When holders of Aeroplan-branded credit cards spend, they rack up points, which partners such as Imperial Oil have to buy from Aimia. Those sales, which account for 30 per cent of Aimia's total billings, bring cash in the door, but don't get booked as revenue until members cash in the points (at which point Aimia books the expense of buying the rewards, mainly Air Canada tickets).
That is, with one important exception. Some points are considered "broken" – typically 16 per cent to 21 per cent are never cashed in – and recognized as revenue immediately, flowing straight to the bottom line. The impact is enormous: "Breakage" revenue in the third quarter was $46.3-million, or half of adjusted operating profits.
Points drive revenue, breakage drives profits.
Last edited by tcook052; Nov 28, 12 at 1:36 pm..
Reason: Reposting news articles in entirety not allowed by FT TOS
Yes, with the end of 2013 expiration of points, there can be a flood of redemptions later in 2013.
The possibility of merchants charging extras for people using premium cards, is the one that is of more concern. My 2% cashback mbna card is looking better again.
Finally, the articlea correctly points out how the taxes, surcharges and seat restrictions are devalueing the points.
Hope it will become true that the airlines switch to straight cash-rebate programs, as that'll put the comparisons on a level ground.
The 2013 point redemption arguement is a red herring. There will not be higher than average point redemption because the Classic awards are not being increased while the Classic Plus awards have much higher than average redemption levels that individuals with 80k or less points cannot redeem.
Overall the 2013 breakage arguement speaks to the authors ignorance of the subject.
The 2013 point redemption arguement is a red herring. There will not be higher than average point redemption because the Classic awards are not being increased while the Classic Plus awards have much higher than average redemption levels that individuals with 80k or less points cannot redeem.
Overall the 2013 breakage arguement speaks to the authors ignorance of the subject.
If you believe 100% of the available award seats were always redeemed, then your argument is valid.
When people see their points are about to expire, they will try to book something, rather than let them expire. That is just human nature. They will even redeem for dates/flights that are not ideal for the schedule -- again just so the points don't expire.
That will mean there will be a higher rate of redemption. Where Aimia assumes a certain % of points that will not be redeemed, this article quite correctly points out that that % may not be accurate, and there may actually be a higher rate of redemption rather than no redemption next year.
The possibility of merchants charging extras for people using premium cards, is the one that is of more concern. My 2% cashback mbna card is looking better again.
If the Competition Tribunal rules in favour of surcharging, it's not just premium cards that are at risk. Merchants will be free to tack any fees on they want on any cards they want. Low-margin rewards programs such as 2% cashback are going to disappear if merchants charge you 3% just to use it.
If the Competition Tribunal rules in favour of surcharging, it's not just premium cards that are at risk. Merchants will be free to tack any fees on they want on any cards they want. Low-margin rewards programs such as 2% cashback are going to disappear if merchants charge you 3% just to use it.
Ah, that's no good. In the US we see many places charging a few % extra for using CC's. If that happenes here, it'll force a lot of people to pay cash.
The 2013 point redemption arguement is a red herring. There will not be higher than average point redemption because the Classic awards are not being increased while the Classic Plus awards have much higher than average redemption levels that individuals with 80k or less points cannot redeem.
Overall the 2013 breakage arguement speaks to the authors ignorance of the subject.
Except that people might just cash them in for gift certificates/merchandise. The flight rewards for average users may be less attractive due to fees etc. (No taxes on merchandise purchased with miles, only flights?).
Except that people might just cash them in for gift certificates/merchandise. The flight rewards for average users may be less attractive due to fees etc. (No taxes on merchandise purchased with miles, only flights?).
Definitely. Rather than seeing points expire, most people will try to redeem them. Flights, GCs, even toasters. Anything is better than nothing.
Ah, that's no good. In the US we see many places charging a few % extra for using CC's. If that happenes here, it'll force a lot of people to pay cash.
Same in Asia.... you pay by CC 3%..... Debit about 2%....... cash - 0%
Same in Asia.... you pay by CC 3%..... Debit about 2%....... cash - 0%
Depending on how it is setup, such a scheme might be outright illegal in certain provinces, for instance, in Quebec, it's illegal to tack on any additional charges over the list price (except of sales taxes and certain other fees such as tire disposal fees) which will mean either the shops will stop accepting cards or will pass the 3% fee to everybody, even those paying cash.
Depending on how it is setup, such a scheme might be outright illegal in certain provinces, for instance, in Quebec, it's illegal to tack on any additional charges over the list price (except of sales taxes and certain other fees such as tire disposal fees) which will mean either the shops will stop accepting cards or will pass the 3% fee to everybody, even those paying cash.
Is it illegal to offer discounts? If not, bump everything up 3% and offer a 3% cash discount.
