Canada’s banks put high price on loyalty programs
Lenders seek to avoid ‘disruption’ after tentative Aeroplan rewards deal
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.”