Air Canada has just announced a $2.5 billion minority equity investment in Aeroplan, led by Blackstone and La Caisse. This was first rumored earlier in the week, and it’s now official. Will this have any implications for members of the program?
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Blackstone & La Caisse take equity stake in Aeroplan
Air Canada has announced that funds managed by Blackstone and La Caisse, together with other Canadian institutions, are making a $2.5 billion minority equity investment in Aeroplan. The investor group is acquiring a 25% non-controlling equity interest in Aeroplan, valuing the program at $10 billion (Air Canada’s current market cap is $5.5 billion… so I guess the airline has negative value, minus the frequent flyer program?).
Air Canada emphasizes how it maintains full operational control of Aeroplan and a controlling ownership interest after the minority investment. The Star Alliance carrier also states that Aeroplan remains a core part of Air Canada’s commercial strategy and customer value proposition, and the experience of members and employees will be unaffected by the transaction.
Proceeds from this investment will be used toward the repayment of Air Canada’s upcoming $1.2 billion bond maturity, with most of the balance being applied to accelerate the share repurchase that’s part of Air Canada’s long term strategic plan. Earlier reports had suggested the proceeds would be used to fund new planes and aircraft interiors, but that’s not being stated by the airline directly.
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 isn’t 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. So one does have to give Air Canada credit here — the airline bought the program for $323 million, and is now selling a 25% stake in the program for $2.5 billion!
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 Blackstone and other firms are actually taking a direct 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 has reached a deal to sell a 25% stake in the Aeroplan program to Blackstone (among others) for $2.5 billion, valuing the program at $10 billion. So while the program won’t be fully spun off, it will have outside investors that 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. Either way, you’ve gotta respect buying the program for $323 million, and then selling a 25% stake for $2.5 billion.
What do you make of Blackstone investing in Aeroplan?
But in the case of Aeroplan, even domestic AC awards are ridiculously priced more frequently than not. Either they match current published fares to the cent (and then you'll have to pay for taxes on top of...
But in the case of Aeroplan, even domestic AC awards are ridiculously priced more frequently than not. Either they match current published fares to the cent (and then you'll have to pay for taxes on top of it) or their mile pricing is simply absurd. I've read some comments about flights to Winnipeg being 200K. In my own experience, I have indeed seen flights to YVR priced well above 200K. And, make no mistake, these are economy flights!
Also, some Aeroplan SEs here have commented that they love Aeroplan. But I wonder if this will keep enough people engaged with the program or if at some point these programs might become rewarding only for those with top tier status AND a premium credit card.
Although, having said that, I guess the actual answer is "flyers are the product that credit card companies sell to airlines/loyalty programs" so... I guess it was fun while it lasted. (Sigh)
Private equity is always great for customers.... Says nobody ever.
Genius. They took it public in 2005 at a valuation of $2 billion. Bought the whole thing back in 2018 for $450 million and now selling 20% at $2 billion again.
"in terms of value for members, I’d argue that Aeroplan was actually at its best when it was a fully separate company".
Ben I'd argue that your take is true for those who do NOT engage seriously with the Status side of Aeroplan (most US residents). But ask Canadian residents who engage above 50k, up to Super Elite and the majority will endorse the big Aeroplan 2.0 changes as a net gain.
For high elites,...
"in terms of value for members, I’d argue that Aeroplan was actually at its best when it was a fully separate company".
Ben I'd argue that your take is true for those who do NOT engage seriously with the Status side of Aeroplan (most US residents). But ask Canadian residents who engage above 50k, up to Super Elite and the majority will endorse the big Aeroplan 2.0 changes as a net gain.
For high elites, the ultra high prices are reducable with Priority Rewards so we see the high prices as a paywall, keeping the rifraf out and reserving the good redemptions for us. High elites have vast numbers of eUpgrades in their acounts, so on AC metal we're nearly always in the front.
The downside? A program that's really bad for those who just collect the points and expect to redeem them, and really good for those who crawl over the broken glass AC has strewn in their path.
"It is not enough to succeed. Others must fail." - Gore Vidal
The downside. To be a higher elite, you must fly AC, or more likely be resigned to fly AC because of lack of choice.
Which means constant delays (for years now lowest ontime in North America), zero service recovery on top of a terrible product in Y and J.
How do people have my Parnel Handle?
Ben touched on it in the article, but really tough to understate how incredible Aeroplan was at its peak in 2023/2024 era. To recap:
-long haul J availability on SQ (including NYC-SIN!!) for great pricing
-2 seats on EVA long haul J at schedule open at great pricing
-Etihad long haul J at nice pricing including routing the long way to Australia
-Oman Air J at good pricing
-UA Polaris long...
Ben touched on it in the article, but really tough to understate how incredible Aeroplan was at its peak in 2023/2024 era. To recap:
-long haul J availability on SQ (including NYC-SIN!!) for great pricing
-2 seats on EVA long haul J at schedule open at great pricing
-Etihad long haul J at nice pricing including routing the long way to Australia
-Oman Air J at good pricing
-UA Polaris long haul J close-in at sometimes better pricing than UA
-Plentiful TK J pricing including to SE asia at great pricing
-LH F at great pricing up to 2 weeks in advance
NONE OF THESE are readily available now. What a fall from grace- haven't put a ton of time into this perhaps I've missed something else too
You missed all the blocked partners that are available with other miles.
And the 200k Y trip to Winnipeg.
Air Canada is a pathetic airline, so poorly managed!
This will be just another downgrade.
The vast majority of these complaints were not caused by Aeroplan, which I suspect you know. Hard disagree with this comment.
Of course Aeroplan is choosing to block partners (although I cant come up with a reason why ET is blocked).
And they are choosing to charge 200k to Winnipeg.
Unless you are stockholm syndromed to AC because of work flying, you can't argue that both Aeroplan and AC have gone downhill.
We salute our corporate overlords at Blackstone. May they one day own all of our posessions!
I've been told that you will own nothing and you will like it.
Yay.
What Aeroplan's needed is a radical right-wing nutjob 1% activist investor "asset manager" looking to squeeze more pennies out of a company at the highest possible cost to the consumer.
Exactly what Aeroplan needed, said no one except for Aeroplan.
Aeroplan is bad. Very bad. Partners blocked (ET/TK/CA,etc etc) comes to mind. Dynamic cosmic level pricing on AC/EK/EY.
Terrible cancel and change fees
Call center with 3 hour wait times.
Occasional value can be had, but maybe this sale can finally finish that off too...
Let’s not be too pessimistic. Blackstone will listen to customer feedback and will create value for the customer by increasing choice and aeroplan members will only pay for the perks that they truely want
NOT
Is this a rage bait for getting some Yowzers?
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.)