Too-frequent fliers find themselves targets of American Airlines

LOS ANGELES — There are frequent fliers, and then there are people like Steven Rothstein and Jacques Vroom.

Both men bought tickets that gave them unlimited first-class travel for life on American Airlines. It was almost like owning a fleet of private jets.

Passes in hand, Rothstein and Vroom flew for business. They flew for pleasure. They flew just because they liked being on planes. They bypassed long lines, booked backup itineraries in case the weather turned, and never worried about cancellation fees. Flight crews memorized their names and favorite meals.

Each had paid American more than $350,000 for an unlimited AAirpass and a companion ticket that allowed them to take someone along on their adventures. Both agree it was the best purchase they ever made, one that completely redefined their lives.

In the 2009 film Up in the Air, the loyal American business traveler played by George Clooney was showered with attention after attaining 10 million frequent flier miles.

Rothstein and Vroom were not impressed.

"I can't even remember when I cracked 10 million," said Vroom, 67, a big, amiable Texan, who at last count had logged nearly four times as many. Rothstein, 61, has notched more than 30 million miles.

But all the miles they and 64 other unlimited AAirpass holders racked up went far beyond what American had expected. As its finances began deteriorating a few years ago, the carrier took a hard look at the AAirpass program.

Heavy users, including Vroom and Rothstein, were costing it millions of dollars in revenue, the airline concluded.

The AAirpass system had rules. A special "revenue integrity unit" was assigned to find out whether any of these rules had been broken, and whether the passes that were now such a drag on profits could be revoked.

Rothstein, Vroom and other AAirpass holders had long been treated like royalty. Now they were targets of an investigation.

When American introduced the AAirpass in 1981, it saw a chance to raise millions of dollars for expansion at a time of record-high interest rates.

It was, and still is, offered in a variety of formats, including prepaid blocks of miles. But the marquee item was the lifetime unlimited AAirpass, which started at $250,000. Pass holders earned frequent flier miles on every trip and got lifetime memberships to the Admirals Club, American's VIP lounges. For an extra $150,000, they could buy a companion pass. Older fliers got discounts based on their age.

"We thought originally it would be something that firms would buy for top employees," said Bob Crandall, American's chairman and chief executive from 1985 to 1998. "It soon became apparent that the public was smarter than we were."

The unlimited passes were bought mostly by wealthy individuals, including baseball Hall of Famer Willie Mays, America's Cup skipper Dennis Conner and computer magnate Michael Dell.

Mike Joyce of Chicago bought his in 1994 after winning a $4.25 million settlement after a car accident.

In one 25-day span this year, Joyce flew round-trip to London 16 times, flights that would retail for more than $125,000. He didn't pay a dime.

"I love Rome, I love Sydney, I love Athens," Joyce said by phone from the Admirals Club at John F. Kennedy International Airport in New York. "I love Vegas and Frisco."

Rothstein had loved flying since his years at Brown University in Rhode Island, where he would buy a $99 weekend pass on Mohawk Air and fly to Buffalo, N.Y., just for a sandwich.

He bought his AAirpass in 1987 for his work in investment banking. After he added a companion pass two years later, it "kind of took hold of me," said Rothstein, a heavyset man with a kind smile.

He was airborne almost every other day. If a friend mentioned a new exhibit at the Louvre, Rothstein thought nothing of jetting from his Chicago home to San Francisco to pick her up and then fly to Paris together.

In July 2004, for example, Rothstein flew 18 times, visiting Nova Scotia, New York, Miami, London, Los Angeles, Maine, Denver and Fort Lauderdale, some of them several times over. The complexity of such itineraries would stump most travelers; happily for AAirpass holders, American provided elite agents able to solve the toughest booking puzzles.

In 1990, the airline raised the price of an unlimited AAirpass with companion to $600,000. In 1993, it was bumped to $1.01 million. In 1994, American stopped selling unlimited passes altogether. In 2004, American offered the unlimited AAirpass one last time, in the Neiman Marcus Christmas catalog. At $3 million, plus a companion pass for $2 million more, none sold.

Raised just miles from American's Fort Worth, Texas, headquarters, Bridget Cade started in its reservations department in 1990. In 2007, she was promoted to the elite revenue integrity team, charged with rooting out passengers, travel agents and others suspected of cheating the airline.

Her first big job was to investigate AAirpass users.

In September 2007, a pricing analyst reviewing international routes focused the airline's attention on how much the AAirpass program was costing, company emails show.

"We pay the taxes," a revenue management executive wrote in a subsequent email. "We award AAdvantage miles, and we lose the seat every time they fly."

Cade was assigned to find out whether any AAirpass holders were violating the rules, starting with those who flew the most.

She pulled years of flight records for Rothstein and Vroom and calculated that each was costing American more than $1 million a year.

Rothstein, she found, would sometimes pick out strangers at the airport and give them surprise first-class upgrades with his companion pass. Once he flew a woman he'd just met in New Delhi to Chicago, a lift American later valued at nearly $7,500.

There was nothing in the AAirpass terms prohibiting that. But Cade considered the habit striking in light of something else she found. Rothstein made 3,009 reservations in less than four years, almost always booking two seats, but canceled 2,523 of them.

To Cade, this was evidence that Rothstein reserved flights he never intended to take. It also allowed him to hold seats until the last minute and offer them to strangers, she said later in court depositions, preventing American from selling them. Cade decided it was fraud and grounds for revocation.

On Dec. 13, 2008, Rothstein and a companion checked in at Chicago O'Hare International Airport for a transatlantic flight. An American employee handed him a letter, which said his AAirpass had been terminated for "fraudulent behavior."

He apologized to his friend and filed suit in Illinois the following March.

Vroom's travel history told a different story, Cade found. Time and again, he booked trips with people he'd never flown with before, traveling round-trip to Japan or Europe without even staying overnight.

"We suspect he is selling his AAirpass companion tickets," Cade wrote in a February 2008 email. That, she later said, was against the rules.

She decided to try to catch him in the act.

In one instance, an American security agent called Sam Mulroy, a Dallas personal trainer who had been set to fly with Vroom to Europe, and told him his trip had been canceled. The agent promised a first-class ticket if he admitted to paying Vroom, according to company emails and correspondence.

When Mulroy refused, American froze his frequent flier account, offering to release it in exchange for details of payments, the documents show. Mulroy complained to American and the Transportation Department that he was being "extorted (in) an effort to punish another customer." He did not respond to requests for comment.

Weeks later, American sued Vroom in Texas state court. Vroom countersued.

In discovery, company lawyers tracked down a Dallas woman who had cut Vroom a $2,800 check to fly her son to London. An elderly couple gave him $6,000 for a trip to Paris. And bank records showed more than $100,000 in checks to Vroom written by owners of a local jewelry store who frequently flew with Vroom.

Vroom admits to getting money from some flying companions, but says it was usually for his business advice and not payments for flights. Other times people insisted on paying him, he said.

These days, Vroom busies himself substitute teaching and hosting lectures in a custom-made home in a hip Dallas neighborhood.

His lawyers say the seat-selling accusation is moot because Vroom's contract didn't prohibit it; American didn't ban the practice until three years after Vroom bought his pass.

Rothstein also denies committing fraud, saying his contract did not ban making multiple reservations. "It sure seems like the airline was looking for an excuse to be rid of my client," said Gary Soter, Rothstein's attorney.

Too-frequent fliers find themselves targets of American Airlines 05/12/12 [Last modified: Saturday, May 12, 2012 4:31am]

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