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Aeroplan Spinoff

January 06th, 2009 | Category: xn--fiqs8stwme6s806a.com
  • In today's Globe And Mail it was reported AC's plans to spinoff Aeroplan inanIPO for approximately 1/3 of the shares might still proceed despite market volatility. AC would retain the remaining 2/3rd's.

    Reportedly the 1/3rd value may very well exceed the equity in AC (316 million).

    This seems to indicate that the perception of travel is worth more than the travel itself.


  • Andrew Webber, the retail stores that are associated with the retail council of Canada pay 1.86% for Visa and 1.76% for MasterCard if set up through Canada Trust ( I know this will change soon as it merges with TD). I should have the rate for AMEX in my head, but in my retail business it is a small amount and I want to say 2.25%


  • Guava, if the merchant rate were 1.8% and the points cost 2 cents, CIBC would lose $0.002 on every dollar we put through our accounts, and that just wouldn't happen.

    I don't think 5 million points is enough for CIBC. If exAC is right about $250 million, and you're right about 2 cents a point, that represents 12500 _million_ points being bought by CIBC! Remember that CIBC (and others) operate at a different level than most, AC actually benefits from CIBC as much or more than CIBC benefits from AC.

    I agree Amex's merchant rate is higher than Visa and MC, but I think both are higher than you're saying (OTOH, paypal.com only charges about 2.5%).

    When we pay on time, the only real profit source for Aerogold, Amex, and the rest, is the differential between the merchant fee and the price of the points. If the price really is $0.02, then the merchant fees must be about 2.5%, and I have to figure the bank would put the screws to AC so they can keep more than 25% of profit on a regular card. [does that make sense? sorry if it doesn't]

    andrew


    [This message has been edited by Andrew Webber (edited 03-26-2001).]


  • Nothing wrong with the language in the ad. It did not say they are flying solely on the points they earned using their CIBC cards, just that 1,500 CIBC cardholders who are Aeroplan members, were flying on a free ticket on any given day. There is a direct link and correlation between the two, unlike your taxpayers analogy, in which case not all would be Aeroplan members, therefore it would not be an accurate statement. "Some taxpayers are Aeroplan members. Some Aeroplan members are flying free today. Therefore, all taxpayers fly free."


  • If that's what the ad was supposed to mean, you would need a PhD to figure it out (and I still haven't) so they definitely wasted their time on me!

    (And anyway, Diners Club EnRoute for $65 seems like a much better deal.)


  • If CIBC pays 3 cents US or 4.5 cents Canadian per mile to Air Canada... where would they make a profit with Aerogold cards? I think they pay around 1 penny per mile at most to stay competitive.

    Isn't Aeroplan already an independent entity... running business as Advantex Marketing. http://biz.yahoo.com/n/ca/a/adx.html

    Whatever they decide... how will that affect the consumers? Would that make collecting miles easier? There have been rumours since long long time ago but nothing has changed so far... other than the addition of Futureshop in to the family.


  • Thanks Skyhawk, those are lower rates than I thought. So now I really think CIBC can't be paying more than about C$0.01 for the points!

    andrew


  • Industry Average is 2-3Cents U.S. per Mile Awarded.


  • Does anybody know how much CIBC pays for a mile. I would guess around 2 cents.


  • CIBC does 70% of the gold card market.
    If a customer has a limit of $10K they are likely carrying 5 K a month on debt. So the bank makes about 937 from this customer in interest plus the card fee which I forget say 200. Therefore they gross 1,137, pay the airline $300 for 3cents on $10,000 spent. Gross Profit is $837 and then they have staff, rent and bad debts.

    Americans have $600 Billion in credit card debt so Canadians likely have 1/10th with CIBC holding a big chunk.


  • Aeroplan was spun off by AC as a subsidiary last summer, removing it from the Marketing Division. (AC Maintenance is similarly a separate division.) AC currently owns all the stock, but had always intended to see if Aeroplan could be floated on the open market as a major Canadian company specializing in incentives. The Advantex is just a joint venture between Aeroplan and a private company.

