Before midnight on Christmas Eve, Air Canada (TSE: AC) received the good news that the regulatory end of the government has approved its acquisition of Aeroplan consumer rewards program.
Back in November 2018, just before the extraordinary busy holiday season hit Air Canada had caused a fury among consumers by changing rules in the rewards program. So fears arose with their acquisition of Aeroplan’s consumer reward programs, with customers fearing the same complication might be applied.
At nearly the same time, regulators at the Canadian Transportation Agency (CTA) gave an early holiday present to consumers by ordering airlines to offer food and drink if flights get delayed for three hours and pay $400 to individuals. At six hours and nine hours, the CTA judicial tribunal the penalty became $700 and $1000 respectively.
All of these will be implemented by the summer of 2019. So, from government entities to airlines, a major movement to appease fliers has occurred. In most venues, Canadian airlines including Air Canada do an excellent job of servicing the many passengers they have. In the few venues, the Canadian airline industry does not.
Epiphany
With that epiphany pending, Air Canada has crossed the regulatory hurdle but not the shareholder one. Up until 2017, Air Canada used Aeroplan consumer reward program through a company named Aimia (TSX: AIM).
In November, Aimia and Air Canada signed a $450 million cash deal making Aeroplan the property of Air Canada. Air Canada assumed the $1.9 billion liability.
Air Canada’s announced agreements became accomplished with the Canadian Imperial Bank of Commerce, TD Bank and Visa that ensures the Customer rewards Aeroplan program till 2030. From those entities, an immense amount of money has been exchanging hands. Not all entities that have involvement with Aeroplan has a deal been made with. That could continue for several months.
The deal
On Jan. 8, Aimia shareholders must approve of Air Canada’s purchase of Aeroplan. Regulatory approval has been put in place including partial closing conditions but not shareholder approval. The present points remain good until 2020 when Air Canada launches a new consumer rewards program.
No details have been released on what happens to the Aeroplan points after that other than the points will be safeguarded. Presently, Air Canada has access to customer data.
Aimia received $1 billion in cash after the agreement. A set of Aimia employees will also become Air Canada employees.
The Air Canada consumer rewards program for 2020 will commence in June. Star Alliance and Air Canada bookings will funnel points to a program. Aeroplan points will be in Aeroplan customer’s accounts only. Air Canada will have a venue of flights that Aeroplan consumers can use to redeem points. Click here to see Air Canada’s webpage and updates.
Next step
The new parameters for the Aeroplan customer reward program start with an agreement with Aimia to buy like stated back in November 2018. Now the amount has changed to $1.9 billion liabilities associated with points holders. Two banks that offer the Aeroplan credit card will partially be returned: From Canadian Imperial Bank of Commerce and then Toronto-Dominion bank, the amount totals to $1.2 billion. Visa and the two banks have agreed to stay with the program till 2030.
With the sale of Aeroplan, Aimia has ordered a strategic review of its business direction. As far as serving the consumer is concerned, Aeroplan did an excellent job and created repeat fliers. It did so at the dire straits of its shareholders who did not get decent returns of investment.
This is considered a wildly successful customer rewards program which foundation cost the people who invested money in it.
CEO Jeremy Rabe explained in a Financial Post report that while growing a global platform, they did not account for the delay in generating new revenue with the cost base. As word filtered out on how long that financial scenario would last, Aimia lost clients that had stabilized that type of money flow. With Air Canada announcing their own rewards program in 2020, the added competition would have likely caused investors to lose more money.
Rather than fall further down the black hole, Aimia chose to make new plans of efficiencies, core technologies, services and simplification. Since September 2018, the company stock has rallied several times surprising the most cynical analysts. Basically, it is a company of integrity that got caught in some long-term decisions which did not benefit shareholders but apparently, consumers keep trying to save the services.
Conclusion
If a company doesn’t make money, then the inevitable may happen if it does not cover a bailout option. If the shareholders do not get a return on investment on a quality service or program, then a company cannot carry on business as usual. Consumers and investors need to understand that some things happen due to market conditions or decisions that do not foster the return of investment even with positive customer feedback.
(Featured photo by Liam Allport via Flickr. CC By 2.0)