It’s a small point, but an important one. When airlines partner with third parties so that customers earn miles for transactions outside of travel, we normally think of the non-travel partner renting the frequent flyer program to help sell their product. The partner buys miles and is paying for the reward they give to customers, for access to the airline’s customers, and for use of the frequent flyer program’s intellectual property.

But there’s a benefit to the loyalty program beyond the direct revenue for the miles sold. As long as it is the right partnership that enhances the airline brand, that helps reach the right customers in a way that delights program members rather than frustrating them, that reinforces the rest of the program’s business too.

Brian Sumers interviews Air Canada’s Mark Nasr, originally brought on to run Aeroplan and now an Executive Vice President, and Nasr explains how their Starbucks partnership drives co-brand credit card acquisition.

• 75% of the airline’s customers who fly once don’t fly again in the same year
  
• If they are engaging that customer only once a year, they aren’t likely to get the airline’s credit card
  
• But when their everyday activities earn miles, they’re more connected to the program and they engage in ways that are profitable.

  “Members that engage on the everyday partnerships over-index on signing up for credit cards and over-index on profitable Air Canada behaviors, like booking directly and purchasing premium products and ancillary products,” Nasr said

He explains that being connected with brands that customers love helps their brand equity, not just extending their brand to the companies that buy miles from them. This helps explain not just their Starbucks deal but also the Uber relationship.

Normally we think of banks getting the best deal on miles, since they’re buying so many. A billion dollar partner, the biggest customer of the airline, must be getting the cheapest price? Apparently not the case with Air Canada Aeroplan. Remember that co-brand deals have gotten much more expensive over the last decade, with fewer big travel partners for banks to compete over. Sumers relays that Starbucks pays less per point than Chase.

Banks pay big money in a one-sided deal that “drives a whole lot of profitability for the partner.” Chase uses points its buys from Air Canada to coax customers into certain behaviors, including spending on credit cards.

This is more of a two-sided relationship, and Air Canada is thinking about how to make the deal sustainable for its partner. Well known brands pay less for an Air Canada point than a bank. “What we want is a depth of engagement,” Nasr said, not an eye-popping profit per point.

…”Even though we might have one partner paying less for a point than another, that partner existing in the program is making the entire program better and more relevant, which is going to allow us to issue more co-brand cards or sell more insurance, or do any of those other things our profit-producing partners very much want us to do,” Nasr said.

Aeroplan is actively seeking a gas partner and an EV charging partner. I do wonder how many positive-sum brand relationships there are with fuel brands. As EV charging opens up and becomes more competitive in the U.S. (e.g. Tesla charging stations becoming available to non-Tesla drivers) EV charging may be a higher-end brand association where stations compete for charging customers.

Mark has explained in the past why it benefits a loyalty program for its members to get great value ironically at the same event where the head of Delta SkyMiles explained their strategy as explicitly not focusing on delivering value to the member. Delta, which implies it converts one of every eight new loyalty program members into a co-brand customer, launched a Starbucks partnership over a year after Aeroplan did. I wish the Aeroplan Starbucks partnership were in the U.S. because I’d far rather earn their points than SkyMiles. Delta partners with Lyft as well.

Lyft, of course, is fairly desperate for customer growth relative to Uber at this point (not that Uber has managed to become a good business). They partner with Chase and offer strong points-earning to those customers in a merchant-funded deal. They also partner with Bilt, Alaska and Hilton with Bilt being the most lucrative for members (credit partner points to Bilt, pay with a Sapphire Reserve). It would be fascinating to see whether those partnerships help drive co-brand card acquisition. They certainly help keep travel programs top of mind for members.

Ironically, of course, Uber never bothered pitching its own co-brand card within its app – and didn’t do anything to integrate the card experience with the product. And it failed, and along with it the company’s dream of Uber credits becoming a full-fledged alternative currency. Now they just help others’ build theirs.