Air Canada: What to Do with Aeroplan? Custom Case Solution & Analysis

1. Evidence Brief

Financial Metrics

Annual Payments: Air Canada pays Aimia approximately 600 million CAD to 700 million CAD annually for the purchase of Aeroplan miles.
Yield Impact: Loyalty redemptions account for approximately 7 percent of Air Canada total seat capacity.
Cost of Miles: The unit cost of purchasing miles from Aimia exceeds the marginal cost of Air Canada operating its own internal program.
Market Valuation: Aimia market capitalization is heavily dependent on the Air Canada contract, which accounts for the majority of its gross billings.

Operational Facts

Membership Base: Aeroplan maintains approximately 5 million active members.
Contract Expiry: The current Commercial Services Agreement (CSA) between Air Canada and Aimia terminates June 29, 2020.
Data Ownership: Aimia controls the primary member database, limiting Air Canada ability to perform direct targeted marketing or personalized pricing.
Partnership Network: Aeroplan is the primary vehicle for Star Alliance redemptions in the Canadian market.

Stakeholder Positions

Calin Rovinescu (CEO, Air Canada): Focuses on margin expansion and reclaiming the direct customer relationship.
Benjamin Smith (President, Passenger Airlines): Prioritizes the transition to a digital-first airline model requiring integrated data.
Aimia Management: Seeks a long-term contract renewal to stabilize share price and retain bank partners.
Financial Partners (TD, CIBC, Visa): Require certainty regarding the loyalty platform to maintain multi-year credit card agreements.

Information Gaps

The specific IT migration cost required to transition 5 million records from Aimia servers to Air Canada internal systems.
The exact breakdown of breakage (unredeemed miles) revenue that Air Canada would capture under a new program.
The contractual penalties for early termination or non-renewal of the Star Alliance integration via Aimia.

2. Strategic Analysis

Core Strategic Question

Does Air Canada maximize long-term enterprise value by renewing its contract with Aimia or by launching a proprietary loyalty program to reclaim data and margins?

Structural Analysis

Supplier Power: Aimia currently acts as a high-power intermediary. Air Canada provides the inventory (seats), but Aimia captures the high-margin data and financial float. This misalignment prevents Air Canada from optimizing seat revenue.
Competitive Rivalry: WestJet is maturing its loyalty offering. Air Canada cannot compete on customer experience while a third party controls the touchpoints and reward availability.
Value Chain: The loyalty program is the most profitable segment of the airline value chain. Externalizing this function means Air Canada is subsidizing Aimia dividends instead of reinvesting in its own fleet or digital infrastructure.

Strategic Options

Option 1: Build a Proprietary Program. Terminate the Aimia relationship in 2020. Develop an internal platform.
- Rationale: Reclaims 100 percent of customer data and eliminates the intermediary margin.
- Trade-offs: High execution risk and potential customer confusion during the 3-year transition.
- Resources: Significant investment in IT and marketing.
Option 2: Negotiate Drastic Contractual Revisions. Renew with Aimia only if data access and mile pricing are fundamentally restructured.
- Rationale: Avoids the risk of a messy migration.
- Trade-offs: Air Canada remains tethered to a legacy partner and shares profits.
- Resources: Legal and procurement teams.
Option 3: Acquire Aimia/Aeroplan. Wait for Aimia valuation to decline and buy the business back.
- Rationale: Captures the existing infrastructure and member base without the build risk.
- Trade-offs: Potential for overpaying if the market does not devalue Aimia.
- Resources: M and A capital.

Preliminary Recommendation

Air Canada must announce the launch of its own proprietary program. The financial leakage to Aimia is unsustainable. Owning the customer data is a requirement for a modern airline. The Build strategy provides the necessary leverage to either go solo or eventually acquire Aeroplan assets at a distressed price.

3. Implementation Roadmap

Critical Path

Phase 1 (Month 1-6): Formal notification to Aimia of non-renewal. Launch internal Project Pathfind to define the new program value proposition.
Phase 2 (Month 6-18): Renegotiate credit card partnerships with TD and CIBC. These banks need a bridge to the new program to prevent cardholder churn.
Phase 3 (Month 18-36): IT platform development and data architecture setup. Ensure Star Alliance integration is ready for Day 1.
Phase 4 (2020 Launch): Full migration. Status match for all current Aeroplan elite members to ensure zero friction.

Key Constraints

IT Execution: The transition of millions of accounts is a high-probability failure point. Any loss of member points during migration would be a terminal brand event.
Bank Alignment: If TD or CIBC side with Aimia, Air Canada loses the primary funding mechanism for the program.

Risk-Adjusted Implementation Strategy

Maintain a dual-track approach. While building the internal program, Air Canada should prepare a distressed-asset acquisition plan. If Aimia stock collapses following the non-renewal announcement, an acquisition becomes cheaper than a full build-out. This provides a contingency for the IT migration risk.

4. Executive Review and BLUF

BLUF

Air Canada must terminate the Aimia contract and launch an internal loyalty program. The current arrangement cedes the most valuable asset—customer data—to a third party while draining 600 million CAD annually. By announcing a proprietary program now, Air Canada reclaims strategic control and forces a devaluation of Aimia, potentially allowing for a cheap acquisition of the Aeroplan infrastructure later. Speed is the priority to ensure bank partners and premium travelers remain aligned with the airline rather than the intermediary.

Dangerous Assumption

The analysis assumes that premium frequent flyers are loyal to the Air Canada brand rather than the Aeroplan points currency. If customers prioritize their accumulated balances over airline preference, a mass exodus to competitors like WestJet or Oneworld carriers during the transition is probable.

Unaddressed Risks

Bank Defection: Probability: Medium. Consequence: High. If TD and CIBC decide to stay with Aimia and launch a generic travel card, Air Canada loses its primary source of non-flight revenue.
Litigation: Probability: High. Consequence: Medium. Aimia will likely sue to block the use of similar program features or data, potentially delaying the 2020 launch.

Unconsidered Alternative

A Joint Venture (JV) model where Air Canada takes a 51 percent stake in Aeroplan. This would provide immediate control and data access without the 3-year build-out risk or the scorched-earth PR battle of a full termination.