Friday, June 9, 2017

Aeroplan, Air Canada and Aimia: Part II

The Aimia/Aeroplan saga trundles along as it will for some time to come, with a regular diet of smiles and positivity coming to us all from Aimia. This, of course, is to be expected, but there are certain elements of the future that are far from defined, and far from comforting for those of us with a substantial investment in this particular scrip.

Currently, Aimia are promoting a piece written by the respected and well-informed Jeffrey Kwok from his blog www.loyaltymatter.net. This is an interesting and well-informed blog, and he is well versed in the vagaries of the world of points, but I would like to take him up on a couple of elements in his piece.

Nothing is changing this very moment”, is the fist claim, and while he is correct in fact, in practice this claim is a touch disingenuous. With no clear and beneficial future, those of us sitting with millions of points, and there are many folks who have such numbers, are deciding to stop collecting and start using.

Many of these collectors have operated small businesses via a credit card for years, amassing huge numbers of points. These points, allowing for the inevitable inflation, have been earmarked for people’s retirement travel. I know at least four whose collection is over 10 million, and many others with several million Aeroplan points to their name. Now, they feel that they have two years to burn them, and the allocated award space is going faster than usual. One can expect an acceleration as we near the end of the Star Alliance alliance, and this feeling of urgency is a new phenomenon.

“You can still redeem like you did before” is true, but with diminishing returns. Certainly there are “exciting merchandise opportunities”, but unless you have been collecting points in order to get a new barbeque, this is not a really comforting option.

I would not be surprised if Aeroplan finds some other international alliance partner for which to redeem miles”. This is the crux of the whole problem; while I am sure that Aimia will find some outlets, the question is simply at what rate of exchange.

Remember always, that loyalty points are a massive currency with no central bank to back their value.

They, Aimia, are not an airline. As such they have no ability to trade seats with other carriers or groups of carriers as the airlines do. They will become a completely revenue-based loyalty program, and thus will have to buy seats, as the Avion, Air Miles and other non-airline programs do. This will in turn limit the price that they can pay, and any chance of Business or First Class rewards will disappear. And for this collecting Aeroplan in bulk, this opportunity, the aspirational seats, is the sweet spot.

Few collectors care about a low season ticket to Europe that still carries a $700 “service fee”; no, the aim is value, and in this regard the airline plans excel; they are able to trade Big Seats with each other, and not have to assign a cash price.

There will be other options, but until the exchange rate is confirmed, I do not believe that they will be of any significant interest.

“Will I still be collecting Aeroplan Miles? Yes”, says Jeffrey, and I wish him well. However, for those of us with a million miles or more, many are deciding to switch to a carrier where the attractive Big Seat options are available.

And here lies the rub.

As with every business, the 80/20 rule applies. 80% of Aimia’s revenue is generated by 20% of their clients. As revenue is generated by the sale of points to credit card (and other) companies, if the big-hitters stop collecting and change tack, this will hit Aimia’s cash flow very hard indeed. And at that point, collectors will have to start worrying about the longevity of a business who has already lost 65% of its market value.

I feel sorry for Aimia, although they knew that this was coming, or should have done, but there is no apparent Plan B, and serious collectors are now starting to burn their points in earnest whole there is still the opportunity to do so.


Sorry, Jeffrey, but this time I disagree!