Aeroplan changes are coming. Air Canada and frequent flyer program Aeroplan are breaking up in July 2020.

The program was spun off from the airline, and their 15-year agreement is coming to an end. That means there’ll be a lot more competition in the Canadian market as Air Canada builds a new program that will compete with Aeroplan. And at the same time Aeroplan needs to reinvent itself as it’ll no longer have an exclusive airline partner, or access to award travel through the Star Alliance.

Yesterday Aeroplan shared a bit of news about how they’re planning to navigate this. They are going to offer coach award pricing that’s similar to today. They’ll buy capacity from airlines in bulk for a discount and make the seats available to members and they’ll even charter flights that will only be available for points redemptions. And they’re introducing points transfers to other airlines to give members access to more awards.

Copyright: ronniechua / 123RF Stock Photo

The new program is still a couple of years off, and the new CEO of their parent company Aimia is only a few months into the job, so there are still plenty of unanswered questions. So I spoke with their CEO Jeremy Rabe to see if I could get a better idea of where things are headed. He has plenty of experience working with and running spun off programs like LifeMiles and Club Premier (Aimia was involved with the spinoff and ownership of Club Premier).

He has a background in loyalty, loves thinking and talking about it, and was happy to hop on the phone. Here he is talking at Aimia’s investor day in 2012 as head of Club Premier.

Copyright: noratm / 123RF Stock Photo

Members Need Information About the Value of Their Points in the Future

We started out talking about the trust factor in loyalty programs. Consumers are betting that their activities today and going forward are going to be rewarded in the future, so they have to trust that a program is going to deliver and won’t change the value proposition just as they’ve saved up enough points for their trip. One major challenge I think Aeroplan has faced is that customers know the Aeroplan – Air Canada relationship is ending June 30, 2020 but they don’t know what the value of their points will look like after that.

That’s why I’ve been suggesting Aeroplan isn’t a place where I want to build up points, and why I’ve been trying to spend my own account balance. Rabe though acknowledges this important point,

It is a trust factor, and there are a bunch of reasons to believe that this is a situation that’s worthy of our customers’ trust. On a personal level you have someone that is running this business that could just as easily be a blogger or someone giving people tips on how to get the best value out of frequent flyer programs, not just a business person but a loyalty program fanatic. .. just for me as someone running this company I want to have a program that I’m proud of, that I love to be involved with, that I think is providing a good deal for members.

What we’ve come out with is a company commitment that for our most popular redemption routes we’re going to offer redemptions starting at the same level as today. We’re not going to change the grid [award chart] on those routes.

Here’s the pricing they’ve shared so far and it’s for economy travel:

• North American short-haul: 15,000
  
• North American long-haul: 25,000
  
• Mexico and Caribbean: 40,000
  
• Europe: 60,000
  
• Asia: 75,000

Aeroplan Changes But Doesn’t Intend to Devalue

He pointed out that in my post yesterday about their plans I read into his saying that ‘95% of routes’ won’t be devalued assuming that means 5% of routes will be devalued, but what’s actually going on is that Aeroplan will simplify their award chart with fewer regions and that may mean some routes get more expensive and others less expensive but raising the cost of awards is not the goal they’re working towards. He “wanted to say there’s not going to be any devaluation.”

I asked about the claim that awards would be “starting at the same prices as today” since I wondered if that just meant saver awards would be the starting price, and that they’d offer additional availability for more points — or if ‘starting at’ was more of a gimmick. He clarified that there’s “nothing Machiavellian” in that statement, “just as we have today there’s different types of rewards, classic and market fare rewards, and they start at a certain level and go up from there depending on fares. We also see the ability because of our purchasing strategy on a promotional basis to offer redemptions below these numbers stated here.” So there will be award sales as well.

The value of an award chart is a combination of price, availability, and how flexibly customers can combine flights that are available (routing rules). So naturally I wanted to know about availability and not just award prices,

The cool thing we’ll be able to do going forward, today we don’t control where the saver levels, where we get saver capacity. In July 2020 we’re going to be going out and buying the capacity ourselves so we’ll have discretion where we’ll offer that capacity. We can match it much better to where members want to redeem.

