Last week we learned that Air Canada made an offer to acquire Aeroplan, which is their spun off loyalty program. For over a decade Aeroplan has been the frequent flyer program of Air Canada, though in 2020 their contract ends. The termination of the contract has led to a lot of uncertainty for the future of Aeroplan.
After the news broke I explained what Air Canada buying Aeroplan would mean for consumers, and also what Aeroplan’s independent future could look like, if Air Canada’s acquisition doesn’t happen.
Air Canada gave Aimia (the parent company of Aeroplan) a deadline of yesterday to accept their offer. Late last night it was reported that discussions between the two had broken off.
The original offer from Air Canada and their financial partners was for $250 million cash, plus about $2 billion in Aeroplan points liability.
Aimia published a press release last night saying that Air Canada raised their bid to $325 million, but Aimia wanted $450 million, “in order to reflect the value of the Aeroplan business to members and stakeholders.”
There was also an announcement yesterday that Aeroplan was in discussions with oneworld, which I can’t really figure out. Today it has been announced that Aeroplan and Porter Airlines will partner as of July 2020.
This means that Aeroplan members will be able to earn miles for Porter flights as of that time, and Porter will also become a redemption partner, with up to 60% of seat inventory available for purchase with Aeroplan miles at fixed-rate prices.
Porter has their own loyalty program, VIPorter, which will stick around beyond June 2020 to deliver benefits for frequent flyers, including priority boarding, complimentary seat selection, and more. However, as of July 2020 VIPorter points can be converted into Aeroplan miles, though no further details have been provided about the ratio for that.
Here’s what executives from both companies had to say;
“This is a unique opportunity for Porter to join a well-established travel loyalty program and, in the future, reach its vast member base to aggressively promote our airline,” said Michael Deluce, executive vice president and chief commercial officer of Porter Airlines. “Our current VIPorter members will benefit from Aeroplan’s enhanced range of loyalty services, with an ability to earn and redeem points with a growing network of airlines and other brands.”
“Today’s announcement with Porter is consistent with our strategy to further differentiate and strengthen our air offering come July 2020,” said Jeremy Rabe, Chief Executive Officer, Aimia. “We’ve committed to our five million members that they will be able to choose any seat on any airline, anywhere, any time with the new Aeroplan program. By adding Porter, Canada’s top-rated airline, as a preferred airline partner as of July 2020, we will deliver our members industry-leading value on many popular routes.”
Bottom line
On one hand it’s nice to see how hard Aeroplan is working to create an independent loyalty program beyond June 2020. That’s commendable.
They’re clearly trying to make the program as compelling as possible, and have been in discussions with all kinds of partners. A partnership with Porter is nice, though that’s hardly a replacement for Air Canada. Porter operates a small fleet of turboprops, while Air Canada is a global airline.
I remain skeptical about what an independent Aeroplan program would look like, and frankly am astounded that Air Canada raised their offer and that Aimia didn’t accept it.
I still can’t help but wonder if something will happen between Air Canada and Aimia…
Dear Author,
I get that math may not be your strong suit, but at least proofread? At 100M marriott rewards members and $65/member, I think that $6.5B, which is well under MAR's market cap and which I would bet a lot of money Marriott would never accept from anyone who bid that for their loyalty program. It's just worth way too much to them in marginal profits and marketing efficiency to do so.
Every...
Dear Author,
I get that math may not be your strong suit, but at least proofread? At 100M marriott rewards members and $65/member, I think that $6.5B, which is well under MAR's market cap and which I would bet a lot of money Marriott would never accept from anyone who bid that for their loyalty program. It's just worth way too much to them in marginal profits and marketing efficiency to do so.
Every loyalty plan has dormant members. That's like saying every social media platform has members who aren't active every day. Or every credit card issuer has inactive spenders. Yet, marketing departments fall head over heels to engage with them, somehow.
Look, good luck to Air Canada's new program. Hey, I have 35K miles with Aeroplan and now have 10K miles with AC's plan after 2 years (i.e. 2022). What can I redeem for? Sorry, nothing, since you can't convert Aeroplan miles into AC or vice-versa. Right, good luck indeed.
And to the guy who claims that $700M in purchasing power from Aeroplan won't directly hit AC's revenue-passenger miles, you really do not understand how airline fixed-cost economics work, nor do you understand the pervasiveness of repeat behaviour (the more you redeem at vendor A, the more you spend at vendor A) which is the true value of a loyalty program (it engenders more spend than cost of its rewards), nor do you understand the fees earned from/the value of loyalty plan credit card partnerships.
