Bloomberg is reporting that that Air Canada is nearing a deal to sell a minority stake in its frequent flyer program to Blackstone, in order to fund new planes, aircraft interiors, etc. Will this have any implications for program members?
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Blackstone to take $2 billion stake in Aeroplan
Blackstone is reportedly very close to investing $2 billion in Air Canada’s Aeroplan loyalty program, in exchange for a minority stake (there are some reports that this would be for a 20% stake, though I don’t see that in the initial reporting). Some Canadian funds are set to invest in Aeroplan at the same time, and an announcement could be made in the coming days.
It’s not unusual to see airlines looking to raise cash. In this case, Air Canada is looking to raise money to buy new aircraft and to invest in the interiors of existing planes. Obviously the airline is under financial pressure, given the impact that increased fuel costs are having on the industry.
There’s certainly precedent to airlines using their loyalty programs for financing. At many airlines, loyalty programs are by far the highest margin aspects of the business, and the programs often make up a majority of the value of an airline. During the pandemic, the “big three” carriers in the United States raised more than $25 billion through debt deals that used loyalty programs as collateral.
Keep in mind that this wouldn’t be the first time that Air Canada is looking to outside firms to invest in its loyalty programs. Air Canada went into bankruptcy protection in 2003, and in 2005, the loyalty program was listed as a separate company, which was later renamed Aimia.
So for a long time, Aeroplan was a completely separate, publicly traded company. The relationship between the two companies eventually soured, and in 2017, Air Canada announced it wouldn’t renew its contract with Aimia, and would instead start its own competing loyalty program.
Eventually the company agreed to sell Aeroplan back to Air Canada for $450 million CAD ($323 million USD) in cash, plus the assumption of certain liabilities.
Should Aeroplan members be worried about this?
Broadly speaking, outside investment firms getting involved in businesses (whatever they may be) typically doesn’t lead to an improved experience for customers. They want margins to be as good as possible, often at the expense of trying to promote the overall brand.
It’s one thing if Air Canada were just using its loyalty program as collateral for financing, but it sounds like Blackstone is actually taking a stake in Aeroplan, so may have a bit more say.
Do I like the sound of this? No. At the same time, this isn’t something I’d be overly worried about. Ultimately we’re talking about a minority stake. And honestly, in terms of value for members, I’d argue that Aeroplan was actually at its best when it was a fully separate company.
Now, the lack of broad value nowadays isn’t the fault of Air Canada leadership, but instead, reflects how the miles & points world has evolved, especially with airlines increasingly limiting award space to members of their own frequent flyer program, and not making it available to members of partner frequent flyer programs.
Aeroplan just isn’t the Star Alliance award booking powerhouse it used to be, and that’s because no program is that way anymore — you really often have to use each individual loyalty program to find availability.
Bottom line
Air Canada is reportedly nearing a deal to sell a minority stake in the Aeroplan loyalty program to Blackstone for around $2 billion. So while the program wouldn’t be fully spun off, it would have outside investors that would presumably have expectations of getting some level of return.
Going back nearly a decade, Aeroplan was fully spun off, and was owned by Aimia, only to then have Air Canada buy the program back at a huge discount. While I never like the sound of outside investors coming in, I wouldn’t expect there to be too many implications here, quite frankly.
What do you make of Blackstone investing in Aeroplan?
Cannot be good for the customers in the long run. Here comes points devaluations, mass credit card maximizing offers and an ever dwindling supply of premium seats. Who's to say it would not have happened anyway, but this is surely a way to turbocharge the trend.
Hard Disagree Ben. Aeroplan, atleast as per me, still remains one of the most solid programs out there.
And a 20% stake is significant enough for a PE investor to exert pressure for better financials and margins. That will only come with devaluations + more dynamic pricing.
Like Ben has mentioned several times, North American airlines make their money with loyalty programmes. Hence, not surprised that financial investors / private equity is keen on investing in that business model.
Which is another reason why they really don't care about operating reliably. There is less incentive to do so, and no real cost/penalty if they fail you. I say, let's change that. An EU/UK261 model where airlines have to provide a duty of care and compensation to affected passengers would lead to more reliable operations. It's all about incentives. (Also, it is wild that partner awards in J with Aeroplan were seemingly better when a...
Which is another reason why they really don't care about operating reliably. There is less incentive to do so, and no real cost/penalty if they fail you. I say, let's change that. An EU/UK261 model where airlines have to provide a duty of care and compensation to affected passengers would lead to more reliable operations. It's all about incentives. (Also, it is wild that partner awards in J with Aeroplan were seemingly better when a literal private equity firm owned a minority stake. Hardly any now.)