Breaking news: Loyalty plans can be big money-makers for airlines!
Okay, so maybe that’s not exactly hot off the press— airlines for years have earned big bucks from their loyalty plans; remember the early 2000s, when America’s big airlines kept themselves alive by selling miles? Still, loyalty really is a newsworthy subject right now, with airlines throughout the world making big moves to improve and expand their programs. Some are creating new programs. And one is buying back its old program.
Air Canada, which never really wanted to sell its Aeroplan business in the mid-2000s, did so to get itself out of bankruptcy. In much better financial health today, the airline—together with two Canadian banks and the Canadian unit of Visa—is buying back the plan. Aimia, the current owner of Aeroplan, has an arrangement today that obligates Air Canada to buy a preestablished number of its Aeroplan miles every year, at a specified rate. When members want to redeem their miles for Air Canada tickets, Aimia buys the seat (at discounted rates). Under this arrangement, Aimia’s revenue from Air Canada exceeds its payments to Air Canada, in part because about 13% of the miles held by members are never redeemed—this is called breakage. The problem: The agreement expires in June 2020, and Air Canada last year—with no apparent hesitation—notified Aimia that it won’t renew. Hence its deal to reacquire Aeroplan, whose members will seamlessly enroll in the new plan Air Canada is now creating.
That new plan will likely provide a big boost to Air Canada’s earnings—its likely credit card partners TD and CIBC (the banks joining with it to buy Aeroplan) will surely pay handsomely for the privilege. At the same time, rival WestJet is making its own major moves in the loyalty space. Last year, as it added benefits to its Rewards program, active membership spiked 18% y/y. The number of people holding the WestJet RBC MasterCard rose 34%. Then in June, it teamed up with RBC to announce Ampli, a new and entirely separate loyalty plan for Canadians shopping with a variety of retailers. (It surely hopes for a better fate than similarly named Plenti in the U.S., a retail-focused loyalty program—but…
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