The shock value from Canadian Imperial Bank of Commerce's May quarterly earnings call still lives on.
Despite disclosing in February that its long-standing contract with Aimia Inc., the parent company of the Aeroplan loyalty rewards program, may not be renewed next year, investors and analysts were baffled when CIBC announced during its May call that the bank was ready to spend $50-million to market an enhanced rewards card of its own.
To some it was so preposterous that they assumed CIBC was simply bluffing, using the threat as some sort of negotiation tactic against Aimia. The Aeroplan contract, which brought in 11 per cent of the bank's annual earnings, was just too valuable to play around with.
Over the summer CIBC was mum on its strategy, citing legal reasons for why it couldn't say more. But now that the bank has launched its enhanced Aventura credit card and reached a three-way split with Aimia and Toronto-Dominion Bank, under which TD will buy about half of the Aeroplan portfolio and become the program's primary card issuer, management is finally talking.
First things first: CIBC was serious on that May conference call, David Williamson, head of Canadian banking, said in an interview. With the Aeroplan contract up for renewal, CIBC started doing market research last November to figure out what Canadians want from a travel rewards card. By the end of June, the bank and its external marketing team had talked to or surveyed 15,000 people. So when Mr. Williamson floated the $50-million marketing spend over the next year, he wasn't just making it up.
The way management saw it, "our fly-any-airlines offering was going to get ramped up and be a leader," he said.
Second: CIBC understood the consequences. Throughout the talks, CIBC said virtually nothing about how important Aeroplan was to its bottom line, leaving the public to wonder if management truly grasped the significance. Now that the dust has settled, Mr. Williamson said they were always aware. "For sure we're sensitive to this, because it is an important part of our earnings," he said. But the bank wanted to expand its card offering, and Aeroplan was looking to raise rates, so the new contract would have eaten into its bottom line anyway.
The one subject he wouldn't touch was CIBC's right to match TD's initial agreement with Aimia. Under CIBC's existing contract, the bank is supposed to be able to match any new offer, but this summer CIBC said it believed the TD deal was structured in such a way that prevented it from doing so. Not a word more has been said publicly, and Mr. Williamson said is he bound by non-disclosure agreements. But again, he stressed his bank wasn't just making stuff up. "There was a bump in the road on one of the particular paths available to us," he said.
Now that all parties in the three-way agreement are satisfied, Mr. Williamson argued that his bank made out just fine; CIBC's still an Aeroplan issuer, but has also launched its enhanced Aventura card. Plus, the expected feeding frenzy from rivals will likely have less success, he said. Had CIBC simply walked away from Aeroplan, there would have been a free-for-all for its existing accounts. Not only are TD and CIBC splitting them, but they've also signed agreements to not steal from each other following the initial split.
However, Linda Mantia, head of credit cards at Royal Bank of Canada, said there is still a lot of uncertainty in the marketplace, and that could put cardholders up for grabs. "It's becoming a conversation between friends," she said. Canadians are confused about their options and are asking each other which card they like best.
RBC is a particularly important credit card rival for CIBC because its Avion offering has many of the same attributes as the enhanced Aventura card, but has already built up good will with cardholders and merchants. "We have earned so much trust in the marketplace … whether it's with the partners that participate in RBC rewards or the clients," Ms. Mantia said. "Our attrition is lower than anybody's."