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May 25, 2017

Aimia shrugs off 'overreaction' on future without Air Canada

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Aimia Inc., the loyalty-program operator whose value has plunged 76 per cent this month after a split from its most important partner, is confident it can survive without Air Canada.

"The market has overreacted," Chief Executive Officer David Johnston said in a phone interview on Wednesday, adding that Aimia’s 5 million members hold about 200 billion miles and the company’s buying $700-million worth of seats a year. "That’s a lot of purchasing power that’s going to be of great interest to other airlines and other partners. So put all that together, I’m very confident in the future of the Aeroplan business."

Air Canada said May 10 it will withdraw from Aimia’s (AIM.TO) Aeroplan program and start its own rewards plan in 2020. The key date for Aimia comes four years later -- 2024 -- when contracts with Toronto-Dominion Bank and Canadian Imperial Bank of Commerce are due to expire.

TD and CIBC offer Aeroplan-branded credit cards which channel about 10 per cent of Canadian credit-card purchase volume, according to Johnston. He’s "very confident" they’ll still be partners in 2024. TD said in a May 11 press release that there are no changes to its credit card program "at this time." CIBC said in an emailed reply Wednesday that it divested a large portion of its Aerogold portfolio in 2013 but for the remaining clients, "it’s currently business as usual."

"If I’m booking a family holiday, I care about where I’m going to go and who’s got the flight scheduled to get me there," said Johnston, who was named CEO on May 10 as Rupert Duchesne retired from the post. "I’m not as choosy about the airline."

Not everyone’s so confident.

"We expect Aimia to reposition Aeroplan as a third-party loyalty program in Canada," Industrial Alliance Securities analyst Neil Linsdell wrote in a note. "It will need to act quickly, however, to maintain the loyalty of its 5 million members and provide compelling value as its credit-card partners already offer competing loyalty programs."

VITAL BUSINESS 

Air Canada accounted for 11 per cent of Aimia’s gross billings in 2016. But 80 per cent of Aeroplan rewards are used for flights, either with Air Canada or on members of the Star Alliance airline coalition, of which Air Canada is a founding member. Nearly 59 per cent of Aimia’s revenue and more than 72 per cent of its operating income came from Aeroplan in 2016, according to Bloomberg data.

Aimia has other business lines, including international coalitions like the Nectar loyalty program in the U.K. and Air Miles Middle East. It also operates loyalty programs for third parties like Nordstrom Inc. in Canada and the U.S. Those businesses will continue to grow but aren’t an offset for finding new Aeroplan partners, which is "job number one," Johnston said.

He declined to name potential partners he’s in talks with, except to say they include "a wide range of alternatives." Aeroplan members will still be able to redeem points with Air Canada after 2020, though analysts say this will probably be at a less appealing rate.

"We’re going to generate some really creative alternatives," Johnston said, "that are going to keep our members happy up to 2020 and beyond."

--With assistance from Jacqueline Thorpe