I do not think anyone upset with Aeroplan seriously dislikes THEM that much. I think people are smart enough to realize that the airlines create these issues, or non-issues with FF programs basically. Aeroplan is just freakin' weird how it's separate from Air Canada, but leave it to Canada.
I hope the deal don't go through at all. Competition in Canada is low that is the reason Aeroplan has very high scam charges. Keep the competition so they will think twice before adding any scam fees to us.
I’m happy to hear that Aeroplan will not be bought by Air Canada.
Competition is good as it will ensure Air Canada thinks twice about raising redemption rates when they launch.
A lot of members don’t realize that 2 of the biggest complaints about Aeroplan is Air Canada’s fault!
1) Lack of seats – the number of seats allocated for redemption on each flight is up to Air Canada NOT Aeroplan.
2) Fuel...
I’m happy to hear that Aeroplan will not be bought by Air Canada.
Competition is good as it will ensure Air Canada thinks twice about raising redemption rates when they launch.
A lot of members don’t realize that 2 of the biggest complaints about Aeroplan is Air Canada’s fault!
1) Lack of seats – the number of seats allocated for redemption on each flight is up to Air Canada NOT Aeroplan.
2) Fuel Surcharges - Air Canada charges the scam charges Aeroplan has no control over that.
This is clearly a negotiating ploy. Expect to have a deal announced in the next week for around $400mm.
450 vs 325 isn't that far off. Expect AC to bid again...
I don't blame Aeroplan for turning down Air Canada. I wouldn't choose to work with a company that would play games in the press with the intention of lowering my acquisition value. However I would have taken the second offer.
I bet the Air Canada - Aeroplan deal will proceed when the Consortium comes up with more gold for the Aeroplan management. All the Porter and One World stuff is just a ruse to get Air Canada to “ recognize “ the value of the new, present Aeroplan managers.
Is it just me? The only data that matters to us, travellers who use loyalty points, is the ratios and award charts. The names of the companies don't matter a damn. Aeroplan, OneWorld, Porter... Show Me The Money.
Is the Porter deal exciting? Honest answer: Don't Know. Would it be good/bad if AC buys Aeroplan? Honest answer: Show Me The Chart. If A oneway in J YYZ-BKK goes up by 50%, then it's bad. If...
Is it just me? The only data that matters to us, travellers who use loyalty points, is the ratios and award charts. The names of the companies don't matter a damn. Aeroplan, OneWorld, Porter... Show Me The Money.
Is the Porter deal exciting? Honest answer: Don't Know. Would it be good/bad if AC buys Aeroplan? Honest answer: Show Me The Chart. If A oneway in J YYZ-BKK goes up by 50%, then it's bad. If the travel you want to do is available at the right price, it's good.
None of the players (none, as in None) has made any statements about value. they're all using Marketing terms like "more choice" and "flexibility" which is our first clue that they're planning to rip us off.
There is no good outcome from any of this, because Canada.
@Deep Mind isn't much of a finance guy clearly.
As lucky points out, the vast majority of Aeroplan flyers are not frequent AC customers. I'd bet 500K tops of those 5M members has taken a flight in the last 12 months. My parents have hundreds of thousands of Aeroplan points and haven't taken an AC flight in the last 2 years.
AC is better off spending money acquiring actual customers who fly with them (e.g....
@Deep Mind isn't much of a finance guy clearly.
As lucky points out, the vast majority of Aeroplan flyers are not frequent AC customers. I'd bet 500K tops of those 5M members has taken a flight in the last 12 months. My parents have hundreds of thousands of Aeroplan points and haven't taken an AC flight in the last 2 years.
AC is better off spending money acquiring actual customers who fly with them (e.g. their current Altitude members) in a new loyalty program, than paying huge sums for a giant liability of points that some old lady has been collecting for 40 years.
@Deep Mind Not understanding your argument. Aeroplan buys seats from AC, but AC has to pay Aeroplan for every point issued to their customers for flying. It's not as though Aeroplan is actually going to lose $700M of profit as you seem to imply -- they'll operate a new ff program, and I can't imagine it will be difficult to get their customers to open new accounts with them. Why would aeroplan pay much more...
@Deep Mind Not understanding your argument. Aeroplan buys seats from AC, but AC has to pay Aeroplan for every point issued to their customers for flying. It's not as though Aeroplan is actually going to lose $700M of profit as you seem to imply -- they'll operate a new ff program, and I can't imagine it will be difficult to get their customers to open new accounts with them. Why would aeroplan pay much more than $65/member?
