Air Canada announced plans to end its long standing direct relationship with Aimia’s Aeroplan loyalty program and launches its own unnamed unit in 2020. While it is business as usual for all stakeholders, the future launch will have big impact for travellers, the airline, loyalty program competition and banks.
Current Status Between Air Canada and Aeroplan
The separation between Air Canada and Aeroplan is not surprising as the airline has been distancing itself with the loyalty program since 2015 with the introduction of Altitude which is “designed to enhance the travel experiences of our most frequent flyers. Open to world travellers, business people, adventurers, dreamers, doers and curious people like you, Altitude is your ticket to an ever-growing world of experiences.”
The new scheme replaced Aeroplan for earning elite qualifying status through flying on eligible airlines and purchases of selected flight passes. The partnership continued only on earning and redeeming award miles. In return, Aimia created its new status program called Distinction which is earned through spending on eligible product and service purchases.
As per Aimia’s 2016 annual report, Air Canada is its largest mile accumulation partner representing 11% of its Gross Billings for the year (up 1% from 2015). The airline and its Star Alliance partners are also the company’s largest redemption partner representing 47% of its total reward costs (up 4% from 2015). Under the current updated the CPSA that started on January 1, 2017, Aeroplan has a commitment to purchase reward travel seats totalled to approximately CDN$567.5 million each year (based on data on presiding three years ended December 31, 2016).
The amended and restated CPSA dated June 9, 2004 between Air Canada and Aeroplan will expire on June 29, 2020. This means the terms of conditions of the agreement including purchase of reward seats on Air Canada/Star Alliance airlines, marketing efforts, call center coordination and member administration will continue.
What does Air Canada’s Press Release Mean?
In its press release, the airline stated that between May 11, 2017 to June 2020:
“Aeroplan members can continue to earn and redeem miles in accordance with the Aeroplan program:
- Before the new Air Canada program launches in June 2020, members will be able to earn and redeem Aeroplan Miles for Aeroplan Rewards, including flights with Air Canada and our Star Alliance partners in accordance with the Aeroplan program. If you wanted some perspective on how other airlines consider what to look for in air miles credit card so you understand what other organizations are offering.
- After June 2020, miles earned from Air Canada and Star Alliance flights will be credited to the new program, with customers able to redeem those miles for rewards including Air Canada and Star Alliance partner flights.
- Aeroplan miles earned up to June 2020 will stay in Aeroplan members’ accounts, and will continue to be subject to the conditions of their program.
- Air Canada intends to continue to offer Aimia redemption seats for Aeroplan members after June 2020, with pricing competitive with other third-party rewards programs.
- The airline’s most frequent flyers will continue to enjoy Air Canada Altitude status recognition and its associated range of travel privileges, based on their annual flight activities with Air Canada and the Star Alliance member airlines. All Million Mile program qualification activity and status will also be honoured in the new program.
- Air Canada intends to implement near-term improvements to Air Canada Altitude and other elements of the customer experience.”
In a nutshell, it is business as usual for Aeroplan members earning award miles through flying with Air Canada and its partners, using eligible credit cards from TD Bank/CIBC/American Express or through purchasing products/services from eligible vendors. Members should not feel that they are being abandoned immediately from redemption as there is a contractual requirement as stated above to purchase seats on Air Canada and its partners. It is important to note that award seats can only be redeemed up to 356 days in advance.
There are many unknowns to the announcement on what will transpire between now to Air Canada’s new loyalty program launch date in 2020. Here is a Top 5 list of unknowns. We will discuss them and more in a future post.
Top 5 Unknowns
- Why did Air Canada decide to launch its own program and what should be included?
- How will the Aeroplan be changed in June 2020 when it does not have exclusive access to Air Canada and Star Alliance partner seats for its members?
- How will the Aeroplan program change its flight redemption requirements as its members try to book flights ahead of June 2020?
- How will affiliated credit card holders and companies be affected when it comes to earning miles after June 2020?
- How will loyalty programs change in general for the next three to five years?
Air Canada / Aeroplan – History
Air Canada started its own frequent flyer program, Aeroplan, in 1984 to reward loyal customers and compete with other airlines with similar schemes locally (e.g. CP Air) and internationally (e.g. British Airways, American Airlines, United Airlines). Aeroplan quickly became the de facto program for Canadian travellers as the only one available to earn and redeem miles on Air Canada flights initially and then on Star Alliance partner flights after 1997. The program expanded into the lifestyle space through partnerships with hotel chains, car rental and co-branded with CIBC on a credit card offering branded Aerogold®.
It was spun off as a separate wholly owned subsidiary of Air Canada to unlock its valuation potential in 2002 when the airline became a takeover target. This paved the way for the airline’s parent company ACE Aviation Holdings to sell 12.5% of the unit for CDN$250 million (valuing the unit at CDN$2 billion) through an initial public offering of the Aeroplan Income Fund in 2005. The sale was the first of its kind in the world.
The new income fund acquired Loyalty Management Group, a marketing and customer analytic business with its own loyalty program called Nectar based in the UK in December 2007 as part of diversification. ACE Aviation Holdings disposed the rest of its shares on Aeroplan by May 2008 for CDN$349 million. This meant that Air Canada no longer had any direct control over Aeroplan’s operations.
Under their updated Commercial Participation and Services Agreement (“CPSA”), Air Canada would continue to provide Aeroplan with up to 8% of total seat capacity by route by month and also allow the loyalty program access to every revenue seat on Air Canada and its subsidiaries using market pricing (“Market Fare Flight Rewards™”). The corporate name was changed from Groupe Aeroplan in 2008 to Aimia in 2011 to “reflect the fact that the program has grown and diversified into a comprehensive customer loyalty program with hundreds of participating retailers.”