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Bryan Pearson, CEO of LoyaltyOne, the company that runs Air Miles, says the firm has been slow to respond to criticism, but defends the decision to impose expiry dates as a marketing strategy.

JENNIFER ROBERTS/The Globe and Mail

After a backlash from consumers and threats of changes to some of the legislation governing loyalty programs, Air Miles parent company LoyaltyOne is backing away from its plan to let miles five years or older expire.

The Toronto-based company made the announcement on Thursday, two days after it appeared before a committee that was considering legislation in Ontario to block the expiration of any points of rewards programs operating in the province. The decision will cause a reduction of at least $200-million to its 2016 revenues.

However, according to a financial disclosure filed Thursday, the company will reexamine how it delivers "value" to collectors to compensate for that financial hit.

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"Going forward, LoyaltyOne will adjust the value proposition to collectors to offset the lost economics … and to maintain, as closely as possible, the economics of the AIR MILES reward program prior to cancellation of the expiry policy," the filing reads.

Related: Air Miles changes aimed at growing customer 'engagement': CEO

Related: Air Miles decries Ontario push to ban expiration of loyalty points

Read more: It's time to fight back against Air Miles changes

The change to Air Miles' policy was first announced in 2011, and was scheduled to take effect at the end of this year. The practice of setting a time limit to use miles or other points is known in the industry as "date stamping," and it can be controversial: Aeroplan announced in 2007 that it would date stamp its miles to expire after seven years, but also pulled back from that plan in 2013, after receiving negative consumer feedback.

"This decision cost us money; both a sizable one-time hit, and an ongoing impact on our profitability," Vince Timpano, president of Aeroplan parent company Aimia Inc., told members of Ontario's standing committee on regulations and private bills on Tuesday.

Air Miles is now similarly canceling its plan to force collectors to use miles before their deadline.

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"We're hoping that by dealing with the expiry issue, foundationally, we are eliminating something that has been a concern to some of our customers – I wouldn't say all of our customers. … And we're hoping that it will lead to more productive conversations between government and industry," Bryan Pearson, President and CEO of LoyaltyOne, said in an interview on Thursday.

The legislative pressure in Ontario began last month, when Liberal MPP Arthur Potts (Beaches-East York) tabled a private member's bill proposing that expiration of points in rewards programs should be banned. This week, the bill was clarified to state that it would not allow date-stamping specifically; leaving the door open for expiration for reasons other than "the passage of time alone."

Mr. Potts was prompted to bring the bill forward because of the discussion about the upcoming Air Miles expiration policy, he said in an interview earlier this week.

The conversations Mr. Pearson refers to were raised during the company's appearance at Queen's Park on Tuesday, where LoyaltyOne executives told the committee that more time was needed to properly draft the legislation. By taking its year-end plans off the table, LoyaltyOne is proposing that there is no urgency to pass the bill immediately, and that more time for consultations between government and industry is needed.

"We would prefer to have a more meaningful conversation around what the right approach should be," Mr. Pearson said. "We are taking a long view."

While Ontario is the only province that has tabled legislation, Mr. Pearson said the company is concerned that if it passes, other provinces may follow suit. He noted that discussions have been held in other provinces as well, notably Quebec, but new regulations have not arisen yet.

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LoyaltyOne, a subsidiary of Plano, Texas-based Alliance Data Systems Corp., said in a filing to the U.S. Securities and Exchange Commission on Thursday that as a result of this decision, it anticipates a one-time charge this year that will reduce its revenue by an estimated $180-million to $250-million USD ($240-million to $330-million CAD).

Customers can collect Air Miles for free because they offer up information on their shopping habits in return, which is extremely valuable to the progam's partner companies who want to market to them. Partners pay LoyaltyOne for each mile they give to collectors with purchase; the rewards program then makes money on the difference between that payment and what it pays for rewards that collectors can later redeem.

By cancelling its expiry plans, LoyaltyOne is giving up pure profit – since the most valuable miles are those that are never used.

"Our goal will be to create a balance between the interests of the consumer, our partners and our shareholders," Mr. Pearson said. "… The vast majority of collectors have continued to use the card, to frequent our partners, and to redeem miles."

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