Air Canada dumps Aeroplan (or, the perils of selling off your loyalty programme)

You will often see articles about how some airlines have a loyalty programme which is worth more than the airline itself. 

Avios Group is not in the same zone, but it is still a chunky company worth around £2bn based on recent earnings.  IAG as a whole has a market cap of around £12bn, and once you add in the net debt and the pension deficit the enterprise value is substantially higher.

For airlines with a poorer operating performance, however, the maths looks very different.  When Etihad invested in airberlin, one way it did so was to acquire Topbonus, the airberlin frequent flyer programme.  Etihad paid €185m for Topbonus which was MORE than the value of airberlin at the time (€177m market cap, plus a huge amount of debt of course).

(Gavin Halliday, the ex-CEO of Avios Group, will be overseeing Topbonus, Etihad Guest and all of the other Etihad Airline Partners loyalty programmes in his new role at Etihad, starting in September.)

The pioneer of selling off your airline loyalty scheme was Air Canada.  It span off its Aeroplan loyalty scheme back in 2002 and slowly divested its shares.  By 2008 the programme was totally independent.

Aimia, as the company became known, expanded into running other loyalty schemes alongside Air Canada.  It owns Nectar in the UK, which itself is at real risk of implosion if Sainsbury walks away.

Yesterday, Air Canada announced that it is dumping Aeroplan.  It wants to regain control of its loyalty programme.  And this, in itself, explains why loyalty programmes are not really worth more than the airline that is their major customer.

Air Canada

The details are still sketchy although this press release tries to explain it.

Until June 2020, Aeroplan continues as it does today

From June 2020, Air Canada will have a new loyalty programme.  You will have to credit your Air Canada and other Star Alliance flights to the new scheme – Aeroplan will no longer be an option.

You will NOT be able to transfer your miles from Aeroplan into the new Air Canada scheme.  They will be orphaned in Aeroplan.  

However, Air Canada will continue to allow Aeroplan to access (some? all?) of Air Canada’s redemption availability to allow members to run down their balances.  It isn’t clear if this will include allowing redemptions on other Star Alliance partners.

This looks like a major mess, on the face of it, which will cause three years of upheaval for Air Canada frequent flyers.  It is also a mess for Air Canada, because they apparently do not have access to the 5 million-strong Aeroplan membership list.   If you have an Aeroplan account, you may want to consider emptying it now and crediting your future Star Alliance travel to a different programme.

Air Canada has learnt that, if you give up control over a key part of your business, you begin to lose your edge.   Benjamin Smith, President – Passenger Airlines at Air Canada wins the ‘statement of the obvious’ award for this week when he says:

“by managing our own loyalty program, we will be able to take better care of our customers by making decisions in real time that address specific needs”

There is also money involved, of course:

“Air Canada expects the net present value of the program repatriation over a 15-year period to exceed C$2 billion.”

The good news is that this may stop the flow of investment bankers knocking on the door of British Airways trying to persuade them to sell Avios Group.

(Want to earn more Avios?  Click here to visit our home page for the latest articles on earning and spending your Avios points and click here to see how to earn more Avios from current offers and promotions.)

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Comments

  1. Georges Pharand says:

    I wouldn’t feel too sorry for Air Canada. They sold Aeroplan for something between CAD $1B and $2B, the exact figure escapes me at the moment. But that’s a hell of a lot of money for a 12 year deal. They’re fleecing Aimia and putting a gun to their head. They’ll either go through with it (and pull the trigger) or bluffing in order to buy it back for nothing since effectively, from June 2020, it will be worth nothing. AC will not have trouble getting Aeroplan members to flock over to them, after all, that’s what these people are looking for, an airline loyalty program. They will not be interested in 2 Aeroplan miles for filling up with petrol. Air Miles already dominates the shopping loyalty market and they will be hard to unseat from that position. Perhaps the investors who jumped into Aeroplan have only themselves to blame for what was essentially just a 12 year agreement (2008 – 2020), for $1.5B, they should have asked for 25 years at least. So I think AC will have done well out of this. The investors and shareholders in Aimia are the victims.