    I had an extensive explanation of the international operational implications of the Aeroplan spin-off back in August, and will try and find that reference for newcomers. However, I do not know how to put in a link from a FlyerTalk topic.


  • I know we talked about this before, but CIBC is quite happy to have us run up huge monthly balances and pay them off in full. Don't forget they make 2.5%-4% from the merchant (and why they're not likely paying more than C$0.015 per AP mile).

    That's also why Amex can afford to sell us 50% more miles for only $50 extra (Points Accellerator on a Gold Card). And if Amex gets a decent airline partner again in Canada, we might see CIBC's plans for an AeroPlatinum card revived: they primarily want our transactions, not our interest!

    andrew


  • I was on aa AC flight in Jan and on the inflight entertainment CIBC was advertising their Aerogold card. I think they were claiming that "1400 Canadians" already use it. It sounded like a very low number, but it a CIBC commecial. If that is (was) indeed true, it's impossible that the points they gave out provided AC with $250 million in revenue in a year. (exAC- did you mean $250 million in a year, or total?)
    I probably got the story wrong because there must be more than 1400 cardholders.


  • Yep, that is exactly what's happening. It will cost AC $ to buy AP points to award to members flying them and AP will have to pay $ to AC for award seats. This allows AC to view both traditional paid and award bookings as revenue bookings.

    FewMiles..

    ------------------
    FlyerTalkers' Resources on the Web: http://home.webflyer.com/fewmiles/
    Unofficial Guide to AAdvantage: http://home.webflyer.com/fewmiles/AA/
    oneworld comparison chart 2001: coming soon


  • Canadian, I think that's high. I would have guess a penny each for someone like CIBC (two cents _max_), but I don't know. I _do_ know I can buy USAir points for U$0.02 each in small quantity to give away, and I'm pretty sure there are volume discounts available.

    andrew


  • What value is there in owning AP?
    Would AirCanada pay Aeroplan for the points they award for travel on AC, and then charge them for reward travel tickets that AP isssues?


  • Originally posted by FewMiles:
    This allows AC to view both traditional paid and award bookings as revenue bookings.

    Not unless there's some difference between US and Canadian accounting standards on the key point. With two-thirds ownership, they'd still have to consolidate the financials (under US GAAP), and all transactions between the two go away.


  • AC revenue from CIBC was over $250 million cdn prior to the consolidation of CP and AC. It is likely somewhat higher now.


  • FewMiles, of course you're right the banks will take whatever they can get. And as long as you make the minimum payment, they're getting a good return. But the effective annual return on the merchant discount is actually higher! And of course they don't have any bad debt if the balance is paid off.

    andrew


  • I think you will find that it was something like "1400 cardholders are flying free today."

    (Which would be about 250,000 two-way redemptions by cardholders per year).


  • Merchant fee is set individually based on total business transaction amount. A large company like Bell Mobility that processes millions of dollars in credit card charges probably pay somewhere around 1%. A SOHO business will get around 2% at least. So it's hard to know.

    Also, this fee is determined by the merchant's bank. There are not that many choices in Canada... but in USA, the rate varies much greater with increased choices.


  • I can clear up the Aeroplatinum or as they called it the Aeroaffinity card. I was called back late last year, not sure of the exact date and asked if I minded completing a marketing study being done on behalf of CIBC. As I already have the Aerogold I was very interested, especially when it was mentioned thart it would give two Aeroplan points per dollar. Annual fee was around $300.00 if my memory is correct. They were also talking about a Aeroclassic card. No annual fee but with one Aeroplan mile per every $2.00 spent and pretty limited other benefits.

    I have not heard or seen anything since. I do hope thay bring this out.

    we can which and keep our fingers crossed.


  • I know we talked about this before, but CIBC is quite happy to have us run up huge monthly balances and pay them off in full. Don't forget they make 2.5%-4% from the
    merchant (and why they're not likely paying more than C$0.015 per AP mile).

    That's also why Amex can afford to sell us 50% more miles for only $50 extra (Points
    Accellerator on a Gold Card). And if Amex gets a decent airline partner again in
    Canada, we might see CIBC's plans for an AeroPlatinum card revived: they primarily
    want our transactions, not our interest!

