Air Canada vows to start own loyalty program despite Aimia bid

Greg Keenan | The Globe and Mail with The Canadian Press | Published July 27, 2018

Air Canada will establish its own loyalty program whether or not Aimia Inc. accepts a bid led by the airline to buy the loyalty company’s Aeroplan business for $250-million and the assumption of $2-billion in liabilities.

“We have not abandoned our plan to launch our own loyalty program in 2020,” Air Canada chief executive officer Calin Rovinescu said Friday on the carrier’s second-quarter financial results conference call.

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Air Canada, Toronto Dominion Bank, Canadian Imperial Bank of Commerce and Visa Canada Corp. made the offer to buy the Aeroplan business earlier this week, about a year after Air Canada said it was ending its existing deal with Aimia and setting up its own plan—an announcement that caused Aimia’s share price to plunge.

If Aimia accepts the bid, Aeroplan miles would be converted to the new Air Canada program, Mr. Rovinescu said.

If Aimia rejects the bid, Air Canada will resume its negotiations with credit card companies and conclude an agreement in the fourth quarter, he said in his first public comments since the offer was made earlier this week.

He noted, however, that the choice for Aimia’s board is to “reject this proposal and adopt a go-it-alone strategy for Aeroplan, maintaining the $2-billion liability without Air Canada as a redemption partner, or accept our consortium proposal, which looks after all of their stakeholders.”

He said Air Canada believes there is no other party willing to assume the $2-billion liability.

In the most recent quarter, Air Canada experienced a 31 per cent increase in the price of jet fuel compared with last year’s second quarter and will offset some of the impact with higher fares and other initiatives, Mr. Rovinescu said.

The Montreal-based airline did well in terms of revenue, which was up 10.4 per cent compared with last year’s second quarter, but adjusted earnings dropped to $114 million or 41 cents per share.

That was only about half as much as Air Canada’s adjusted earnings of $226 million or 82 cents per share in the second quarter of 2017, but still better than analyst estimates of 28 cents per share, according to Thomson Reuters Eikon.

Air Canada’s revenue for the three months ended June 30 was in line with estimates at $4.33 billion, up from $3.91 billion in the second quarter of 2017.

Rovinescu said its strong revenues demonstrated the appeal of Air Canada’s brand and the continuing strong demand for air travel in all of its main markets.

“We did, however, revise our 2018 guidance for certain key financial metrics given the rapid increase in fuel prices in the first half of 2018,” Rovinescu said in a statement.

Air Canada is now estimating jet fuel will cost 80 cents per litre in the third quarter and 78 cents per litre for the full year. The previous full-year estimate was 75 cents per litre.

“We estimate that we will be able to mitigate approximately 75 per cent of the expected 2018 annual fuel price increase through fare increases, other commercial initiatives and our cost transformation program.”

Air Canada also reported a $77-million net loss, or 28 cents per share, which included a $186-million loss on the expected sale of 25 Embraer planes and a $25-million loss on foreign exchange.

In the same period last year, it had a $26-million gain on a sale of assets and a $68-million gain on foreign exchange.