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Air Canada groups up with monetary companions to provide to shop for again Aeroplan

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Air Canada is teaming up with three financial services giants to try to buy its former loyalty program, Aeroplan, from its current owner.

Air Canada, Toronto-Dominion Bank, CIBC and Visa made the announcement Wednesday they want to buy Aeroplan from Aimia, in exchange for taking over the liability of $2 billion worth of outstanding Aeroplan points, plus $250 million in cash.

The airline announced last year it would soon be ending its 30-year partnership with Aeroplan, a development that sent the parent company’s stock price tumbling and scrambling for new partners.

Air Canada started Aeroplan as its loyalty program in 1984. It was sold off in an initial public offering in 2005, when Aimia was formed.

Aimia has since diversified into other loyalty programs, but its core holding is still Aeroplan.

Aimia is valued at roughly $472 million on the TSX (based on where the shares were trading before Wednesday’s announcement) — about a third of what the company was worth last summer when Air Canada announced it was leaving.

The airline’s decision last year to part ways with Aeroplan sent the loyalty program’s shares into a tailspin that they have yet to recover from.

“Air Canada wanted a certain level of mobility in their reward program,” said Gilles LeVasseur, a professor of business and the law at the University of Ottawa.

“The airline was concerned about Aeroplan’s cash flow at the time, as well as their inability to work with other credit card providers “so they ditched it so they could get more flexibility.”

Credit card companies have keen interest in Aeroplan

Swooping in now at a depressed stock price could prove to be a steal in the long run, he says.  When TD Bank bought credit card firm MBNA in 2011, they paid almost $10 billion, just for access to the company’s lucrative customer base.

Credit card companies have a keen interest in Aeroplan, he said, because it is the premier loyalty program in the country, and the tough times it has been experiencing has made it harder for them to entice and keep card users by offering them points for signing up.

“The credit card companies are very nervous right now,” he says. “There comes a time where you ask yourself what happens if the program fails,” LeVasseur said.

Air Canada announced earlier this year it would be parting ways with the Aeroplan loyalty program, but is now aiming to buy the whole company with help from potential business partners. (Air Canada/CBC)

The airline recently announced plans to start its own loyalty program from scratch, and the offer Wednesday seems to be part of that larger plan, as if the offer is accepted the new owners would convert all five million Aeroplan members and points to the new Air Canada program. 

“We heard from many customers who were excited about our plans, and would prefer to transfer their Aeroplan Miles to the new Air Canada loyalty program,” Air Canada’s chief operating officer Benjamin Smith said in an email to customers shortly after the deal was announced.

“This is what this proposed deal allows us to do — if successful, all Aeroplan Miles would transfer into the new Air Canada loyalty program in 2020.”

Aimia’s shares surged as much as 44 per cent to $3.52 per share after trading on the Toronto Stock Exchange opened on Wednesday morning.

Both TD and CIBC offer Visa credit cards that allow users to accrue Aeroplan points, so the financial partners in the deal also have a vested interest in Aeroplan’s future. In September, Air Canada announced it was seeking a credit card partner for that unnamed loyalty program.

Offer expires Aug. 2

But the clock is ticking on the offer. Air Canada and its financial partners say their offer requires an answer by Aug. 2. Aimia is scheduled to reveal its latest quarterly results the next day.

LeVasseur says he expects Aimia to take a close look at the deal and try to finagle more cash out of the offer before ultimately accepting.

“TD, CIBC and Visa, these guys can write the cheque,” he said.

Aeroplan can use those funds to invest in other parts of its business, but ultimately LeVasseur thinks it’s unlikely they’ll find something that can make up for the 80 per cent of their revenues that currently come from Aeroplan.

Last weekend, Aeroplan unveiled its own vision for its future, built around offering its own charter flights and functioning much like a travel agency.

“If Aeroplan is no longer the program, the company will not have a substantial market value,” he said. “You can go in smaller places but it will never be the same.”

SOURCE: CBC.ca

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