In the end the difference was a couple hundred million or so. That’s the spread between the rejected offer made a month ago by a consortium of banks and Air Canada to purchase the Aeroplan loyalty program from Aimia and the deal accepted this morning. The increased cash offer was sufficient to win over the Aimia Board of Directors which now unanimously recommends the transaction. It also won over Aimia’s largest shareholder; Mittleman Brothers, LLC owns ~17.6% of the voting power and has agreed to the deal.
The July 25 proposal was for a total consideration of $2.25 billion, including $250 million in cash and the assumption of approximately $2 billion of Aeroplan points liability. Today’s version will see $450 million in cash change hands and the assumption of $1.9 billion in points liability. It is unclear if $100 million in points liability was redeemed in the past 4 weeks, lowering that exposure or if there is some other rounding involved.
We are pleased to see that an agreement in principle has been reached as Aeroplan members can continue to earn and redeem with confidence. This transaction, if completed, should produce the best outcome for all stakeholders, including Aeroplan Members, as it would allow for a smooth transition to Air Canada’s new loyalty program launching in 2020, safeguarding their miles and providing convenience and value for millions of Canadians. – Calin Rovinescu, President and CEO of Air Canada, on behalf of the consortium.
One major question about the deal is what it means for Porter Air and its VIPorter loyalty program. The carrier signed an agreement at the beginning of August to be a preferred Canadian airline to issue Aeroplan Miles on Porter routes effective July 2020. Redemptions were also on the table. Similar deals were also struck with Air Transat and Flair, adding more options for Aeroplan members in hopes of keeping them flying high on award seats once Air Canada and its Star Alliance partners were no longer available for redemption. It is fair to expect that those will be terminated should today’s announcement between Aimia and the consortium be consummated. An Aimia spokeswoman intimates such, without stating it explicitly, “Clearly a deal with the Consortium was contemplated in the context of the recently announced deals with Porter, Flair and Air Transat and they obviously were only expected to come into play in 2020. Pending a definitive agreement with Air Canada and the Consortium, it is business as usual and not appropriate to comment further on these.”
Read More: Air Canada, banks offer to buy Aeroplan
There were also rumblings about an integration with the oneworld alliance. Details remained light on those conversations but presumably a goal was to allow redemption without a host airline as part of the arrangement. That would have been a revolutionary deal but now it will not come to pass.
Can standalone loyalty win??
While the overall outcome of this exercise is mostly a status quo for consumers, albeit with significant money changing hands and other changes in the back office, the past month shows that standalone loyalty programs have a bit of life left in them. The willingness and ability to pursue deals and drive partnerships should not be underestimated. That does not mean spin-offs are necessarily a smart move, of course. The odds remain stacked against such, especially without a flagship airline large enough to keep consumers interested.
Consumers do not know nor care if the program is owned by the associated airline or a third party; the loyalty is to the airline and the travel rewards achievable there. Any efforts that break the relationship between the points and the airline break the loyalty between the consumer and the program. Maybe not all at once, but it is a major risk.
Good on Aimia for getting a higher valuation on the product; the long-term value of Aeroplan to Air Canada is certainly higher than it would be to Aimia as a standalone without the airline relationship, even if the smaller Canadian airlines were still in the mix. And good for Air Canada to ease the rebuilding of its loyalty customer base. Buying those members back en masse saves a lot of expense on the marketing side as the new program moves to launch in 2020.
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