Canada’s banks put high price on loy­alty pro­grams

Len­ders seek to avoid ‘dis­rup­tion’ af­ter ten­ta­tive Aero­plan re­wards deal

Calgary Herald - - FINANCIAL POST - GE­OFF ZOCHODNE

TORONTO They say you can’t put a price on loy­alty. But what about a loy­alty pro­gram?

That’s a ques­tion the CEOs of two of Canada’s big­gest banks con­tem­plated openly this week af­ter a con­sor­tium led by Air Canada struck a ten­ta­tive deal to buy back the Aero­plan re­wards pro­gram from Aimia Inc.

On Thurs­day, Cana­dian Im­pe­rial Bank of Com­merce pres­i­dent and chief ex­ec­u­tive of­fi­cer Vic­tor Dodig, whose bank was part of that con­sor­tium, high­lighted how im­por­tant the move was for his com­pany, which has been is­su­ing Aero­plan-linked credit cards for more than two decades.

“We did not want dis­rup­tion to the port­fo­lio,” Dodig said dur­ing a con­fer­ence call. “We did not want dis­rup­tion for our clients. We did not want dis­rup­tion for our share­hold­ers.”

Af­ter a back-and-forth over the price — in­clud­ing a rec­om­men­da­tion at one point from Aimia’s largest share­holder, Mit­tle­man Broth­ers, that Aimia take no less than $1 bil­lion for Aero­plan — the par­ties in­volved said Tues­day that they had struck an agree­ment that would see Aimia sell Aero­plan to the con­sor­tium of CIBC, Toron­toDo­min­ion Bank, Air Canada and Visa Inc. for $450 mil­lion in cash and the as­sump­tion of ap­prox­i­mately $1.9 bil­lion of Aero­plan Miles li­a­bil­ity.

“Truly, it’s one of these things where we looked at it and said ‘let’s not dis­rupt our clients,’ ” Dodig ex­plained. “We can have Path A, where we don’t do it, and we’ll just in­vest in Aven­tura (CIBC’s loy­alty pro­gram), and then see some port­fo­lio runoff in Aero­plan. Or we can have Path B, keep Aero­plan sta­ble, in­vest in the con­sor­tium, it’s good for all stake­hold­ers, and that’s truly what’s driven us all, and the eco­nom­ics are com­pletely man­age­able.”

In an­nounc­ing the deal, the com­pa­nies said the trans­ac­tion was sub­ject to a num­ber of con­di­tions, in­clud­ing “com­ple­tion by the Con­sor­tium of credit card loy­alty pro­gram and net­work agree­ments for fu­ture par­tic­i­pa­tion in Air Canada’s new loy­alty pro­gram.”

That fu­ture par­tic­i­pa­tion could be key. CIBC noted in its thirdquar­ter re­sults that if the deal is fi­nal­ized, “this ar­range­ment will al­low our Aero­plan clients to trans­fer their Aero­plan Miles to Air Canada’s new loy­alty pro­gram, ex­pected to launch on or af­ter June 30, 2020.”

CIBC sold around 50 per cent of its Aero­gold VISA port­fo­lio to TD in 2013, in a deal val­ued at ap­prox­i­mately $3.5 bil­lion. How­ever, CIBC also en­tered into a 10-year agree­ment with Aimia that al­lowed the bank to re­main an is­suer of Aero­plan-plan re­lated travel credit cards.

CIBC was not the only bank with loy­alty pro­grams on the mind this week. Royal Bank of Canada pres­i­dent and chief ex­ec­u­tive Dave McKay noted Wed­nes­day that there had been a lot of talk about re­cent “dis­rup­tion” in re­wards and loy­alty pro­grams.

He said: “We be­lieve that hav­ing con­trol over our pro­pri­etary loy­alty pro­gram — along with lead­ing scale and part­ner­ships — makes RBC Re­wards a unique and priv­i­leged as­set. With card pur­chase vol­umes up 11 per cent, we are grow­ing or­gan­i­cally and at a pre­mium to the mar­ket.”

McKay’s com­ments come just months af­ter RBC an­nounced a new “next gen­er­a­tion loy­alty plat­form” named Am­pli, in con­junc­tion with West­Jet Airlines Ltd., in June.

For Dodig, loy­alty pro­grams such as Aero­plan and Aven­tura (the port­fo­lio for which the CEO said was “grow­ing sig­nif­i­cantly”) have a real im­pact on his bank, which he said tries to al­ways focus on the client.

“I truly be­lieve that phi­los­o­phy is pay­ing div­i­dends in terms of our share price, in terms of our earn­ings-growth pro­file and a di­ver­si­fi­ca­tion of our earn­ings,” Dodig said. “That in­cludes this deal with Aimia and the con­sor­tium.”

Vic­tor Dodig

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