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The Future of Aeroplan

The Air Canada vs Aeroplan melodrama has come to a happy ending.  Happy, presumably for Aeroplan which will be quite cash-rich in the future; happy for Air Canada for dodging a PR disaster of monumental proportions; and most important, happy for Air Canada customers who were worried about the future of their millions of Aeroplan points.

Background: in 2017, Air Canada announced that it planned to create its own in-house loyalty program (name still to be announced, but the betting is "Altitude").  This would mean leaving Aeroplan, which ironically it originally created, then spun-off to a private company.  What Air Canada didn't forsee, however, was the enormous PR disaster this move would be, especially for its top flyers, Elite and Super Elite.  These flyers have special benefits because of their status that allows them to get access to points seats on Air Canada that regular Aeroplan members do not have.  With possibly millions of Aeroplan points to spend and no privileges once Air Canada departed from Aeroplan, these customers were pretty upset!

Fortunately, Air Canada, along with its partners - TD Bank, CIBC, and Visa - reached an agreement with Aeroplan to "buy back" the Aeroplan points and roll them into Air Canada's new program, when the time comes.  We can only hope the transition will be seamless!

In order to maximize the value of its points, Aeroplan took some pretty shrewd steps, announcing deals or negotiations with competitors of Air Canada - Oneworld Alliance, Porter Airlines, and Air Transat.  This put Air Canada in the awkward position of having a loyalty program with its entire list of customers now affiliated with the competition!  I suppose when it originally announced its plans to exit Aeroplan, Air Canada just thought Aeroplan would roll over and die.   It turned out to be a well-played maneuver on the part of Aeroplan, one that may be studied in business school courses in the future!

The deal is currently set at $450 in cash and the assumption of $1.9 billion Aeroplan points liability.

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The drama between Aeroplan and Air Canada continues to develop in as many twists and turns as a soap opera.

And the cast of players continues to broaden.

On Aeroplan's side, they have signed a deal with Porter Air, which might on its own be seen as a significant downgrade from Air Canada (and the Star Alliance).  It does, however, offer them considerable new leverage if their ultimate goal is to sell its program back to Air Canada.  Keep in mind that Aeroplan "owns" 5 million of Air Canada's customers, in terms of communication rights and points value.  The threat to Air Canada of a private company free to do whatever it wishes with that list is a big deal; and this can't help but inflate the cost Air Canada would ultimately be willing to pay to buy back Aeroplan's membership list as well as points. 

Add to that their threat to add a major group of airlines as partners, which has just become clearer when they announced they are in talks with the Oneworld Alliance of carriers (eg. British Airways, American Airlines, Cathay Pacific, Qantas).  This along with the Porter deal makes Aeroplan potentially a big problem for Air Canada!  As mentioned in previous articles, you can add to this the PR nightmare Air Canada faces when it has to admit to hits elite flyers that all the points they earned in good faith which the view of redeeming them on Air Canada & its partner airlines are lost forever (or worse yet - redeemable on competing airlines!).   That alone is a huge incentive for Air Canada to up the ante in its bid to take over the program from Aimia, the parent company of Aeroplan.

On Air Canada's side, the new player in the drama is TD Bank and TD Visa.  It has just been disclosed that TD Bank/Visa are very unhappy with the Aeroplan/Air Canada divorce.  As you probably know, TD Bank paid an enormous amount of money a few years back to wrestle the rights to the partnership from CIBC Visa.  Their position, as of a press release on Aug. 3/18, is that they are concerned about the value of the product post-Air Canada.  It appears that they joined Air Canada in the bid to buy back Aeroplan.

That bid has been rejected; but I doubt we have heard the last of this part of the drama.

Here's a review of my article posted about a week ago on developments, which are all still in play:

Aeroplan may have bought themselves a new lease on life following the fall-out from their announcement of the looming "divorce" from Air Canada some time in 2020.  That's if their promises for the future program actually come to fruition.

Up until now, Aeroplan's future, post Air Canada, looked bleak.  Their hints about what the program would look like suggested that it would be just like every other loyalty program where you can cash in points (at 1 to 2 cents a point) towards retail airline tickets; but their recent update (in July, 2018) is quite encouraging.

Aeroplan has been struggling with a marketing disaster since Air Canada announced last year that it intended to repatriate its loyalty program in-house.  Losing Air Canada would mean losing the opportunity for members to order business class tickets (at least by using a realistic number of points).  It would mean potentially losing preferred access to all the Star Alliance carriers.  And it would mean for some members holding hundreds of thousands or millions of Aeroplan points faced with the dilemna of trying to divest of these points quickly before the shoe drops in 2020.

All this may have changed, however, with the new announcements.  So, in addition to the "fly-any-airline" promise, which is identical to a hundred or so other loyalty programs, here are the special features Aeroplan members may be able to look forward to:

1. Aeroplan plans to launch its own charter flights to popular destinations and during peak travel times.

2. Due to its unparalleled size, Aeroplan claims to be able to negotiate significant discounts with airlines, hotels, and car rentals: this translates into being able to redeem awards at lower levels than competing programs.

3. Aeroplan will expand its "points-plus-cash" opportunities, so that those with fewer points than needed will have access to more rewards.

4. And the biggest deal of all, they plan to be able to offer members the opportunity to transfer points to nearly 20 airlines, covering several alliances.

#4 is an advantage that Aeroplan would share only with Amex Rewards in Canada.  (Amex Rewards currently allows members to transfer points to airlines in all three major alliances.)  The reason this is so important is the fact that the Achilles' heel of other non-airline programs is their inability to offer business class tickets at a reasonable number of points (typically it takes millions of points to redeem a major business class ticket.)  Airline programs offer business (and first class) travel for just a small percentage extra points.  (Although, admittedly they are hard to come by.)

My personal bet is that Air Canada will be one of those participating airlines that will accept a 1:1 transfer to their in-house frequent-flyer program.  I believe this because Air Canada is going to have a big PR program with its top flyers who earned millions of Aeroplan points - in good faith - only to see their access to Air Canada points evaporate as of 2020.  I don't think the airline really wants to have to deal with another year and a half of erosion in support of its current loyalty program, Aeroplan, which is essentially now a "lame duck," nor do I think they want to deal with the fall-out when their top flyers see that their Aeroplan points have less value to them than they assumed.

On that final issue, it should be mentioned that Air Canada top-tier members, particularly Super Elite members, have special access to Air Canada free seats, a benefit "ordinary Joes" don't enjoy.  If, as of 2020, those top-tier members still have massive amounts of points in Aeroplan, it is going to be a big deal if they lose their special benefits connected to the points they earned by flying their favourite airline.  Clearly, the pressure is on Air Canada to have a solution for its top flyers.  The perfect solution would be the ability to convert those Aeroplan points to Air Canada points in its new program, where their status continues to mean something.


Update: today - July 25/18 - Air Canada has made an offer to Aimia, Aeroplan's parent company, to acquire Aeroplan with the purpose of rolling it into Air Canada's new frequent-flyer program.  This would solve a big problem of Air Canada's - how to keep its most loyal customers engaged over an 18-month period of uncertainty.  Given, however, that Aeroplan is the key part of Aimia's portfolio and that they have now invested many months negotiating new deals and partnerships for Aeroplan, it is hard to say what their decision would be.  It is almost like the shoe is on the other foot now, and Air Canada is scrambling to recover the momentum.



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