Groupe Aeroplan Inc. is further spreading its wings beyond Canada by spending up to $34-million (U.S.) to buy a minority stake in AeroMexico's frequent flyer program, Club Premier.
The investment in the loyalty program of Mexico's largest domestic airline marks the Montreal-based company's first specifically involving an airline outside the Canadian market. Its primary partner is Air Canada.
Aeroplan chief executive officer Rupert Duchesne said the investment will generate a significant potential return for its shareholders.
"This is our first opportunity to replicate the successful evolution of Aeroplan Canada from a frequent flyer program into a profitable coalition loyalty program," he said during a conference call.
Mr. Duchesne said its partnership with a leading company in the world's 11th largest economy also provides an entry into the high-growth Latin America market.
Aeroplan will initially invest $22-million, which will give it a stake of less than 20 per cent of Club Premier. Another $12-million could be added within 18 months if "certain performance milestones are achieved."
The investment is being funded by cash on hand and is expected to close during the third quarter.
Groupe Aeroplan will have a proportional representation on Club Premier's board, with at least two members, and approval rights to some undisclosed business matters.
The company was withholding many financial details of the agreement because AeroMexico is privately held and operates in a highly competitive market. Among Club Premier's owners is Banamex, Mexico's largest bank and a subsidiary of U.S.-based Citibank.
Mr. Duchesne said he expects Aeroplan will recover its investment in three to four years.
He said the company has considered several opportunities to invest in an airline frequent flyer program but chose Club Premier because of its corporate structure and Mexico's growing middle class.
That country's limited loyalty programs also presents an opportunity to expand Club Premier and may include an initial public offering.
"Through our equity participation and business support, we will ensure that Club Premier benefits from our know-how and develops the necessary skill sets that are critical to its successful transformation into a profitable, stand-alone coalition program," Mr. Duchesne said.
Club Premier has 2.5 million members and more than 50 partners. It is a member of global airline alliance SkyTeam, which includes Delta Air Lines Inc. and Air France-KLM, the largest airlines in the world and Europe respectively.
Air Canada is a member of rival Star Alliance.
Club Premier is Aeroplan's third international investment since 2007 when it purchased European loyalty program LMG for $754-million. It acquired Carlson Marketing for $188-million late last year.
The Canadian Press