pitz

AP was spun off, not because of the bankruptcy, but rather, because there were conditions in the capital markets, namely an 'income trust' bubble, which allowed companies like Air Canada (or ACE back then) to package up assets that could generate cashflows (in AC's case, the Aeroplan program and the promise of cheap or free flight redemptions through such program until 2020) and sell such into the markets for top dollar. Exploiting a tax loophole that was popular at the time, as well as a willingness of primarily elderly people to purchase such assets as alternatives to low-yielding bonds and other investments in the wake of 9/11 and the decision of the Bank of Canada and the Federal Reserve to drop interest rates to 0%.

Investments like the Aeroplan Income Trust were heavily marketed to investors, and retail investment brokers were often paid extra commission by their firms to move such investments into the portfolios of their clients. Personalities (using the term liberally here) such as Kevin O'Leary were on TV channels like ROBtv / BNN heavily pushing the concept of investing in such entities "for their yield" instead of more traditional stocks in which dividend growth is of a longer-term nature.

The valuations of these instruments, traded on the stock market alongside major corporations, were insane. A typical TSX stock at the time was trading at 15-17X trailing earnings. Income trusts as a group were trading at least 30X trailing earnings, and many of them didn't even have earnings. In hindsight, Aeroplan certainly didn't -- the entity destroyed capital over its entire existence, sucking $2B+ out of investors pockets, and only returning $450M + some distributions 14 years later.

A similar set of conditions did not exist in the United States or elsewhere; the income trust bubble was uniquely a Canadian phenomena. It was an opportunity that AC took advantage of post-CCAA, to raise some cash, and make the investments in new aircraft such as the 777 that are responsible for the vibrance of its contemporary business.

canadiancow

It has everything to do with unions. I don't know if @YUL-Insider is an insider from YUL, but I was told the exact same thing by people who would know. Insiders. Though not necessarily YUL-based.

RangerNS

It well could be both. The respective companies had their lines, and the respective jobs became the respective jobs. The unions defined the jobs as the historical norm, and more work requires more pay. The companies might have wanted to fix things, but then the limit is the unions then claiming that more work is different work, and a different job, and due more pay.

Joroy70

Is it the same consencus, should we still use our aeroplan asap :P

I've been aiming for SE100K so didnt get the chance to use my aeroplan

CXYYZ

On this point, I see some value in keeping Aeroplan "sticky" as a reward currency for people that are forced to spend on a corporate Amex. When I had one, I sure enjoyed the advantage of being able to direct points from both my personal and work spending into my Aeroplan account.

Transpacificflyer

Quote:

Originally Posted by canadiancow

It has everything to do with unions. I don't know if @YUL-Insider is an insider from YUL, but I was told the exact same thing by people who would know. Insiders. Though not necessarily YUL-based.

Sorry, but no. It's easy to say union problems, but it was more about exploiting a tax loophole in a market where enforcement of regulations is weak.
Pitz has provided a detailed explanation and IMO it is a pretty good assessment. Aeroplan is Unifor turf. Aeroplan Collective agreements are coming due in the coming months. The AC agents are with Unifor and their contracts come up in 2020.

BTW, I am expecting some a rough ride in the coming year as Unifor collective agreements come up for review. For example;
as per Unifor; Aeroplan Districts 104 and 404 members' current collective bargaining agreement will expire on November 14, 2018.The Bargaining Committee will be holding proposal meetings which will take place in early September. The purpose of these meetings is to solicit feedback from the Aeroplan membership on the issues that members would like to see negotiated in the next Collective Agreement. Hmm, I suppose a job might be on the agenda?

drvannostren

Absolutely nailed it like 10 days in advance haha. Nice call.

If you caught their wording they said the flights would START at the same level. To me that was a huge red flag hinting at "dynamic" award pricing which is absolutely toxic. As someone who isn't a multi million miler, I'd much rather have the uncertainty in the award seats rather than in the price. I know EXACTLY what I can do right now with 100,000 miles, just gotta find the right flights. Dynamic takes that away.

My bigger concern now is what will the miles be worth. I'm gonna burn my last 100,000 ASAP, but I'm curious about the value going forward. I'm not sure if as the rates are now if AC is happy with those levels or if they're gonna crush the value. The cynic in me automatically assumes they'll torpedo the value, but if they were happy before, then what's the sense in that? The optimist in me says at LEAST the first year will be good, they'll have some legitimately positive changes for the majority and then the year after they'll announce "enhancements" that break it down a bit and help the top 1% or people with so many miles they don't know what to do with them.

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This would be interesting. Amex, while the hardest card to use, seem to be the easiest to churn and get approved for in my experience. I've heard more retailers are souring on them, that's just anecdotal but maybe things will have to change on their end a bit. But having AMEX MR points or whatever they're called convert to more places would be great. In the US they transfer to so many airlines, but in Canada it's a handful and I don't know anyone who converts them to Asia Miles.

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Don't transfer them speculatively. Transfer if you've got a redemption in mind, same as buying miles. Currently AMEX provides you more options than transferring them to AP. That said, for me those amex points have always been useless, it was just an easy way to get 25,000 AP miles. If AP torpedos the value then you're screwed, if you keep them with Amex, a new partnership might open, or at the very least you can use an old partner if the new program "AP" or whatever goes south.

