Showing posts with label Aeroplan. Show all posts
Showing posts with label Aeroplan. Show all posts

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 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!

Friday, May 12, 2017

Aeroplan and Air Canada

Aeroplan’s slow demise started months ago, and Air Canada’s announcement yesterday that they were going to intervene in their headline program was simply an inevitable conclusion to a slow motion drama. That Air Canada did not own their primary trade-brand has come of a bit of a shock to a lot of people.

First, some background. American Airlines, back in 1981, had a brilliant idea; reward your best customers with free flights. Their program, American AAdvantage continues to this day, but the simplicity of the original concept has been lost in an ever-growing, and completely unregulated, jungle of scrip. Air Canada’s program started in 1984, and has been a powerful marketing tool ever since.

The real benefit of airline points
However, “points” are simply a currency; their value lies in people’s belief that by accumulating them, a benefit will arise. There is no central bank, the closest is an organisation called that for a massive fee will exchange one kind of point for another, and there are no exchange rates. Issuers simply print more and more, and the inevitable inflationary pressure this creates causes the redemption rates to rise rapidly. As more people have accumulated these points by the millions, the liability that airlines carry for their redemption has got completely out of hand, and something needs to be done.

That the system is out of control is indisputable; how a managed deflation will occur without annoying millions of customers is a tricky path to determine. Air Canada have struck the first blow, and are, if fact, to be commended.

The devil, however and as always, is in the detail.

There are two types of points in circulation. The first are those offered by airlines and hotels, and are backed by the promise of access to their (and their partners’) products. One gets sufficient airline/hotel points and one can claim a seat/room. To expand their attractiveness, they join alliances, and thus Aeroplan points were usable on the seats of all of their Star Alliance partners.

The second type of points are the loyalty points that are offered by Air Miles, the TD Bank "Infinity" and RBC “Avion”  programs. These represent money, and are simply individual accounts that a portion of the money gained through merchant fees is assigned for future use by the cardholder. Thus when one has reached a certain spend threshold, say 60,000 points with RBC, one can get a ticket to Europe, but with the caveat that there is a maximum value of $1,300 that is applied to the fare only, and not the taxes/surcharges. In this case, one can see that the value per point is 2.1% - spend $60,000 and get a (maximum) $1,300 value. Other programs are less valuable, some only offering a value of 0.5%.

If you wonder why the value is applied only to the ticket bear in mind that the actual “fare” can now comprise less than 50% of the total cost, and the “fare” often carries a substantial commission from the airline that again lowers the actual cost to the bank.

The difference is significant. Aeroplan is not owned by an airline, it was sold to a private company Aimia to raise money in 2002-5, and now, while the carrier has a management relationship with Aimia, they are not the operator. This is a very significant difference, and one of the factors behind the change, I believe.

While partner airlines can trade seats between each other, Aimia can not do so; and recently, Air China, COPA, Avianca and now Swiss have been blocking their seats from Aeroplan redemption. Will more carriers follow suit, thus further devaluing Aeroplan’s attractiveness? The points’ utility is decreasing, Aeroplan staff have been told to say that “it is an IT problem”, which it is not, and the service is faltering. The currency is devaluing and Air Canada are faced with the problem of how to rescue their loyalty program. Their decision was powerful, and a strong enough signal to cause Aimia’s stick price to drop by over 60% on the day.

The future:

We know little. We have been told that after June 2020, Aeroplan will no longer be the Air Canada (and thus local Star Alliance) program and any accrued points will be the responsibility of Aimia. There will be a new program, but one cannot accrue points in it now, and Aeroplan points will not be transferred into it; difficult if one is saving for a Star Alliance redemption beyond June 2020.

For those many, many people who already have sufficient Aeroplan points to last them for a couple of years, given today’s information, I would suggest the following. Enroll in another Star Alliance program, Aegean Airlines if one wants to travel to the Mediterranean, United Airlines' program for those looking to visit the US, Lufthansa/Swiss for a more global reach and accrue the Air Canada miles on those programs. Switch credit cards to one that offers miles in a known program (MBNA has an Alaska Airlines card that I use, the miles being good for a wide variety of carriers), there is British Airways card available, and the American Express cards offer a few redemption options. There is also, of course, a WestJet card, but this is really only good for travel on their network, and is again, revenue-based.

And wait and see. Having successfully knocked $1 billion off the market price for Aimia by a slight flex of muscle, perhaps Air Canada will simply buy Aeroplan back, recalibrate the program and continue as usual – this would be a fine outcome for everyone. And perhaps they will decide that they can comfortably rid themselves of the massive liability of accrued points by letting Aimia die and move on to a brave new world.

One thing is for certain; one can be pro-active or reactive, and given all of the signals that are currently in the air, I will wait for a week or so and then make my move.

And, at the same time, use up the points that have been stored away for a rainy day.

