Air Canada spun off its frequent flyer program 13 years ago. Last year they announced that they wouldn’t be renewing their 15 year agreement, instead severing ties with Aeroplan and .
Last week Aeroplan made news talking up how they plan to compete against Air Canada with points transfers to other airlines, buying seats in bulk and even chartering flights for members. I interviewed their CEO on Friday.
I’ve been nervous about my Aeroplan points balance without direct access to the Star Alliance. Although my interview with their CEO raised my estimation of the likelihood my miles would still have value.
At the same time I’ve been looking forward to the new competition — Aeroplan competing against Air Canada, and the creativity that would follow.
Air Canada’s news caused the share price of Aimia, Aeroplan’s parent company, to drop like a rock — down from about 9 Canadian dollars down to as low as 1.50. The news about Aeroplan’s aggressive plans to compete last week helped their share price.
This morning there’s news that instead of starting from scratch with their new frequent flyer program, Air Canada is proposing to buy Aeroplan in conjunction with Air Canada’s credit card partners.
- The offer is CAD$250 million in cash and assumption of Aeroplan’s points liability estimated at $2 billion.
- They suggest this amounts to CAD$3.64 per share, 45% over yesterday’s closing price
The market equivalent value is comprised of the Aeroplan loyalty business proposal value of $1.64 per Aimia common share plus non Aeroplan loyalty program net assets valued at $2.00 per common share based on fair market value estimates contained in Mittleman Investment Management’s Q1 2018 investor letter.1
Copyright: ronniechua / 123RF Stock Photo
This would allow Air Canada to start with all of Aeroplan’s members, instead of starting from scratch. It would take the pressure off of Air Canada to offer as rich a value proposition to members in order to compete with Aeroplan.
There’s a certain irony to spinning off the program, realizing income, driving down the value of that program and then acquiring it on the cheap.
In June 2005 Air Canada initially sold just 12.5% of Aeroplan for CAD$250 million, an implied initial valuation of $2 billion. They’re now proposing to acquirq back the entire enterprise for CAD$2.25 billion 13 years later.