What Air Canada’s acquisition of Aeroplan tells us

Before diving into the details of the transaction, let’s take a brief look at the history of TD’s interest in Aeroplan.

Five years ago, on December 27, 2013, TD acquired 50% of CIBC’s Aeroplan credit card portfolio – approximately 550,000 accounts – to become the leading issuer of Aeroplan Visa credit cards as of January 1, 2014.

Amount of the transaction between TD and CIBC: approximately $275 million paid over 3 years(or approximately $500 per credit card account).

These 550,000 accounts represented, at the time, approximately $19 billion in annual retail purchases (an average of $34,500 per account).

CIBC and TD had a contractual agreement with AIMIA/Aeroplan until 2024: both banks agreed to issue Aeroplan-affiliated credit cards for a decade. Cost to TD for this 10-year contract: $100 million(+15% more per mile than CIBC paid at the time).

Less than 3 years after that agreement, on May 11, 2017, Air Canada came along and shook things up by announcing that they would not renew their agreement with Aeroplan after it ends in 2020.

The Canadian company wants to take back the management of its loyalty program… by creating it from scratch.

And at the same time, the company announced that it will launch a tender to find new financial partners to issue credit cards linked to its future program.

During this real saga that lasted 1 year, Mastercard felt a good opportunity to take away from Visa “the Air Canada wallet”. In Canada, one bank would have stood out from the competition to bid on this tender: BMO.

In fact, it is the only Canadian bank, already issuing a large number of Mastercards, that is eligible for the Air Canada customer portfolio.

The other banks are either too tied to Visa (CIBC, TD, Scotia), do not have a sufficient national footprint (National Bank, HSBC), or compete head-on with Air Canada (RBC with its WestJet cards, British Airways, Cathay Pacific).

Setting up a loyalty program from scratch requires huge resources, especially in the time available: 2 years. Air Canada would have had to “hunt for new members” and spend considerable marketing dollars to acquire them.

For their part, CIBC and TD, along with their partner Visa, could not afford to let Air Canada slip away. And, admittedly, these companies were not necessarily confident in a future Aeroplan…without Air Canada, and that’s what they kept telling Aeroplan cardholders.

So they had to give Air Canada some assurances… and TD was the one who once again put its weight behind it.

First, Air Canada announced that the company and its partners, CIBC, TD and Visa, had offered $250 million to AIMIA to buy the Aeroplan program. And a bid of 325 million did not make AIMIA bend.

In response to AIMIA’s refusals, CIBC and TD sent “doom and gloom” messages to their credit card holders explaining that their Aeroplan miles might not have the same value without Air Canada. The banks have encouraged their clients to join their “in-house program”: TD / CIBC Aventura Rewards.

For its part, Air Canada has done everything it can to convince its customers and Aeroplan members that without it, Aeroplan would not get very far.

AIMIA has not moved from its line, and has even gone further by announcing agreements with Air Canada’s competitors such as Air Transat or Porter, as well as a redesigned program.

Finally, Air Canada announced that it and its partners would contribute $450 million to AIMIA and guarantee just under $2 billion worth of outstanding Aeroplan miles.

Here, it is TD who stands out as the big moneymaker in this agreement. TD Bank has put $1.02 billion into the project:

• 622 million paid to Air Canada
• 308 million for the purchase of “future Air Canada miles
• 100 million over 2 years to help Air Canada build the functionality required in the new program

TD Bank signs an agreement with Air Canada to be its main partner for a period of 10 years: from 2020 to 2030!

CIBC has committed to pay $292 million:

• 200 million paid to Air Canada (for the acquisition of Aeroplan)
• 92 million for the purchase of “future Air Canada miles

CIBC’s strategy is to entice members to join the “in-house” Aventura program… and that’s why they recently added new benefits to their premium cards.

The big absentee in these negotiations: American Express.

American Express issues Aeroplan-affiliated cards and had renewed an agreement with Aeroplan ending June 29, 2020 to transfer its Membership Rewards points to the program.

Air Canada has announced that it is in discussions with American Express to continue its relationship beyond 2020. We have no doubt that the two companies will reach an agreement as they are so interdependent on each other.

It should not be forgotten that American Express has a very large network of travel agents AND is particularly well established with business customers… essential to Air Canada.

And on the other hand, American Express has a vested interest in maintaining a good relationship with Canada’s largest airline, offering cards whose main advantage is the ability to transfer points… into the Aeroplan airline program.

One thing is certain: now that the deal is coming to a close and the banks are assured that Aeroplan miles will be transferred to the new Air Canada program, CIBC and TD will have to get the Aeroplan welcome offer machine going again!

Actually… especially TD, given the amount of money at stake in its new contract with Air Canada.

While since May 2017, the 3 Aeroplan card providers (American Express, CIBC and TD) have cut their welcome offers to the bare minimum to attract new cardholders, the final deal between Air Canada and AIMIA for the Aeroplan buyout seems to be delivering what we’ve all been waiting for: the return of these offers… for air miles!

And you, what do you think of all this? Come and discuss it in the facebook group “Travel for free (or almost…!) with your points & miles – milesopedia”!