Saturday, November 9, 2013

The Frequent Flyer Point Dilemma

Frequent flyer points are the crack-cocaine of the travel world; folks do all sorts of peculiar things to maintain status and benefits from their favoured carriers, one friend of mine is flying to Argentina this weekend simply to maintain his top-tier status for next year, but rarely are these devotions reciprocated.
Airlines are getting bigger and bigger, and if one counts Alliances as a carrier itself, they are simply global behemoths, and care little for any individual; as a result, they create targets, measured either in segments flown, or in the actual miles travelled, with attractive benefits for those who reach these levels.
However, their currency, frequent flyer points, are like any other currency; create too many and they will devalue. In the case or airline points, of course, these points, and their concurrent liability to the airline, grow as more people fly, miles are accumulated and not utilised and their “partners”, hotels, credit card companies and the like, issue more and more; more even than the “dollars” issued by the Zimbabwean Central Bank at its zenith.

So there is but one solution for the airlines, and that is their yearly 10 - 15% devaluation; it is true that few of us would actually hold any other investment that shed value so predictably, but we do. In the case of Air Canada, at least some notice is given; others like Delta simply announce that “today” the value of their points has decreased; no chance to book a trip with points accumulated, just back to the airport for a few more flights.

Points too have their blindside; it is rarely worth using Aeroplan points, for example, for a low-season ticket to Europe in economy. A recent look at purchasing a Winnipeg - Dublin / Paris - Winnipeg ticket is a good example. Including taxes, the ticket would cost $1,150; to use Aeroplan points, it would have cost 60,000 points, plus a rather irritating $730 in “taxes and surcharges”; the saving would be a massive $420. Now putting this into perspective, a ticket from Winnipeg to New York, Los Angeles or New Orleans can often cost upwards of $700 these days, yet one can use 50,000 points and $87 (per person) in fees for a reward ticket; a much better value for utilising accumulated Aeroplan points.

Aspirational travel is, of course, the best value of all; travelling in business and first class is beyond the pockets of many of us, and if one has sufficient points, the value can be spectacular. A First Class return ticket, complete with large, flat beds, caviar, luxurious ground facilities and all the fun of the fair, can be yours for a mere $13,000 per ticket, or currently 125,000/145,000 points for a ticket to Europe. Space in these classes can be harder to come by, but persistence or the assistance of a suitable compensated travel professional can be invaluable.

It is also worth subscribing to one of the myriad of frequent-flyer blogs; one I particularly like is “One Mile at a Time”, (; it is a touch US-centric, but nevertheless interesting.
The best advice now, unfortunately for those who were collecting for their dotage, is to “Earn them and burn them”; similarly, it is worth accruing points in a neutral program such as Diners Club or American Express who allow you to hold points, and then turn them into a variety of different programs.
And be careful of exchange rates! As with any other currency exchange, there are huge variations. It costs fare fewer Alaska Airlines or American Airlines points to travel on British Airways that it does BA points themselves, yet they accrue at the same exchange rate via the credit cards. There are many other such opportunities, and a canny traveller will look at three issues: where do I want to go, who travels there and which points can be turned into this journey.

The answers to that question may surprise you; but on the other hand, they may get you to your preferred destination faster and in more comfort!

Monday, January 18, 2010

Frequent Flyer Points; Love or Hate?

Airline points have become the crack cocaine of the travel world. Fly, buy dinner, fill up with gas and you get rewarded with scrip called rather optimistically "Frequent Flyer Miles". They come in a variety of guises, and like every other currency have extremely variable exchange rates.

Oddly, it seems that the most valuable part of many airlines today is the division that gives stuff away for nothing, and therein lies the rub.

"Points" are a currency; nothing less and nothing more. Airlines sell them to a variety of partners for (say) 4 cents each, and then sell seats back to flyers for these points. Profitable and a fine system.

Until the money supply gets out of hand, and inflation strikes. While the various schemes have yet to reach Zimbabwean levels, there are some distinctly nasty clouds on the horizon. Airlines often churn points out by the million; a recent financing deal between United and their primary bankers involved the exchange of hundreds of millions of United's Mileage Plus. These points are dangled in front the banks' clients as lures to some commercial activity, and hey presto, there are thousands more consumers dreaming of palm trees.

Think, however, of the problems caused by increasing the money supply (points) while simultaneously reducing the overall number of seats available on the airlines' systems - a 20 million drop in available seats throughout the North American system compared to last year.

How will the carriers respond? Gently, I think, but in the traditional way; prices will rise. Delta announced a major increase last year, by offering three levels of reward seats; by increasing the number of points that you use, they will open up more seats. Fair enough in a way, but a price increase by any other name.

My advice? Book early, and remember that there is only a small fee (currently $90 or so) to cancel and put your points back; book next summer's trip to Europe now, and think of the $90 as an option. Use them up as fast as you can, because their value will shrink away in front of your very eyes.

Unless you want a kettle, of course. Exchanging airline points for kitchen equipment or haberdashery seems odd to me, but there will be increasing pressure to do so.