  2. O/T but didn’t want to post in the other thread as I didn’t want to enter the competition, I bought some points for club carlson with the 75% bonus as I wanted a redemption this summer and worked out better using points but I just got an email saying the purchase was cancelled with no justification. Any idea why?

    • Very weird, not heard this before. Credit card issue?

      • Amex said no attempt had been made, I’ll reorder and hopefully it will go through. Hoping to book the new Park plaza at waterloo, looks very nice and 20000 less than county hall.

  3. OT- IHG Spire Elite

    I will likely gain IHG Spire Elite in 3Q or latest by very early 4Q this calendar year.
    Would I retain spire status only until December 2018?

  4. Is Sainsbury’s considering parting waves with Nectar?

    • the real harry1 says:

      Rumours to that effect are out there, with Sainsbury seen bringing its loyalty scheme in house in 2018.

      • Will probably be similar to what happens here. Sainsburys quits Nectar, Nectar becomes worthless, Sainsburys buys it off Aimia for peanuts.

        • Ah, probably a good idea not to hoard Nectar points then! Especially since Expedia have their own scheme now.

          • Any idea of best ways to liquidate Nectar points, have nearly £500 worth

          • Look at Shopper Points, but best deal is to wait for an eBay double up promo and turn into eBay credit at 1p per point which can be spent on gift cards.

          • Buy a load of evian from sainsburys

            Ba dum…..

  5. Clearly,whoever bought Aeroplan was silly enough not to have protection/penalties in the contract against AC pulling out of Aeroplan and/or setting up their own loyalty program.

    • The split was a long time ago – 18 years by 2020. That would have seemed a long enough contract at the time.

      • Georges Pharand says:

        @Rob, they didn’t get 18 years. Although ACE Aviation Holdings, the then parent company of Air Canada, split off Aeroplan into a separate unit in 2002, they retained full ownership until they sold the first 12.5% in 2005/06. The final sell-off and the bulk of it did not come until 2008. For the amount of money involved, the investors at that point should have asked for at least 20-25 years. I wouldn’t put it past Air Canada to have engineered this from day one.

        • But ….. You have to assume the contract was in place in 2002 at the point of the separation even if AC was still the shareholder.

          There are genuine issues with Aeroplan and AC since customers assume they are one and the same whilst in reality neither can make the other party do something when problems arise.

          Just imagine if BA did not have access to the Avios membership base and didn’t know who the members were.

          In Canada, Air Canada doesn’t even have a credit card – Aeroplan has the cards, so AC doesn’t make a penny.

  6. Sanjay says:

    Did anyone see the impact this had on Amia? Stock crashed by 63% on the news that Air Canada will be severing the relationship.

    This is already the first nail in the coffin for Aimia. Sainsbury will now probably also cancel its agreement which will make Aimia worth even less…which means AC or Sainsbury will buy the company for nothing. Aimia owns the customer database (not AC or Sainsbury).

    Aimia employees must be feeling very concerned….their company is no longer going to exist.

    And in Canada, Air Miles is rubbish. Canadian loyalty needs a major wake-up with value for consumers including the horrid credit cards that provide pathetic value. The US with their credit card offers is fantastic.

  7. WilliamPH says:

    Aimia’s stock price on the Toronto exchange fell off a cliff at the news.- was trading around $9, fell to $3.33. If they lose Nectar as well they will be virtually worthless. I was on an Air Canada domestic flight last night from YYC, and the chatter was that Star Alliance redemptions will not be possible from Aeroplan, and that Air Canada availability will become harder to find, and may be more expensive.

  8. Tony Burns says:

    I thought I read recently Supermarkets no longer feel loyalty cards are worth it with the resources better put into lower prices in the store to combat the so called discounters?
    I believe Tesco have been trying to sell the Company they set up to run Clubcard since they consider it a non core business

    • True, but the company has a lot of outside interests now and is genuinely non core. And Tesco could sell the back end whilst keeping control of the customer list.