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Was there ever a change in the tax/fee structure between the 80s and 90s? Since AA was left with the bills for those I'm curious whether that was also a material change to the equation from AA's perspective.

johnru36

Interesting story on its own. Thanks for the link.

AA_EXP09

Also remember that there were no airline alliances so people weren't thinking about using the pass and redeeming on QF/CX/BA.
And VDB was much less common then as there weren't many carriers overselling.

elitetraveler

Were the passes ever valid on code-sharing flights? Me thinks not.

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I doubt it, but it's still a valid concern: if you have the capacity to earn virtually limitless miles (with nothing spent but your time after the initial purchase), and you choose to spend those miles on partner travel (F on BA/QF/CX/JL/Others), AA would still have to pay for the seat on that partner's flight.

West Coast Ace

I believe Mr. Vroom said he loved Sydney.

QF?

AA_EXP09

But if I had a pass, I would take AA to HND the long way rather than JL anyways.
And my main concern was the VDB.
It would be easy to get the partner to take the VDB and get miles or a voucher... Not that a pass holder would need it (:

dhuey

That's exactly the group I had in mind. I'm a sole practitioner lawyer who has filed Schedule C's since 1995. I've always done my own taxes, and what I've learned over the years is that when you own your trade/business, the rules are far from clear on all sorts of important tax issues for Schedule C filers. Tax issues for employees are vastly simpler.

I'm not sure how I would have gone about expensing this Pass had I purchased it at the time. Truth be told, I've never really been in a position to purchase something like this. My hopelessly geeky mileage/tax brain just can't help but think about it, though.

elitetraveler

I missed the point that they were able to redeem their miles on CX, QF and so forth.

Again, something AA knew about when they were forming these alliances and reciprocal agreements. They knew they had these products out there and the possibility miles would be redeemed on partners. Against the huge upside of having the alliances, the cost of the 'lifetimers' would have been a drop in the bucket.

At that point AA could have approached the 'lifetimers' as they did with Hindry and tried to cut a new deal.

It just strikes me that AA was happy selling these (even in 2004) until they weren't selling them and then started to think about how do we get out of them. Some people apparently broke the rules and their passes were terminated. I am assuming Hindry, Willie Mays and Michael Dell still have theirs intact and used them within the rules.

AA's investigative tactics seem pretty heavy handed considering they even said when they had notified one of the offenders about misuse it was remedied.

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There was a relatively brief period (in the 90s I believe) when AA operated flights to OZ. Otherwise, he'd have had to burn miles on QF. The fact that he could take any necessary positioning flight required probably made that easier, though.

Upgraded!

But that's an easy fix: simply notate that person's account to say that you should never select them for VDB and automatically shift them to the bottom of the queue. AFAIK there is no "right" to be at the top of the VDB list, even though elite status is part of the selection criteria and this wouldn't have been a violation of the contract in any way that I can tell.

Upgraded!

Even that seems questionable, given that these passes did not seemingly say that in the rules. Also, wasn't Mays the one who openly admitted to accepting compensation to pay his bills? Not sure what the rules on his pass said, but if they went after the others I would have figured they'd go after him too, but perhaps not (if he wasn't seen to be costing them as much money).

Upgraded!

I was thinking partly of professionals such as yourself but also examples where, say, there are six partners who own 100% of the equity of a financial services firm, and each buys one of these on the company dime (financially it's the same outcome as the solo practitioner buying one, but for tax purposes I'm much less certain). Not sure if it's more or less complex there.

As for amortization, I'd probably look at previous spend per year, then account for inflation to adjust ticket prices up each year and go from there. For example, when Rothstein bought this in the mid-80s let's say that r/t JFK-LAX in F cost $2k and this was his primary route, flown twice monthly. His annual spend on airfare would be about $50k, so if he paid $200k for the pass, he could amortize it over about four years. However, as we know, assets are often good for long after they've been depreciated/amortized down to zero, and since his personal travel wouldn't cost the company anything else I don't see there being a problem with doing it this way.

FullFare

As a professional from a different mode (trauma/cancer surgery) I approached it from another angle, on the advise of tax counsel. We never expensed the initial sum, but rather only expensed travel that was clearly related to business use as it occurred in real time. AAirpass quoted an equivalent value of 40 c/mile and that is what we have been using. Knowing the IRS as we have, my counsel sought advice on it from them, and that is what they decreed.

Turns out that most of my travel (2/3) is for personal/family reasons. Our group of 18 surgeons is the largest independent group in Northern California. We are all Stanford alumni and are heavily involved in national health reform, so I have found myself heading to IAD and seeing Obama's health reformers at least every 4 - 6 weeks. Not always uplifting. Don't usually use the AAirpass for that, since UA has 8 flights a day SFO-IAD. Frequently sit next to Senator Feinstein on the trips. Never Pelosi. (Not sure if she has the private Gulfstream still).

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So did they specifically say you should be using the AAirpass PPM, or could you use the going rate for the ticket? I ask this because it seems as though you could accelerate the payback by booking some of your work trips via JFK in F, but if AP charges only nominally more for that, then it wouldn't help you much. Regardless, I'd do what my tax atty told me on these types of things, especially if the advice came in consultation with the IRS.