vernonc

Oneworld has already confirmed that they are in talks with AE

yscleo

ae got Porter. ae in talks with OW. ae probably in talks with many more parties. Heck can ae become partners with both OW and Skyteam?
Can ae talk to UA, or *A? A better arrangement will be aligning with UA, and not having to pay the scamcharges to AC.

1Newflyer

$2B in liability? So where is the cash that banks and other partners paid for the points? The $300 M in cash at Aimia I saw someone commenting is peanuts compared to the money paid for issuing the Aeroplan points.

canadiancow

You seem to be equating visual design with technical design. They're completely independent, and if the latter is done properly, the former is much easier to change.

I am not talking about anything that you can "see". I'm only referring to the underlying architecture.

Less than 2 years? Why do you think they hired Mark Nasr? They didn't start this process yesterday. Not that I even agree with your comment that 2 years would be hard.

Exactly. Everyone saying "AC can't do IT" doesn't quite understand that it's their association with IBM that's making them look bad. And they're clearly bringing a lot more stuff in house.

Agreed.

YEG USER

imverge

When you think about the biggest complaints about Aeroplan it's not their fault.

1) Available seats - Air Canada decides the number of available seats for redemption on each flight.
2) Fuel Surcharges - Air Canada being the ticketing agent is the one that levies and keeps the fuel surcharges.

I'm certain Air Canada has calculated how much they collect in scam-charges from Aeroplan tickets and it must be HUGE.

FlyerTalker70

yscleo

Come 2020 AC isn't obliged to provide 8% redemption seats per route to ae. AC can simply provide no seat on some routes, and only release lousy seats on poor connection routes. You like to fly YYZ to SFO, lots of choices with 2 connections.

Shareholder

FF/Loyalty programs have a weird type of accounting and can only book that revenue when the miles are cashed out. They can show that income on the balance sheet as an asset, offset by the miles bought which are a liability. But they cannot show it as operating income. Aeroplan clocks a lot of its operating income from the service fees it charges, in addition to "released income" on the miles redeemed, or that [used] tp expire. They can reduce the $ value of the liability by what they call "breakage", miles that will never be cashed. IIRC that figure is between 10% and 15% of outstanding miles.

Fiordland

I am certain there are a number of people who fly AC fairly infrequently (or even frequently) that just don't cash in the Aeroplan miles. When AC has a new program house people will start to earn in the new program. A year or two later there Aeroplan account will go to 0 due to in activity. Some of that liability may just disappear on its own fairly quickly.

yscleo

How Air Canada’s approach failed to land Aeroplan

..The group, which launched a $250-million bid for the Aeroplan business on July 25, had agreed to increase the price to $325-million and change some other terms. At a meeting late Thursday in a Bay Street office tower, Air Canada and its partners decided to turn up the pressure, according to a source familiar with the talks. You’ve got 32 minutes to give us a ‘yes’ or ‘no,’ the group said to Aimia representatives – and no more negotiating fine details.A half-hour later, Aimia walked away,......Now Air Canada must play defence. On Bay Street, there are questions swirling as to why the airline apparently reversed course on building its own in-house loyalty program and sought to reacquire Aeroplan instead. It is possible that building from scratch is harder than Air Canada anticipated.

pitz

Most of it went out the door as 'distributions' to "income trust" unitholders. The whole idea of the AP spin-off, was to 'endow' AP with a valuable asset, the right to sell low-probability-of-use seats on AC until 2020. In exchange, AC received a large amount of up-front cash which they used to finance amongst other things the 777 purchases post-CCAA.

Since income trusts were a bubble in the early-mid 2000s before the Minister of Finance (Flaherty) finally put an end to the structure, AC was able to monetize AP for top dollar. The flip side of monetizing AP for top dollar was that the owners of AP income trust units were destined to suffer severely as they overpaid for the asset.

AP is a classic case of investors severely over-paying for an asset (in this case, the ability to redeem flights on AC), and then wondering why, 15 years later, that their investment didn't work out too well.

I don't buy the argument that AP's management was incompetent, or that they even had the ability, in practice, to be entrepreneurial and develop vast and rich relationships with other partners. AP and AC were always linked at the hip, only that AP was 'independant' due to the financial engineering that had taken place to turn it into an income trust in order for AC/ACE to raise funding to pursue the 777 purchases and to provide shareholder returns. The organizations mandate pretty much was to generate as much cash as possible for unitholders, and then shareholders post-conversion. Not expansionism. Most income trust structures were deliberately designed to deplete their capital base and then go into liquidation. The quintessential example of such was depleting oil wells, but a pool of flight redemptions is also a depleting asset.

I don't have the charts handy, but I remember AP having distribution yields of 7-8% or so, while not posting much of anything in terms of GAAP-compliant earnings. Meaning that the entity was deliberately set up, from the outset, to asset-strip its main asset, the right of redeeming flight rewards on AC. The entity was specifically engineered as such as to create a high yield, so it could be marketed by the sales teams to investors in the income trust "fad" of the day.

pitz

They already release the worst 8% of seats possible, subject to a few contractual minimums which force them to release slightly better seats on certain flights. The whole idea behind AP and similar programs is that a redemption will *never* displace an actual revenue sale. This is how accounting, and even the tax authorities can consider AP rewards and points to be value-less. AP can best be thought of as a system for allocating un-sellable seats amongst AC's customers and AP points collectors generally. No business traveler, for example, would ever take that YYZ to SFO connecting in ORD and DEN.

Before FFP's, they had other schemas to do this. I'm sure we all have an aunt-in-law who is hopelessly stuck in the 1960s and still thinks there's 'student standby'. Staff used to be given more generous privileges in terms of allowing their friends and family to travel "space available". Etc.



When you run through the math, with the scamcharges, and for what the cost of an AP point actually is to customers who buy them, they're often getting pretty close to lowest Tango or even P fares net of taxes. For tickets that otherwise have very low probability of sale, that's not a bad deal for AC. Sure beats putting such ridiculously low fares onto the GDS and having them 'compete' against the normal fares. With a program like Aeroplan, AC is able to keep their "public" pricing up, while still getting some pretty good yields on the low grade junk seats they probably couldn't sell otherwise.

This will become even more important if we head into an inevitable recession. An independent AP didn't really allow AC to adjust the program to its business needs, or trends in the industry. When AP is back under AC's control, it will be able tune the program to be much more responsive to business needs. I'm not so sure why the whole matter has been portrayed so negatively in the press or even here. The best possible scenario for AP points holders is for AP to return to AC control. Of course AP's management has a fiduciary responsibility to its shareholders to achieve the best value for their asset, so they're going to put on their dog and pony show. And negotiate with mythical entities (ie: "OW") if need be. But at some point the question will have to be put to the shareholders, which is probably the next phase -- a hostile takeover.

newfbc

So you think they might try to take over all of Aimia rather than buying the Aeroplan unit?

Ron.

username

It seems that if AE goes back to AC, it might not be a good thing for the long run. You kind of want a strong competitor to AC on this front in Canada, right?