Air Canada is seeking a credit card partner for its new loyalty program which it says will help improve the bond with passengers and drive increased profits.
The Montreal-based airline says it is inviting key financial institutions to participate in a request for proposals to join the launch of the program on July 1, 2020.
Air Canada (TSX:AC) served notice in May that it does not plan to renew its 30-plus year partnership with Aeroplan parent Aimia (TSX:AIM) when the current contract ends. However, it will continue to make Air Canada flights available for Aeroplan redemptions, as it does for other rewards programs.
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Operating its own loyalty program is expected to deliver a pre-tax net present value of $2 billion to $2.5 billion over 15 years.
Air Canada CEO Calin Rovinescu told analysts at an investor day that the move is in line with other airlines that operate their own loyalty program.
Aeroplan used to be a division of Air Canada before it was spun off during an IPO about a decade ago.
With international travel the most popular reward, Air Canada said it can deliver what loyalty card members want through its extensive global network.
“This makes us a highly desirable partner,” Rovinescu said.
David Tyerman of Cormark Securities suspects that most banks will bid since Air Canada loyalty is a desirable opportunity.
TD took over from CIBC as the primary card for Aeroplan, while RBC is a WestJet credit card partner.
Ben Smith, president of passenger airlines at Air Canada, said the loyalty program will allow customers – especially its most frequent flyers – to earn and redeem miles with greater flexibility.
“We’re committed to focusing on Air Canada’s customers every step of the way, leading to a loyalty program designed around them,” he said.
Air Canada also introduced new, financial targets between 2018 and 2020, including $2 billion to $3 billion in cumulative free cash flow.
“With several years of record results and profitability…we’re confident in saying that we are on the right trajectory towards a sustainably profitable and investable company with an improved cost structure, improved debt rating, strong free cash flow and great prospects for the future,” Rovinescu said.
He also pointed to the 3,000 per cent increase in Air Canada’s share price since early 2009.
Air Canada’s largest shareholder, Peter Letko, applauded the airline’s new financial targets but asked about implementation of a dividend. Rovinescu said it prefers to initially focus on reducing debt and buying back shares.
The airline said a revised long-term deal with its pilots will allow it to expand the fleet of its low-cost Rouge leisure airline for use on regional routes, if required, to compete against ultra low-cost competitors. Canada Jetlines and WestJet (TSX:WJA) are planning to enter this market using secondary airports.
“We can now fully optimize Rouge as our strategic tool we need to competitively address any new low cost threats we see in the industry or market,” Smith added.
Air Canada also plans to introduce new fare brands to cater to the differing range of passengers from corporate customers to budget travellers.
Meanwhile, in a veiled signal of support for Bombardier in its trade dispute with Boeing, Air Canada said it welcomes the delivery of new Boeing 747 Max later this year and C Series aircraft starting in 2019.
“In our view, two great aircraft that will complement each other and that can and should co-exist within their respective competitive spaces,” said Rovinescu.
Air Canada is also facing the prospect of a class action lawsuit over rules for its consumer flight passes.
The suit filed last month argues that Air Canada ran afoul of Quebec consumer protection law by having expiry dates or fees associated with the program for buyers from around the world. The airline declined to comment about the effort to seek authorization to proceed as a class action.
Air Canada also provided travel updates Tuesday for customers who may be impacted by hurricane Maria, which is on track to hit many of the same areas of the Caribbean that were devastated by hurricane Irma. Updates can be found on AirCanada.com.
