Aimia dips as Air Canada plans loyalty program

Departure fuels concerns about effect on revenue as Aeroplan loses its ‘backbone’

TORONTO Aimia Inc., operator of loyalty program Aeroplan, plunged as much as 65 per cent after Air Canada said it will cut ties with the company in 2020 and launch its own rewards plan.

The shares dropped 62.71 per cent to close at $3.33 in Toronto after earlier falling to $3.13 in the biggest intraday decline since they started trading in 2005. Air Canada rose 10.54 per cent to close at $16.46.

Aimia faces the risk that other Aeroplan members may decide to terminate their membership because Air Canada is the “backbone,” said Martin Landry, an analyst with GMP Securities.

The country’s largest airline amounts to about 10 per cent of Aimia’s revenue, but more than 75 per cent of Aeroplan miles are redeemed with the carrier.

Landry cut Aimia’s rating to reduce and lowered its price target to $4 a share from $10.50, citing possible cash-flow pressure.

Air Canada’s contract with Aimia runs through June 29, 2020. Until then, Aeroplan members will be able to earn and redeem miles under the program.

The departure of Air Canada will have a dramatic effect on Aeroplan’s revenue, according to Drew McReynolds, an analyst with RBC Capital Markets.

He estimates Aimia’s earnings before interest, tax, depreciation and amortization will probably be lowered by $75 million each year after 2020.

“The negative gross billings and margin impact on Aeroplan through any partner transition period is likely to be material and thus will weigh on the stock,” he said in a note to clients.

McReynolds added that Aeroplan will likely continue, given its contractual relationships with Toronto-Dominion Bank and Canadian Imperial Bank of Commerce through 2024.

Aimia CEO David Johnston said in an interview the company is exploring a range of alternatives for its business after Air Canada’s contract ends, including pursuing other partners.

“This is something we’ve anticipated,” Johnston said in an interview on his first day on the job after serving several months on an interim basis.

The company announced Wednesday evening that Rupert Duchesne, who has been on medical leave, is retiring from the top role.

He assured the program’s five million customers they can expect a smooth transition.

“There’s three years left to run on the contract and in that period, it’s business as usual,” Johnston said.

Air Canada expects the net present value of the program repatriation to exceed $2 billion over 15 years, with more financial details to be provided Sept. 19.

“This decision is the right one for our customers, our employees and our shareholders,” chief executive officer Calin Rovinescu said in a statement Thursday.

RBC Dominion Securities Inc. analyst Derek Spronck said in a note that it remains to be seen what the transition costs will be and why Air Canada assumes the net present value of the program repatriation over 15 years to be more than $2 billion.

The airline said it will provide more detail on this at its investor day on Sept. 19.

Groupe Aeroplan was spun out from Air Canada’s former parent company, ACE Aviation Holdings Inc., in 2005 before re-branding itself as Aimia in 2011.