Aimia’s future in the air after Aeroplan selloff
With Aeroplan loyalty plan back under Air Canada’s wing, Aimia’s future is up in the air
Big promises were made when the company now known as Aimia Inc. announced in 2007 it had acquired Nectar, the U.K.’s biggest customer loyalty program.
“We at Aeroplan are entering the next phase of our business cycle to become a global leader in loyalty management,” Rupert Duchesne, then chief executive, told reporters. He said the company, then called Aeroplan Income Trust, was looking at acquiring loyalty programs in Europe, South America and Asia, and he believed it “could have a significant role” to play with programs in the U.S.
Last February, the plans derailed.
Aimia sold Nectar and related assets to U.K.-based J Sainsbury PLC for $105 million, and it also had to transfer $183 million to cover the loyalty program’s redemption liability. Aimia’s net proceeds were expected to be $34 million — a fraction of the $755 million it paid in 2007.
The sale also meant Aimia was failing to substantially diversify its revenue streams away from Aeroplan. Thirteen years after being spun off from Air Canada, the loyalty program partnership with Canada’s largest airline was still its largest source of revenues.
Unfortunately, that partnership was set to expire in June 2020 and the airline announced last year that it wouldn’t be renewing, putting Aimia’s future viability at stake and leaving Aeroplan members wondering what would happen to their points.
For the past year, Aimia has sought and found some new Aeroplan partners, including Porter Airlines, but this week it decided to sell the loyalty program to a consortium — led by Air Canada. Aeroplan’s future seems secure, but Aimia’s has only become cloudier.
“When a business loses its biggest client, you’re at a fork in the road,” said Tony Chapman, a marketing expert and chief executive of Toronto-based Tony Chapman Reactions.
“You have to decide: Am I going to make things happen, reinvest in my business, take what I know and go elsewhere with it? Or am I going to pull up the tent? I think that’s a decision that’s going to be made at the boardroom table.”
That decision will have to be made soon. Air Canada, along with Canadian Imperial Bank of Commerce, Toronto-Dominion Bank and Visa Canada, announced on Tuesday that they will pay $450 million in cash for Aeroplan and assume approximately $1.9 billion in points liability.
Should the deal, expected to close in the fall, go through, Aimia’s business will be considerably smaller.
Its Coalitions business, which includes Aeroplan, brought in $712.6 million in revenues during the first half of the year, representing 91 per cent of Aimia’s total revenues. That segment’s operating income was $28.9 million in the same period.
Meanwhile, the Insights and Loyalty Solutions (ILS) segment, which offers loyalty program strategy, design, analytics and platforms, accounted for $69.3 million in revenues in the first half of 2018 and reported an operating loss of $32.7 million.
Without Aeroplan, the Coalitions segment would consist of a 48.9-per-cent stake in PLM’s Club Premier, a frequent flyer program that serves Mexico’s largest airline, Aeromexico, and a 20-per-cent stake in Think Big, the owner and operator of AirAsia’s loyalty program.
But Aeromexico seems eager to reduce Aimia’s stake.
Shortly after Air Canada’s initial offer for Aeroplan, Aeromexico swooped in with a US$180-million offer for Aimia’s stake in PLM’s Club Premier. Aimia swiftly rejected the offer.
Kathleen Wong, an analyst at Veritas Investment Research, believes that it could spell the end of Aimia if it ever agrees to sell its Club Premier stake.
“What’s left after Club Premier? They have some loyalty marketing business, but it’s very small, and some small joint-venture interests,” she said.
“There’s not much left after that at Aimia.”
But Robert Kokonis, president of Toronto-based aviation consulting firm AirTrav Inc., said he still sees potential opportunities ahead for Aimia.
“Aimia has a good reputation in this country. Some of its staff will stick with Aeroplan and go back to Air Canada, but Aimia will still have a strong core of data analytics experts that hopefully they can retain. They may have the capability of launching something new.”
Aimia over the past few weeks has announced a flurry of agreements with smaller Canadian airlines, including Porter, Air Transat and Flair Airlines.
Aimia’s chief executive Jeremy Rabe also told analysts earlier this month that it was holding discussions with Oneworld, an airline alliance that rivals StarAlliance, in which Air Canada is a member. Oneworld members include American Airlines, British Airways and Cathay Pacific.
Chapman dismissed those potential partnerships as a savvy negotiating tactic. “They were pawns in the negotiation,” he said.
Wong believes Aimia’s discussions with Oneworld and the smaller Canadian airlines were part of a backup plan in case the Air Canada deal fell through. She is also skeptical of Aimia being able to launch another airline loyalty program in Canada.
“Without Air Canada, I don’t think it’s going to be that easy,” Wong said, pointing to Aimia’s credit-card partnerships with CIBC and TD, which are expected to be part of Air Canada’s new loyalty program once the deal is finalized.
“If Aeroplan wants to restart with another program, they need to find new credit card partners. But if you look at the competitive landscape, there are (limited options.)”
Credit-rating agency DBRS Ltd. estimates the company would have $720 million in cash and $260 million in bond investments after the Air Canada deal goes through, which would be enough to repay its outstanding debt and leave enough to invest in existing or new businesses.
But it’s not as if Aimia hasn’t tried to reduce its reliance on Aeroplan in the past. For example, the company in 2011, then known as Groupe Aeroplan, renamed itself Aimia and started emphasizing its international services.
“As competitors try to position themselves to take advantage of the burgeoning international market for loyalty management services, we are already well positioned as the established experts,” then-chief executive Rupert Duchesne said in a 2011 news release.
“A single, explicit global brand clearly reaffirms this privileged position.”
I think Aimia did a brilliant negotiation. They really didn’t have a lot to play with.