canopus27

Gotcha.

My focus was more on Aimia, not Aeroplan. After all, it's the Aimia stock that has crashed, not Aeroplan (which is just a program owned by Aimia)

My hypothesis is that Aimia should have worked harder to develop more programs that were peers to Aeroplan. Perhaps with airlines. Perhaps with train companies. Perhaps cruise lines. Perhaps with vacation brands. Perhaps all of that. They had 15 years, for goodness sake .... they should have done more.

I read somewhere that Aeroplan is currently responsible for 80% of Aimia's revenue. That would have been reasonable for the company just a few years after it was spun off from AC .... but it's almost dereliction of duty for it still to be the case after 15 years.

Because of that singleton primary customer, the entire company (Aimia) stock price crashed when Air Canada said they were walking away.
Because the entire company (Aimia) was in trouble, Air Canada were able to offer a low ball price for the Aeroplan program.

An alternative reality could have been that Aimia owned and operated 15-20 vibrant programs by now, spanning multiple industries.
In that reality, Air Canada saying that it was walking away from Aeroplan may have hurt Aimia ... but not by as much as it did.
Consequently, the value of Aimia would not have dipped as much as it did.
How much the value of the Aeroplan program would have been impacted, is an interesting question. Perhaps not much. Perhaps a lot.

But when the owning company is on the ropes, and undergoing an existential crisis ... they are in no position to drive a hard bargain. And that has to mean that Air Canada can drive the hard bargain, and offer a lowball price.

YUL-Insider

Aimia only invested in Club Premier (AeroMexico) and hasn't partnered with the airline. I doubt that Aimia was permitted to partner with any airline due to its contract with Air Canada.
Aimia had diversified over the years but none of its business have been as successful as Aeroplan.
https://www.aimia.com/our-businesses/

canopus27

As I wrote above, I think this is a key question.

If Aimia (not Aeroplan) were contractually not allowed to partner with other airlines ... then I'll have a lot more sympathy for the situation they find themselves in now.

If, on the other hand, there were no contractual limitations, but just a failure on Aimia's part to execute ... then their current predicament is their own responsibility, IMHO.

RangerNS

There is the question of what other airlines would have wanted to partner with them on an AC/AE style shotgun divorce. It isn't like Aimia has any mindshare anywhere else.

Arguably they have IT skills (ha ha, no one would ever make that argument) but the valuable data is exclusively about AE members. So while they could have become a simple service provider (holding zero financial liability) to any number of hotels/resorts/bars/crappy tire stores, any one of those potential points-program customers would have taken one look at the website (down for maintenance) and laughed at them. Every potential partner has zero customer data, why would you partner with someone who can't keep a website running more 8x5?

Aimia has had 15 years to showcase their platform that runs a profitable program run (and hold financial liability for).They have failed to do so.

quantumofforce

How do you type both Ł and ₤ ?!?!
​
​​​​​​Good points (unlike AE points)

Stranger

AC got cash they badly needed and would have been willing to offer whatever for.

And surely someone made good money on the deal.

First part may be true, latter does not seem to match what one hears around here. If that were indeed the case, I don't see why AC would not have continued the current arrangement? Surely if AC got of of the deal on the first opportunity, it is because they felt it was too onerous for them? (Rewards may costs travellers nearly the same as a low Tango, but that's not really what AC gets from AE. Issue has been discussed around here.)

Bottom line being that FF programs give away empty seats, seats with zero marginal value. While AE sells so many miles so cheap that the volume they need is way more than seats with zero marginal value. Possibly worth actually more than lowest tango.

I would imagine that with AC taking over their FF program, the price they sell miles will go up, and the miles floating around looking for seats will be less, so as to bring volume closer to a reasonable equilibrium point. That or, as to some extent they already do with IKK, finding some way to deal differently with frequent fliers than with credit card mile holders.

Anyway, what is clear is that AC did not like the current status quo. Buying AE back or not. I suspect the buy back thing is driven by (1) convenience and cost of setting up their own FF program, and (2) appeasing people with large balances who are afraid their miles will go (more or less or fully) belly up.

canopus27

Same way that you did, I suspect .... copy & paste.

I'm glad that I publicly credited Wikipedia, but see if you can find exactly where I copied from

pitz

AP obviously didn't want to pay what AC had previously received (in the form of that up-front "payment" through the IPO) for the low-percentile seats. AC knew they had the stronger position, of being able to destroy the viability of the AP business if they refused to offer AP a very good deal. So after a bunch of gamesmanship, "here we are". The behind the scenes plan all along was to IPO AP, get a bunch of cash, and when the obligation to AP ran out, buy the then-worthless asset back.

It should be noted that basically Enbridge has done the same with their "Enbridge Income Fund", IPO'ed under similar circumstances, of high income trust valuations. And various other low-quality, but "cash-flowing" assets were sold off at top dollar in many industries. Many of those assets were either liquidated as they were end of life, or have been re-absorbed as ENB is in the process of doing with ENF.

AP received, as part of the IPO, a liability (the points), and an asset (AC contractually giving them "free" seats until 2020 per a formula). Too onerous? I don't see any evidence of that. Of course the initial up-front endowment to AP as part of the IPO had expired.

I've heard 8% of seats on AC are redeemable for AP redemptions. Subject to a few minimums, that's still well beneath their actual empty seat factor (opposite of load factor) by a substantial margin.

I personally don't believe there will be any changes in the ability of end-users to redeem. In periods of recession, where load factors fall really low, AC might, for instance, allocate more seats to redemptions to keep butts in seats and keep planes from being dispatched empty. But other than that, most people, within reason, who use AP are able to redeem for flights. Maybe not mini-RTW's in business class with no scamcharges. But they are able to redeem if they are flexible with their times/dates. Of course, yes, the Altitude program is to recognize top tier customers, and that probably will stay as a branding for the top tier recognition program.

I don't agree with your belief about "the current status quo". But the status quo wasn't sustainable as AP had exhausted the long-term block of seats it had been given as part of the spin-off/IPO, and there was no reasonable price at which they could purchase another block from AC and still provide a similar redemption schema. Remember that AP's owners saw their shares go from $20 to $5, meaning that AC as a company and AP redemptions were actually subsidized, in part, through the failed investment of AP unitholders (later shareholders when they incorporated).

skybluesea

Praetorian

Hopefully they don't accept the hostile takeover offer!

Stranger

Why?

I don't have too many miles unspent, so for me, a hard AE crash with people losing their miles might actually be a plus.

But still for most of us,, would not only make life somewhat easier if the miles would just stay there through the transition, but more importantly, would keep their current value and current reward system.

InTheAirGuy

I had Aimia as a client, and spent time with their senior leadership, including the fellow who took it private.

I came away with an opinion that the leadership was full of hubris, knew everything better than anyone else ever would, and that they had everything mapped out.

I've encountered this in many organizations, but at Aimia/Aeroplan, it was off the charts. I'm not at all surprised at where things have ended up.

skybluesea

pitz

thNegotiation tactic. But really unfortunate that fake business news would spin AC's bid for AP as being negative, when it is in fact very positive compared to the alternatives.

skybluesea