A consortium led by Air Canada has reached a deal to buy back Aeroplan from Aimia Inc., giving the airline a running start as it builds its own loyalty program designed to have the size and scope of those owned by its global rivals.
Fifteen months after announcing it would end its relationship with Aeroplan – the loyalty program created inside Air Canada in 1984 and spun out as a separate company in 2005 – Air Canada sweetened an earlier cash offer to buy the Aeroplan business to $450-million plus the assumption of $1.9-billion in Aimia liabilities. Tuesday’s deal, which still needs to be approved by shareholders, ends a series of negotiations that included Aimia signing up other Canadian airline partners for Aeroplan after rejecting earlier bids of $250-million and $325-million.
The deal ends a saga that began in May, 2017, when Air Canada said it would end its long-standing agreement with Aeroplan the same year, sending Aimia’s shares plummeting 63 per cent in one day. The airline announced its original offer with credit card partners Canadian Imperial Bank of Commerce, Toronto-Dominion Bank and Visa Canada Corp. to buy back the business in July.
The move means Air Canada will fold Aeroplan’s five million members into its own plan in 2020. Another condition of the deal is that Air Canada and its consortium partners reach an agreement on participation in Air Canada’s new loyalty program. That program will go ahead, Air Canada chief executive officer Calin Rovinescu said in a statement.
The agreement is supported by Mittleman Brothers LLC, a New York-based fund that is Aimia’s largest shareholder with a 17.6-per-cent stake and has two seats on the board of directors. Mittleman slammed the original Air Canada bid as “blatantly inadequate” and said in a letter to shareholders after that bid that Aeroplan was worth between $1-billion and $2-billion.
On Tuesday, Mittleman said that “we believe that our acquiescence in agreeing to sell Aeroplan for $450-million in cash was the best available outcome for all Aimia stakeholders.”
Aimia should be left with $1-billion in cash to invest, as well as significant tax-loss carry-forwards, Mittleman said.
National Bank of Canada analyst Adam Shine said the deal means an “ugly 15-month drama” is nearing an end.
Aimia would not comment on what impact the Air Canada agreement will have on the deals it announced with Porter Airlines, Air Transat and Flair Airlines in recent weeks that would have allowed those airlines and their customers to participate in Aeroplan. Aimia and Porter said they would not comment until the Air Canada deal receives final approval.
Transat’s chief distribution officer, Joseph Adamo, said the airline is discussing next steps with Aimia.
Robert Kokonis, president of Toronto-based aviation consulting firm AirTrav Inc., said he believes the Transat, Porter and Flair Airlines deals were letters of intent, not definitive agreements. “Those three carriers will not transfer over to Aeroplan,” he said.
While the agreement ends uncertainty for Aeroplan members, it will also enable Air Canada to make its own moves to expand Aeroplan. Air Canada executives noted on the second-quarter financial results conference call earlier this month that Qantas of Australia has a loyalty program with about 12 million members even though Australia has a smaller population than Canada.
Ownership of the data about Aeroplan customers is another crucial piece of the deal, said analyst Chris Murray, who follows Air Canada for AltaCorp Capital Inc.
“Air Canada has lots of knowledge about you as a passenger and a traveller, but doesn’t have a lot of other data because all that resides in the Aeroplan database,” Mr. Murray said.
“You can take that database, you can preserve everyone’s points − you’ve eliminated all the switching costs and the ‘get them back’ costs and the bonus costs that you have to pay to retain them and you can take some new technology and make some investments,” he said.
Having ownership of the data will enable Air Canada to tailor programs specifically to individual travellers, he said. “I think they’re going to get a lot more creative about what they can do.”