Why Aimia Just Sold Off the Canadian Air Miles Program

Air Canada spun off its frequent flyer program and that new company developed several loyalty businesses. However Air Canada decided that its future is better with a new wholly owned loyalty program, to be launched in 2020 and in May announced plans to cut ties with Aimia.


Copyright: ronniechua / 123RF Stock Photo

Earlier in the year an analyst at a hedge fund once asked me to help explain the valuation of air berlin’s topbonus program, the valuation of that spinoff made no sense on the fundamentals. It was a control and cash infusion play by Etihad, and now that the airline has gone bad so has that frequent flyer program.

With those two spinoffs imploding — Aimia’s stock dropped from about 9 before Air Canada’s announcement to less than 2 on Friday (3 years ago it was hovering around 19) — we may see a dampening of enthusiasm for spinning off frequent flyer programs for awhile.

In light of this Aimia is working to strengthen its balance sheet by disposing of “of non-core investments and assets” and has sold its Canadian Air Miles interests — “Trademarks, license and royalty agreements for Canada” (another program distinct from Aeroplan, not linked to an airline) to Diversified Royalty Corp for “$53.75 million, plus a possible additional payment of up to about $13.75 million within the next three years depending on the program’s performance.”

LoyaltyOne operates Air Miles and describes it as “Canada’s most widely used loyalty currency” and claims over 10 million household members (a number I believe they’ve used since at least 2010).

Aimia was generating $8.5 million a year from its interests, so in some ways it’s surprising they only managed $53 – $67 million in return. On the other hand the long term value of Air Miles may not justify treating the royalty and licensing deal as a truly safe annuity.

Programs with fixed value redemptions and low value redemptions don’t generate significant shareholder value because they don’t feed into passions and dreams of consumers. An LCD toaster isn’t worth zero, but it’s not the sort of redemption that proves to a member that their loyalty behavior was a smart one and ramps up future earn.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Gary,
    What multiples are generally expected given a $8.5M return? Do you see redemption devaluations in the future with Aeroplan as their program stutters to a halt by 2019?

  2. Hi Gary,

    That’s actually a pretty good multiple considering its $8.5M revenue and the interests sold are only for Canada. Typical multiples in Canada based on EBITDA, not revenue, are 5x. I tried to see if there was any details on margins but couldn’t find any readily available but if we assume that is strictly an annuity coming in, than that’s a descent multiple given all the customer challenges / negative publicity Air Miles has experienced this past year.

  3. Maybe they can do a transformation like Zapata, and convert from a Bush oil company into an internet and sausage casing company,

  4. If I was in charge of the greed department at Diversified Royalty Corp, I would immediately charge a $5/month “account maintenance fee”. That will bring in: 10M x $5 = $50M a month in user fees.
    People will be outraged, but that’s what you get when you are as stupid to leave tons of miles sitting in your account.

  5. Without Air Canada, Aeroplan has to start to look a lot more like Air Miles. Aeroplan will need to give Air Miles more of a run for its money, so it makes no sense to keep both competing portfolios.

  6. Aimia is undervalued, IMO. They have more assets than the entire value of the company at the moment and it’s not like the program will cease to exist the moment Air Canada’s contract ends with them. I would wager that there will be a period of time where you can convert points between Aeroplan and whatever new program is created since AC will not want to alienate their top flyers.

  7. @omar

    Air Canada has openly announced that aeroplan points will NOT transfer to the new AC program. Airline status (not aeroplan status) will carry over, but that’s already administered by air Canada today.

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