Instead of taking what Air Canada (or Star Alliance partners) offer they’re going to negotiate discounts with airlines, they’re going to buy seats in bulk, and arrange to have the award inventory they think they need.

Will Aeroplan Changes Alleviate Fees and Surcharges?

Aeroplan today adds fuel surcharges (or ‘carrier-imposed surcharges’) onto many of their awards today. They apply to Air Canada flights where a paid fare has a surcharge, and to award travel on many of their Star Alliance partners.

I asked Rabe about these surcharges, and he wasn’t yet willing to speak to them. He’s been CEO for two months, and on the Aimia board for three months, so he hasn’t gotten through everything yet. But he was willing to talk about how they’re thinking through issues like this.

I don’t think I have any statement on that today. We want to make sure there’s great differentiated value in flight rewards. Part of that calculus is fuel surcharges. We’re confident we’re going to provide great value.

Similarly one of the pain points is fees. I recently had to pay telephone booking fees to book an award that just didn’t come up on their website. A friend that’s an Air Canada Super Elite complained recently about facing nearly $800 in change fees when he wanted to change vacation plans for his family of four (each booked as two one ways) when other programs waive those sorts of fees for their best customers.

I’ve had personal experiences of the same nature with other programs, what we’re starting with is the big picture, the design principles that we want – flexible program, beautiful member experience. Those design principles are going to have to flow through all the aspects of the program. I haven’t gotten to the change fees yet. It’s premature to say anything on that specifically. If you understand the design principles, it goes back to the original philosophical posit around trust.

He understands fees are a pain point for members, we’ll have to wait and see what the new program does about that.

Premium Cabin Redemptions

Most Canadian members of the program redeem for coach travel. Most members of frequent flyer programs anywhere in the world redeem for coach. But I’m interested in premium cabin awards, I know many readers are, and since Aeroplan has been a long-term transfer partner with several US bank programs I suspect a substantial number of those transfers are being used for premium cabin travel.

Most programs which aren’t associated with an airline will let you spend your points for travel, but they might value points at a penny apiece. That’s fine for coach but going out and buying business class tickets means spending an astronomical number of miles. If it’s a $4000 ticket that could be 400,000 points. Or if it’s a $20,000 ticket that could be 2 million points — instead of a couple hundred thousand airline miles.

I figured it was no coincidence that the Aeroplan changes being talked up were related to coach award pricing. What about business and first class?

First, he mentioned spending points as money for business and first class,

Today we provide exceptional value for business class in comparison with other credit card travel programs in Canada, come 2020 we’re going to expand the range of business class seats members have access to, any airline, anywhere, any time. All business and first class seats available.

Then he pointed out that they plan to let members transfer miles to other programs. That allows premium cabin saver award redemption. And he recognized the importance of providing value for these awards.

We’re also going to have the points transfer program. Convert 20 different airline programs around the world, all the major alliances. We’re committed to offer competitive value for business redemptions.

However it sounds like they may have premium cabin saver space of their own, too.

We’re also having conversations with preferred airline partners so we expect to be announcing some good news on that front. And that will offer a great business class offering. There’s just a little bit of competitive caginess here. I don’t know what the business class offering for our competitors is going to look like two years from now. I want to make sure I’m competitive, so I want to see what they do first.

ANA First Class

Transfer Miles to Other Programs

One of the Aeroplan changes to expect is 20 airline transfer partners, working through Kaligo. But the real key here is the rates. They haven’t fully committed on what that’s going to look like, but I challenged Rabe specifically — this isn’t going to be like a Points.com exchange losing 80% of the points in the process.

Instead he’s promising “good competitive transfer rates.. we can’t commit just yet to the equivalencies but it will be competitive.” One problem is that “most frequent flyer programs are selling in US dollars whereas our program is in Canadian dollars, so currency fluctuates and we need to have a little bit of wiggle room.”

I pressed further, and he promised “we are committed to being competitive” and that we should “think credit card program equivalency rates.”