    Please correct me if I'm wrong, I thought the profit margin for the banks with VISA cards is 1.8%? I mean, isn't AMEX the most expensive b/c they charge merchants to about 3% of the sales?

    I think CIBC pays about $0.02CAD per mile b/c when CP program used to sell miles at $0.02CAD per mile for transactions over 5 million miles. This would seem to fit the needs of big buyers like CIBC, Royal Bank or AMEX Canada.

    AMEX has kept saying that they are going to get a new and big airline partner. They have been saying this for more than 6 months now. I suspect that the airline that AMEX is talking to right now (if there is one) is American Airlines. Here is why:

    1) AA has agreed to allow Royal Bank Avion cardholders to transfer points to AA, BUT, this is not done yet. We know it's going to happen soon, however, notice that they are unable to give a date (e.g. Starging April 1st and no it's not a bad joke of April Fools' day!). It seems to me AA is waiting for something here, possibly to conclude/finalize talks with AMEX.

    2) TWA's purchase by AA is now considered a done deal. As TWA is part of the AMEX USA program, AA is almost forced or strongly encouraged to keep that ties with AMEX; therefore, if AA and TWA's merger make AA a partner of AMEX rewards, then it would be a lot easier for AA to join AMEX Canada's program as well. Note that this the reason why Delta and Continental are part of AMEX Canada's program.

    3) AA has obviously made a lot of effort to attract Canadian customers. Their joint effort with Cathay Pacific is obvious. Just because I am AA Platinum, my whole family receive complimentary AA Gold status in an attempt to get them to fly AA. It looks as though they have tried too hard.

    Now, something that intersts me is that someone mentions about AeroPlatinum card by CIBC. I have never heard of that. Did CIBC ever really consider that option or was it just rumors? Can someone please clarify?


  • Originally posted by AC*SE:
    I think you will find that it was something like "1400 cardholders are flying free today."

    (Which would be about 250,000 two-way redemptions by cardholders per year).



    which could be a false advertising... because most people also accumulate miles from actual flights and other partners. So what does this have to do with CIBC?

    It's like saying 5000 of Federal income tax payers are flying free today... because of their accumulation award from elsewhere. Does that mean paying taxes alone will lead to free travel? Not necessary (or almost never)... unless you are a politician.


  • In other words, the bank makes more money off people carrying a balance and a lot less for people who make "proper" use of the "revolving door" offered by credit cards. http://www.flyertalk.com/forum/smile.gif

    FewMiles..

    ------------------
    FlyerTalkers' Resources on the Web: http://home.webflyer.com/fewmiles/
    Unofficial Guide to AAdvantage: http://home.webflyer.com/fewmiles/AA/
    oneworld comparison chart 2001: coming soon


  • I can clear up the Aeroplatinum or as they called it the Aeroaffinity card. I was called back late last year, not sure of the exact date and asked if I minded completing a marketing study being done on behalf of CIBC. As I already have the Aerogold I was very interested, especially when it was mentioned thart it would give two Aeroplan points per dollar. Annual fee was around $300.00 if my memory is correct. They were also talking about a Aeroclassic card. No annual fee but with one Aeroplan mile per every $2.00 spent and pretty limited other benefits.

    I have not heard or seen anything since. I do hope thay bring this out.

    we can which and keep our fingers crossed.

    That's a great news! I mean, this will beat AMEX's 1.5 miles/$CDN. I have no problem with the annual fee since I can get it for free (no, I don't work for CIBC). VISA is much more common than AMEX and I am starting to dislike the benefits of AMEX cards without a major airline partner. You mentionned that they conduct they study late last year, so it must be just a few months old now. Too soon for them to take any decisions. It seems to me CIBC is testing two products: One better than AeroGold, one slightly weaker than AeroGold.

    Let us just hope that CIBC will introduce this new product. I'll see what kind of inside information I can get out of CIBC through my contacts.


  • Of course, they'll happily take the interest too. http://www.flyertalk.com/forum/wink.gif

    FewMiles..







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