This morning, Air Canada held its Investor Day and it covered off a lot of interesting thoughts about the future of the airline. What most likely interests you is what is going to happen to on July 1, 2020 when the AIMIA relationship ends.
I’ve been watching live to try to capture the thoughts about the future and what this future means to PointsNerd readers.
I was hoping for a little more insight as to what the Loyalty Program was going to look like for Air Canada but the Investor Call only laid out high level details. That being said there were some interesting tidbits that were dropped.
Competing for the Luxury Client
Air Canada pointed out the offerings of their competitors such as Lufthansa and their First Class Terminal in Frankfurt and the new American Airlines Flagship Lounge at JFK as key products that are on offer to discerning customers. As a response, Air Canada is building out their terminal in Toronto in order to provide their customers with a luxury experience. Of note, it was mentioned that a few customers will be strategically chosen and given a tarmac ride in a BMW when connecting between domestic and international flights. This is going to be selective process meant to “surprise and delight” select customers.
Co-Branded Credit Card
No real detail was given by Air Canada here except to say that they are going to be launching a RFP (Request for Proposal) for a co-branded credit card partner. No further details were provided on this front but this will likely be an interesting opportunity to collect points in Air Canada’s new loyalty program.
Air Canada gave reasons for the split from AIMIA and in essence the way it was spun was that Air Canada wanted to take back the customer experience so that it could directly influence it rather than have a 3rd party (AIMIA) control the messaging. Some key reasons given for the change were:
- The new program will improve engagement with customers, employees and partners
- Customers will be able to earn and redeem miles with greater flexibility
- It creates a more cohesive experience by introducing new digital technologies
- Improves responsiveness through agile decision-making
- Removes operational inefficiencies
- Extracts significant financial value
Air Canada also provided a high level timeline regarding the program:
Based on this timeline, we won’t know much more about the program until June of 2019, a year before the launch of the program.
Of interest is the confirmation that Air Canada will have to build out a new technology platform to accommodate the administration of this new loyalty program and they have allocated 1.5 years to do so. It wasn’t made clear but AC is also investing in a new Passenger Ticketing System and I assume that it will be heavily integrated into the new loyalty platform.
Economics of Loyalty
While we didn’t get a lot of information about the future of the program, we did get some very interesting insight into how loyalty programs make money.
Air Canada expects that the new loyalty program will have a net present value of $2.0 – $2.5B over a period of 15 years (on a pre-tax basis). That NPV number includes their expected expenditure of $85MM to get the program up and running. Those are significant numbers and if true, gives you clear insight as to why Air Canada would want to be directly involved with the direction of this program.
By taking over the loyalty program, Air Canada increases their margins on the sale of miles through their credit card partnership as well as direct sales of miles to consumers. Rather than have AIMIA taking a percentage in the middle, when Air Canada takes over, they realize the delta in the margin. Also by taking over the loyalty program, Air Canada will have direct access to the data underlying the decisions that their customers make, which is extremely valuable. Currently AIMIA owns that data and sells access to it to Air Canada.
This is a chart that was put up as part of the presentation and while I have issues with how it was put together and what it is trying to say, what is of interest here are the words Michael Rousseau, EVP and CFO of Air Canada, used around the Program Operating Cost column. His direct quote was that “we expect more Air Canada members to redeem miles for seats on Partner flights than Partner customers do on Air Canada operated flights”.
This is extremely interesting in that Rousseau is seeming to indicate is that Air Canada derives more value out of the Star Alliance than some of the other carriers that are part of the Alliance.
While we didn’t get a lot of information about the specifics of the new loyalty program, we did get a new timeline as to when to expect more information and some underlying data around why the decision was made.
With the investment that Air Canada is making into the new program, including the technology used to drive it, I am hopeful that the program will be better than the current Aeroplan program. My real expectation is that while Air Canada’s new program will be best intentioned, there will be significant hiccups at launch.
One area of concern, if I’m putting on my tinfoil hat, is that once Air Canada has real-time direct access to the data of what award flights are being booked (or even being speculatively looked at), they could scale back the offerings on more popular leisure routes, making it even harder to redeem your miles. I’m not saying that this will happen, simply that it’s a possibility. After all, Air Canada is in the business of making money and they certainly make more money by selling tickets than providing them for award redemptions.