The only part that might be difficult or expensive to replicate is the credit card portfolio. But this is where I'm sure they can get banks to help throw incentives at customers to rebuilt that part.
While I'm sure aeroplan can get some airline partners, what isn't obvious is whether Canada has space for another fixed-value point program.
Air Canada needs to make a buy vs partner vs build decision by early Q4 2018 for the the 2019 fiscal year budgeting season, by which time program design and build must begin to meet the Q2 2020 launch. Expect the bid price to go higher.
Porter Airlines. Good luck! It's like costco vs an individual corner store in a small town. LOL!
lol author cannot understand how Aeroplan didn't accept $250M to $325M for 5M members, i.e. $50 to $65 per member? Is author a shill for Air Canada or is he, as a proclaimed loyalty expert, somehow unaware of the cost of acquiring members to a new loyalty program and the cost of getting 5M people to change decade-old habits?
The real question is how dumb is Air Canada for not raising their bid sufficiently...
lol author cannot understand how Aeroplan didn't accept $250M to $325M for 5M members, i.e. $50 to $65 per member? Is author a shill for Air Canada or is he, as a proclaimed loyalty expert, somehow unaware of the cost of acquiring members to a new loyalty program and the cost of getting 5M people to change decade-old habits?
The real question is how dumb is Air Canada for not raising their bid sufficiently to clear when Aeroplan buys $700M worth of seats annually from AC, an extremely high fixed cost business susceptible to quick losses if that last seat isn't filled? Lol, c'mon mate, do deeper thinking.
@ Deep Mind? -- You're so far off on so many levels. $65 per member is a *massive* amount. The five million members aren't all engaged people who have a co-branded credit card. Potentially these are mostly people who haven't had any account activity for years. $65 is an *insane* amount for acquiring members.
On top of that, keep in mind that these are largely members that Air Canada already has access to, as they're...
@ Deep Mind? -- You're so far off on so many levels. $65 per member is a *massive* amount. The five million members aren't all engaged people who have a co-branded credit card. Potentially these are mostly people who haven't had any account activity for years. $65 is an *insane* amount for acquiring members.
On top of that, keep in mind that these are largely members that Air Canada already has access to, as they're also members of the Altitude program. At least the most valuable and engaged members are.
So I'm curious, Marriott has one hundred million members, and their market cap is $45 billion. Guess I should be buying stock with them right now because their members alone are worth $65 billion, according to your math?
C'mon...
@W it sure helps.
It demonstrates Aeroplan can strike other airline partners other than Air Canada.
Air Canada has tried to scare everyone by claiming without them Aeroplan is nothing.
PFFT!
I welcome the competition! Especially since Porter will provide up to 60% seats to Aeroplan WITHOUT fuel surcharges either!
Does this partnership raise their money value (as in would this mean the company would raise their price at which they want to sell it at)?
Aeroplan is talking to many airline partners - Remeber they said they want to offer flights on more airlines outside what their partnership with Air Canada allowed. No reason to doubt they won't be able to get Aeromexico on board since they own 49% of that loyalty program - Porter is the first they've struck a deal with and won't be the last.
@EJ - I was thinking of that yesterday when the Aeroplan/oneworld news broke, but it would be unusual because Porter does not provide connectivity to oneworld hubs, or even to many airports with oneworld flights. They fly to MDW instead of ORD, EWR instead of LGA or JFK, YTZ, instead of YYZ. They don't fly to PHL.
Porter is a small regional airline in the east. Whoop di do for those of us in the west.
I see this as a win-win, giving me more value to both VIPorter members and Aeroplan members.
Porter has a partnership with JetBlue. I wonder if that could be Aeroplan's next move?
Could we possibly see Porter join Oneworld??
@DaninMCI
AC is starting a new program in June 2020.
Air Canada should just start a new program or partner with someone like Avios and walk away. I know that is too simple and would alienate Air Canada loyalist but they could use the $250m and offer to trade out miles or something.
Porter? How exciting...for those that fly out of Toronto Island Airport. SMH
It is almost like watching a love-hate story unfold between the two! Ahh thanks Lucky for my daily dose of the sweet sweet nectar of drama...
Aeroplan must be a hard sell, I cannot imagine beyond the small airlines like Air North, First Air, and Porter, what others would take this lost Canadian program home... But if the Oneworld thing really takes more steps, then I cannot wait for it to become the go-to-program for S7 woohoo~!