Who Won the Aeroplan Sweepstakes?

A case could be made for all three players.

| More on:
The Motley Fool

Last year featured many defining moments for the Aeroplan program. The first occurred in June, when Aimia Inc (TSX:AIM) reached a deal with TD Bank (TSX:TD)(NYSE:TD) to offer Aeroplan-linked credit cards, replacing CIBC (TSX:CM)(NYSE:CM). Then in September, all three parties reached an agreement whereby TD would buy half of CIBC’s Aerogold portfolio, and both banks would get to issue Aeroplan-linked cards.

Fast forward five months, and all three parties reported quarterly results on the same day. As it turns out, response by cardholders has been well ahead of both TD’s and Aimia’s expectations, and attrition has been close to zero.

So who were the real winners? There is a strong case that all three parties benefited, but in very different ways.

Aimia gets to have its cake and eat it too

At the time the second deal was struck, most analysts agreed that Aimia was the clear winner. There was a simple reason: now two banks will be issuing Aeroplan-linked credit cards instead of one. That result should not have been surprising, since Aimia was the one in the best bargaining position, with two of Canada’s biggest banks fighting for its business.

Aimia gets other benefits, including a 15% increase in selling price per mile and a $100 million upfront payment by TD in 2014. These benefits did not come for free. Aimia did have to make some upfront payments and also made the Aeroplan program much more attractive to its members, compressing margins. But these were small prices to pay, and a more attractive Aeroplan program should help the company in the long run.

TD grows its credit card portfolio

In banking, there is no denying the profitability of credit cards – especially premium cards. One only needs to look at what TD was willing to do to get the Aeroplan deal. The bank has already agreed to nine-figure payouts to both Aimia and CIBC, and is offering plenty of incentives for consumers to sign up (such as bonus miles and annual fee waivers).

TD isn’t stopping there. The bank is hoping to use its new credit card portfolio as a launch pad for selling other banking products such as chequing accounts. And given the overwhelming response by consumers for the credit cards, such efforts have promising futures as well.

CIBC makes the best of a bad situation

Of all the parties, CIBC was negotiating from the worst position after Aimia reached a deal with TD. Thus the deal in September, which saw CIBC receive over $300 million for only half its card portfolio, was a blessing for the bank. In the earnings call, CIBC was able to report a one-time gain of $0.46 per share from the sale.

Foolish bottom line

But the biggest winner of all was probably the cardholders, who are being fought over like never before. This has come in the form of annual fee waivers, bonus mile offers, and a more attractive Aeroplan program.

So were there any losers? The answer is yes: rival credit card programs like Avion. These programs initially had an opportunity to steal market share from confused cardholders, but the three-way agreement in September helped to ensure a much smoother transition. And if that wasn’t bad enough for the rival card issuers, Aeroplan will now be more competitive than ever before.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds a position in Aimia Inc.

More on Investing


CNR Stock: Should You Buy Today?

Canadian National Railway has been hit in recent quarters, as economic growth has slowed, with CNR stock declining 10% in…

Read more »

Family relationship with bond and care
Dividend Stocks

TFSA Investors: 3 Cheap Canadian Stocks for Retirees

These three Canadian stocks are super cheap for retirees looking for a great buy that will last the test of…

Read more »

calculate and analyze stock
Dividend Stocks

CPP Disability Benefits: Here’s How Much You Could Get

Not everybody can get CPP disability benefits. If you want some passive income, consider investing in Royal Bank of Canada…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Boosting Your Monthly Income: TSX Stocks That Deliver

Dividend investing can boost regular or active incomes, especially select TSX stocks that pay monthly dividends.

Read more »

consider the options
Tech Stocks

Better Buy (2024 Edition): Shopify or Nvidia Stock?

Shopify (TSX:SHOP) isn't the only red-hot tech stock in town that could add to recent gains.

Read more »

Bad apple with good apples

5 Stocks You Can Confidently Invest $500 in Right Now

These stocks could significantly grow your investment over the next decade.

Read more »

Illustration of bull and bear
Tech Stocks

A Bull Market Is Coming: 3 Growth Stocks That Could Thrive

Given their high growth prospects and cheaper valuation, these three growth stocks would be an excellent buy as the market…

Read more »

Golden crown on a red velvet background
Energy Stocks

Enbridge Stock: This Dividend Aristocrat Could Gain in 2024

Enbridge (TSX:ENB) stock is looking like a great buy as management expects it to grow in 2024.

Read more »