The nice thing about airline transfers at anything close to a reasonable rate is that they’re providing a floor of value. If you don’t like what Aeroplan offers, you can always move your points. And the extra flexibility is a value-add for the Aeroplan account balance, too.

Aeroplan’s Role in the US Market

Aeroplan is a Canadian frequent flyer program. When they talk about the program, the talk in terms of what it means for Canadians. But it’s important in the US market, too, and they’ve made it important here by partnering with US bank transfer programs like American Express.

Rabe says that “the US market is clearly a big opportunity for us, so I’m also very conscious of a very big community in the US that follow the blogs, are reading this stuff, that’s a community that I want to get on side. We can’t comment on negotiations with specific partners but it’s a market” they’re paying a lot of attention to.

Are We Going to See Aggressive Mileage Sales?

Jeremy Rabe was Managing Director of Loyalty a decade ago for TACA Distancia which is part of what became LifeMiles. He is on the Board of Directors of LifeMiles. So I naturally had to ask, “are we going to see aggressive points sales?” And he responded that “the wheels are turning.” So perhaps Aeroplan changes include aggressive mileage sales.

Are Frequent Flyer Program Spinoffs Dead?

At the end of last year I wrote that with the breakup between Air Canada and Aeroplan the era of spinning off frequent flyer programs should be over. The market hasn’t treated companies like Aeroplan well. We’ve seen poor results at air berlin topbonus and at Alitalia Millemiglia.

However Aimia, the parent company of Aeroplan, doesn’t just run a spun off frequent flyer program. They took their expertise in managing that spinoff and consulted around the world on spinoffs. So I wanted to know what the new CEO of Aimia thought about the future of the spinoff business.

Initially it was all good news stories for investors. There’s been some not so good news, case studies that have happened more recently. I’ve been involved creating several of these spinoffs, I’ve also extended several commercial agreements with airlines after the spinoffs occurred. I fully understand the complexity around making those partnerships work.

I don’t think we did as good a job as we could have with Air Canada. They are tricky relationships. Sharing the relationship of your most valuable customers, frequent flyers, with another entity even when you are the majority owner of that entity requires great trust and a contractual relationship everyone feels comfortable with.

There has to be balance from an economic perspective that’s sustainable over time. Basically just to say it’s not easy, it can be done. There’s a lot of value that can be created. The financial multiple arbitrage but there’s a lot of agility and autonomy, part of what you talked about that trust factor, it’s a lot tougher for a spun off loyalty entity to think about devaluation than it is for an airline. If you’re a loyalty company that’s your whole business, you can’t risk hurting customers in that way.

..What we’ll see going forward, to the extent airlines consider the spinoff model, it will be one where the airline maintains majority ownership to make sure there’s a good amount of strategic alignment.

I don’t think it’s that obvious that a spun off frequent flyer program is less likely to devalue. Aeroplan itself has seen plenty of devaluations. Alitalia has done almost nothing but devalue. Still it’s interesting to hear his perspective and that any future likely involves only selling off a piece of the business. To me though becoming a public company comes with so much cost and scrutiny that the bar for doing though seems even higher.

Aeroplan Wants to Bet on Growth, Not Cut Rewards

Coming off of the discussion about spinoffs, where Jeremy Rabe believes an independent program needs to only focus on loyalty considerations, I was pleased to hear him sum up his view that the way you grow a loyalty business is to provide value to customers: “My model is let’s bet on growth, and the only way to bet on growth is delivering a great value prop and having more engagement in the program.”

I generally take a ‘show me’ attitude towards Aeroplan changes, but I think that it’s great they’re beginning to detail their thoughts on what the program will look like because that will quell some of the uncertainty and allow consumers to buy into their value proposition beyond June 2020. And it I think it’s great that the Canadian market is going to see more competition. Air Canada’s new program is going to have to be lucrative, they’re starting almost from scratch and need customers to join and engage. And Aeroplan is going to have to respond competitively. Net net that’s a win for consumers, aside from the particulars of Aeroplan in the future.