This really concerns me. We were all looking to earn and burn before the 2020 deadline, I'm basically at my goal already, moved away from my AP credit card late last year. But I'm like 3000 short of my redemption goal and I wanna redeem for Nov 2019, so I'm a little skiddish that between now and my 330 days out starting point that a change could come about or a "technical glitch" or something that throws off my whole plan. I'm not nearly as worried that somehow all the award seats will dry up, I don't expect any level changes, but if Aeroplan has basically no skin in the game now, they might play some games with tech glitches or inventory that work in their favor cost wise.

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If they limit your IKK usage though, it's still kinda bad, or if they raise the rates. Interesting concept basing the awards on stop/aircraft type, I'm not sure they'd do that but it's an interesting concept.

Let me ask you guys something though, is 2% the norm across the industry? The ONLY reason I care about inventory to YYZ is so that I can connect to other places. I don't really have any need to actually visit Toronto. If I can still relatively easily find YVR-TPE/HND/IAH/PEK then I'm kinda satisfied. Right now I actually really like Aeroplan, outside of the scam charges, but if the AC availability goes down to match the rest of the alliance, then I can survive. What I can't deal with is AA levels. There's almost never any J availability, there's constantly ridiculous overnight connections and nothing else. Even AS availability kinda sucks. There's far too often a forced overnight in SEA/PDX. I speak of the lowest fixed levels of course, I don't mess with the overpriced nonsense in these programs.

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Agreed, but I can flip them on the black market for Avianca Lifemiles or United Miles lol? This was my stance with the proposed new AC FFP, there was no details whatsoever, so the whole time I was thinking, ... are people supposed to do for 2 years? Earn to AP and have no idea what they'll be worth and start from scratch when 2020 rolls around? No thanks. If I was a heavy business flyer I probably would've switched my flying to other airlines if at all possible. As it stands almost all my earning goes to Asiana.

pitz

I believe with AC, it was a certain number of physical seats for literally every flight (that's where the 2% may have come from), plus every route has to have 8% of its seats available.

Seats to satisfy the 2% or the minimums generally are released 360 days out (??) and are promptly snatched up by vultures that constantly take a route and probably are burning CC points. The other 8% is heavily weighted towards lower-load days and off-peak times for obvious reasons.

I personally don't think that removing the 2% guarantee per flight is actually a problem. Those seats are taken up by vultures 360 days out, and definitely are not spontaneous or discretionary uses of seats. I believe these seats in most cases displace revenue sales and are used by small businesspeople/families collecting CC points and churning.

The bigger problem is that 8% per route disappearing, replaced with just 8% of the overall network. Some routes, particularly the transcons, are fairly integral to building Int'l reward travel. Having half the plane for YWG-YEG available in the middle of the winter for last minute redemptions is pretty useless to someone trying to build a YVR-Caribbean itinerary that requires a domestic transcon to YYZ to meet the daily departure banks. I fear that 8% of the seats may still be available, but they'll be such junky seats that they're utterly useless to build anything with.

yscleo

It will be bad news if the % of award seats are drastically reduced. In fact, when ae comes under AC, they can easily remove the 8% or whatever %. Yes they can still claim 8 or 20% of the entire network is available. Problem is only seats nobody really flies or wants are the once available.

The changes can happen in a few months, not having to wait till 2020.

skybluesea

and exactly why got off the hamster wheel about a decade ago.

AC serves about half my flying needs, with Star totals two-thirds - most of the rest on OW, bit on SKY, and but while mileage is low, do many short haul flights on Low cost carriers in Europe, Asia & South America.

AC gets NO incremental spend from me (better yet my clients) for its investments in volume discount programs like Aeroplan. And in turn this just frees up discretionary spending for BetterHalf and LIttle SkyBlueSea who get to fly for little cost pretty much whenever they want.

thanks AC for the discount

eracerblue

yscleo

It's true they need to rebuild confidence and win back customers. But there are also a lot of people not keeping track of what's going on. There was not the predicted run on miles in the last year. Now AC/ae will be more stable, there won't be a run leading to 2020, unless somethings happens to stir some mass panic.

tcook052

Will Air Canada purchase of Aeroplan bring friendly skies or turbulent times to customers? - Angus Reid Institute

Will Air Canada purchase of Aeroplan bring friendly skies or turbulent times to customers?

October 1, 2018 – More than a year of uncertainty for Canada’s more than five million Aeroplan members has many considering whether they should hold onto or their points or let them fly before an impending integration with Air Canada’s new reward system in 2020.

A new study from the Angus Reid Institute, conducted after Air Canada announced it would purchase Aeroplan and merge members of that program into a new, in house rewards system, finds that six-in-ten members are concerned that they will lose value from the points they have saved under the current loyalty program. Half also say they fear that some of their points will be lost outright because of this sale.

Despite this anxiety, however, few Aeroplan members are seeking to liquidate their points balance before the programs are merged. Three-quarters (75%) say that they will not change their plans at all when it comes to their accrued rewards.

heraclitus

That's amazing.

InTheAirGuy

Maybe those of us who fly a lot and work the program know what we are in for. I've burned down about 800,000 points in the last 13 months. Down to 15,000 miles. As SE and with MrsITAG SE, we'll continue to accrue, but until we know what is going on, it's 'burn baby burn.'

I don't need a toaster.