expensive for the mass market, but too good for certain segments who would comfortably use it enough. It ended up costing AA millions of dollars per year per customer.

In 2007, the company was again in financial hot water. Their “revenue integrity team” found that AAirpass was costing the company a lot of money.

Two users in particular – Rothstein and Jacques Vroom, a direct marketing catalog consultant in Texas who (among other things) would fly transatlantic to pick items up instead of incurring shipping costs –?were each costing AA $1 million annually (taxes, fees, lost ticket sales).

The company went after them for “fraudulent activity” and stripped their passes and rights to fly on AA. In 2011, they filed for Chapter 11 bankruptcy, sending the fight into legal limbo.

What they should have done differently (and lessons learned) ??

? Avoid fully ‘unlimited’ on such a high cost / low margin product.

Factor in high and/or fair use limits that still ensure a valuable deal but avoid incentivizing bad practices like flying just because they can.

? Avoid a one-time lifetime deal.

If it was charged as an annual subscription, AA would have the ability to adapt prices and terms to take account of price inflation and cost changes, while also reserving the right to end it without facing legal hurdles. It’s likely there are AA customers who are paying more than $250,000 per year today on flights.

? Factor in margins and usage profiles.

You need to factor these into your pricing to ensure no customer could cost more than revenue – which is exactly what Rothstein and Vroom were doing.

Meanwhile, in 2024… Wizz Air, a Hungarian budget airline, started an “All You Can Fly” program.

?? Annual pass costs €599?

?? Book unlimited flights for €9.99 per flight

BUT…

?? Members can only book last-minute flights (72 hours or less)

?? Availability of discounted seats depends on how full the flight is

?? Not all routes will have seats eligible for the special rate

?? Extras like baggage not included

While the AAirpass was a big ticket item for wealthy customers, All You Can Fly seems like a budget version that might make it too tricky to get your money’s worth.?

Is it a true f*ckup like the AAirpass? Only time will tell.