Many people wrote off Aimia Inc. (TSX:AIM) after the company behind the Aeroplan lost its partnership with Air Canada earlier this year. The deal is set to expire in 2020, but many investors have sold off the stock well in advance of that, as the stock price has been down around 40% since the start of the year.
However, Aimia recently unveiled a new venture to grow its business: it’s starting its own airline. In an interesting twist, Aimia will offer chartered flights as it looks to expand its business model. And while it’s not going to make up the business lost from Air Canada, it certainly might attract customers that otherwise would have used their Aeroplan miles with Air Canada and allow Aimia to keep some of those potential travelers.
Aimia CEO Jeremy Rabe sees lots of potential in the airline business: “We have routes where we have enough redemption demand today that we can fly a daily charter throughout the year on some particular routes.” The company is being strategic in its offerings and is mainly going to focus on sun destinations. Although it is not a novel idea by any means, it’s a smart way for the company to keep Aeroplan customers using the program.
The company is going to being taking a page out of Amazon.com, Inc.’s book, as it plans to use the information it has from booking history and will try to predict which flights will be in demand and secure those flights in advance. This is a great way for Aeroplan to utilize its data and make smart business decisions from it. By being selective in which flights it chooses to offer, Aeroplan can be cost effective and efficient.
While Aeroplan customers may be disappointed that the deal with Air Canada is ending, it will actually create many more options for travelers now that the exclusivity is gone, and Aeroplan miles could be used with any airline. The company announced that after the agreement with Air Canada ends, it will be offering a transfer program where consumers will be able to convert Aeroplan miles into other programs, giving customers much more flexibility.
Aeroplan will also expand beyond just flights, and customers will have many more options when it comes to redeeming their points.
Takeaway for investors
It’s a bold move by Aimia to jump into the airline business, and it could turn out to be a big win for the company. It was clear that Aimia had to do something to convince investors the company still had a future and a vision, and it has taken steps to do that. If Aeroplan customers can continue using their miles for their preferred travel destinations, it could keep the program going. After all, a big drawback of rewards programs today is being restricted to using points with a particular company, and Aimia could offer a lot of value to customers by offering much more flexibility.
Investors have responded positively to the news, as the stock was up as much as 13% in trading this morning.
Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor David Jagielski has no position in any of the stocks mentioned. David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon.