Signs New 10-year Financial Credit Card Agreement to Commence in 2014
MONTREAL, June 27, 2013 /CNW Telbec/ – Aimia (TSX: AIM) announced groundbreaking changes to the Aeroplan program today. The transformation, which is expected to reinforce Aeroplan’s position as the leading premium coalition loyalty program in Canada, was announced in conjunction with a framework for an enhanced ten year financial credit card agreement to become effective from January 1, 2014.
“Today’s announcement is about launching an outstanding loyalty experience that puts members first and extends Aeroplan’s position in the Canadian loyalty market” said Rupert Duchesne, Group Chief Executive of Aimia. “We have built an Aeroplan program that provides high earning members with the rewards and recognition that they deserve and desire, rewarding them for the miles they earn – whether it is with our airline, travel, retail or financial card partners – while maintaining the fantastic core value that benefits all of our members.”
The changes announced today are expected to redefine the Canadian loyalty space, and reinforce Aeroplan’s market leadership in Canada over the next decade by providing significantly improved benefits to members through major new investments in the Aeroplan value proposition. The changes create a paradigm shift for global travel-based loyalty programs, extending access to an unrivalled loyalty experience to both top accumulating financial cardholders and frequent flyers. Aimia expects these changes to drive improved growth and strong free cash flow generation over the longer term for shareholders.
Aeroplan Program Enhancements
In addition to the market leading value of Aeroplan’s ClassicFlight rewards which will continue to give members access at low fixed mileage levels to Star Alliance carriers and to 8% of seat capacity on Air Canada routes, members will also start enjoying a range of important and innovative program enhancements as of January 1, 2014. These will include:
- The launch of Distinction, a new tiered recognition program that rewards top accumulating members with preferential mileage levels for redemption. Distinction is a unique member recognition program independent from Air Canada’s Altitude program. Distinction levels are achieved based on total miles earned across all coalition partners including airline, travel, retail and financial card partners;
- New Market Fare Flight Rewards to replace ClassicPlus Flight Rewards; offering members significantly improved value, with all members able to take advantage of mileage levels reduced by up to 20%, and Distinction members enjoying reductions of up to 50%;
- The cancellation of the seven-year mileage redemption policy, with miles no longer expiring for members active in the program each year.
“Aeroplan has been driving innovation in customer loyalty since its inception in 1984 and we’re proud of all we’ve achieved. Our members’ feedback has inspired the transformative changes that we will be bringing to the program in 2014. It is this commitment to delivering the best customer loyalty program in Canada that will not only foster continued member engagement, but we are confident it will also attract new members to the program,” added Duchesne. “This is also about getting the right economics in place for the future. New investment should deliver growth, ensure alignment for coalition anchor partners like Air Canada and deliver significant value for our shareholders over the longer term.”
A Framework for a Financial Credit Card Partner for the Next Decade
Over the last 18 months, Aimia has run a renewal process for Aeroplan’s financial card portfolio to define an enhanced partnership aimed at delivering growth over the next decade.
The agreement announced today sets out a framework for an enhanced financial credit card relationship. The provisions of the new agreement will help fund the enhancements to the Aeroplan program being announced today.
TD Bank Group (“TD”) will become Aeroplan’s new financial credit card partner for the 10-year period effective from January 1, 2014, replacing CIBC, unless CIBC chooses to exercise its contractual right to match the terms of the agreement which expires on or before August 9, 2013.
Aeroplan’s current agreement with CIBC will continue until December 31, 2013. Members can continue to earn miles as usual on their CIBC Aerogold co-branded credit cards and take advantage of any Aeroplan promotions related to these cards for the remainder of 2013.
Negotiations with American Express are proceeding in parallel and are ongoing.
“We entered into this process with a clear objective – to grow the portfolio with a bank who is committed to building the Aeroplan program with us. The process we have run has confirmed the attractiveness of the Aeroplan portfolio. Under the terms of the new agreement, our financial card partner will contribute to the funding and support required to transform the program and drive increased engagement among premium Canadian consumers,” added Duchesne. “Recognizing that more than half of Aeroplan Miles accumulated in 2012 were earned through financial card spend, a successful credit card partnership is an important element of our longer term evolution.”
Features of New Credit Card Offerings
New Aeroplan co-branded financial credit cards, to be launched in 2014, will provide cardholders with more flexible options, better earn rates and new recognition features; all of which is in addition to the benefits to be added under the Distinction program.
A new enhanced premium card targeted at high net worth Canadian households, with a higher earn rate, will be offered, in addition to premium and mid-market credit cards.
The launch of two additional co-branded targeted credit cards is expected to include:
- one aimed at customers travelling frequently between Canada and the United States; and
- a second specifically for Canadian small business owners, which will allow small business owners to choose additional features and benefits specifically designed to their needs.
Both the enhanced premium and premium cards will include a suite of unique Air Canada features and benefits.
In a number of instances during 2014, annual fees will be waived and bonus miles awarded to welcome members to the new cards.
Terms of a New Financial Credit Card Agreement
The terms of a new 10-year financial credit card framework agreement will include:
- a more than 15% increase in price per mile to align to market levels;
- a commitment to minimum miles purchases for the first three years;
- a joint marketing spend of around $140 million over four years to support new cards and new program features;
- use of Aeroplan bonus miles to drive future member acquisition and longer term growth in Gross Billings; and
- more comprehensive collaboration around data and customer insight analytics.
In addition, the agreement provides for
- a $100 million upfront contribution payable in 2014 to Aimia to help fund program enhancements; and
- an $80 million contractual break fee payable in 2013 by Aimia to TD in the event CIBC exercises its contractual right to match on or before August 9, 2013.
Should the agreement with TD become effective, Gross Billings growth could be dampened through the transition period to a new bank, however the miles purchase commitment would guarantee a value equivalent to the Gross Margin that would have been generated on approximately 65% of CIBC’s 2012 Gross Billings in 2014, increasing to a value equivalent to over 90% in 2015 and 2016. When combined with the upfront program contribution of $100 million and tax benefits to be realized, this should also ensure solid cash flow generation to maintain the dividend through any transition in 2014.
Higher Gross Billings, combined with new contract economics, are expected to offset increased program costs, and generate improving cash flow returns post-transition.
2013 Breakage Adjustments to Reflect Aeroplan Program Enhancements
While enhanced Aeroplan benefits will only be launched on January 1, 2014, Aimia is making a significant adjustment to its long term breakage rate estimate, effective immediately, in accordance with IFRS and to align with our current expectations for an increase in member engagement and the cancellation of the seven-year mileage redemption policy.
As a result, the estimate of the breakage rate for the Aeroplan program will decline from 18% to approximately 11%. 2013 Adjusted EBITDA will be adjusted downwards by approximately $50 million to reflect the change in the breakage rate.
The breakage rate change will also result in a non-cash, after-tax adjustment to net earnings of approximately $520 million. Aimia also expects to realize the benefit of a taxable loss from this breakage adjustment, which will include a substantial loss carryback to be received in 2014. In addition, Aimia does not expect to pay cash taxes in Canada for the remainder of 2013 or for the next few years.
In line with the financial adjustments described above, Aimia is today revising its previously provided 2013 annual guidance with respect to Adjusted EBITDA, Free Cash Flow before dividends and Income Taxes.
The Corporation had previously guided 2013 Adjusted EBITDA to be approximately $425 million, which is now being revised to be approximately $375 million. The revision is principally due to the $50 million reduction to Adjusted EBITDA, reflecting the full year impact of the lower breakage rate described above. In the event that CIBC exercises its contractual right to match and is confirmed as the program’s financial credit card partner, Adjusted EBITDA would be revised downwards by a further $80 million due to the contractual break fee which would become payable to TD.
The Corporation had previously guided 2013 Free Cash Flow before dividends to be between $255 million and $275 million. While our current view on free cash flow remains unchanged, in the event that CIBC exercises its contractual right to match and is confirmed as the program’s financial credit card partner, Free Cash Flow before dividends is expected to be revised downwards by $80 million due to the contractual break fee which would become payable to TD.
While Aimia’s 2013 tax rate is expected to approximate 27% in Canada, it now expects that it will not be required to pay any further cash taxes in 2013 as a result of the realization of tax losses from adjustment to net earnings of approximately $520 million described above.
A number of other factors, including additional marketing and transition costs incurred in the second half of 2013 to ensure the successful introduction of a new partner, and the enhanced Aeroplan program could result in the Corporation’s actual 2013 results differing from its revised 2013 annual guidance for Adjusted EBITDA and Free Cash flow before dividends. Aimia is unable to reasonably assess these factors until the identity of its credit card partner is confirmed on or prior to August 9, 2013 but expects to be in a position to provide more precision with respect to the revised 2013 guidance ranges following confirmation of the identity of its credit card partner.
The above guidance should be read in conjunction with the more detailed guidance provided in earnings releases dated February 27, 2013 and May 13, 2013. It does not include the one-time benefit in 2013 of $25.7 million (£16.7 million) to Adjusted EBITDA and a one-time cash outflow of $7.0 million (£4.5 million) expected as a result of the UK Supreme Court’s ruling in Aimia’s favour relating to Value Added Tax (VAT) litigation, as announced on June 20, 2013. The above guidance excludes the effects of fluctuations in currency exchange rates. In addition, Aimia made a number of economic and market assumptions in preparing its 2013 forecasts, including assumptions regarding the performance of the economies in which the Corporation operates and market competition and tax laws applicable to the Corporation’s operations. The Corporation cautions that the assumptions used to prepare the forecasts for 2013, although reasonable at the time they were made, may prove to be incorrect or inaccurate. In addition, the above forecasts do not reflect the potential impact of any non-recurring or other special items or of any new material commercial agreements, dispositions, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after June 27, 2013. The financial impact of these transactions and non-recurring and other special items can be complex and depends on the facts particular to each of them. We therefore cannot describe the expected impact in a meaningful way or in the same way we present known risks affecting our business. Accordingly, our actual results could differ materially from our expectations as set forth in this news release. The outlook provided constitutes forward-looking statements within the meaning of applicable securities laws and should be read in conjunction with the “Caution Concerning Forward-Looking Statements” section.
Investor and Analyst Call
Aimia will host a conference call to discuss the announcement at 8:00 a.m. ET today, Thursday, June 27, 2013. The call can be accessed by dialing 1-888-231-8191 or 647-427-7450 for the Toronto area. The call will be simultaneously audio webcast at:
Further Information about Aeroplan Program Enhancements
For more information on the program enhancements, read the press release and FAQs at www.aeroplan.com/new. Consumer questions can also be addressed on Twitter (@Aeroplan) or Facebook (www.facebook.com/Aeroplan) or by contacting the Aeroplan Contact Centre at: 1-800-361-5373.
Use of Non-GAAP Financial Information
In order to provide a better understanding of the results, the following indicators are used:
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization
EBITDA adjusted for certain factors particular to the business, such as changes in deferred revenue and Future Redemption Costs (“Adjusted EBITDA”), is used by management to evaluate performance, and to measure compliance with debt covenants. Management believes Adjusted EBITDA assists investors in comparing the Corporation’s performance on a consistent basis without regard to depreciation and amortization and impairment charges, which are non-cash in nature and can vary significantly depending on accounting methods and non-operating factors such as historical cost. Adjusted EBITDA also includes distributions and dividends received from equity-accounted investments.
Adjusted EBITDA is not a measurement based on GAAP, is not considered an alternative to operating income or net income in measuring performance, and is not comparable to similar measures used by other issuers. For a reconciliation to GAAP, please refer to the Summary of Consolidated Operating Results and Reconciliation of EBITDA, Adjusted EBITDA, Adjusted Net Earnings and Free Cash Flow included with the financial results dated February 27, 2013 and May 13, 2013. Adjusted EBITDA should not be used as an exclusive measure of cash flow because it does not account for the impact of working capital growth, capital expenditures, debt repayments and other sources and uses of cash, which are disclosed in the statements of cash flows.
Adjusted Net Earnings
Adjusted Net Earnings provides a measurement of profitability calculated on a basis consistent with Adjusted EBITDA. Net earnings attributable to equity holders of the Corporation are adjusted to exclude Amortization of Accumulation Partners’ contracts, customer relationships and technology, share of net earnings (loss) of equity accounted investments and impairment charges. Adjusted Net Earnings includes the Change in deferred revenue and Change in Future Redemption Costs, net of the income tax effect and non-controlling interest effect (where applicable) on these items at an entity level basis. Adjusted Net Earnings also includes distributions and dividends received from equity-accounted investments.
Adjusted Net Earnings is not a measurement based on GAAP, is not considered an alternative to net earnings in measuring profitability, and is not comparable to similar measures used by other issuers. For a reconciliation to GAAP, please refer to the Summary of Consolidated Operating Results and Reconciliation of EBITDA, Adjusted EBITDA, Adjusted Net Earnings and Free Cash Flow included with the financial results dated February 27, 2013 and May 13, 2013.
Standardized Free Cash Flow (“Free Cash Flow”)
Free Cash Flow is a non-GAAP measure recommended by the CICA in order to provide a consistent and comparable measurement of free cash flow across entities of cash generated from operations and is used as an indicator of financial strength and performance.
Free Cash Flow is defined as cash flows from operating activities, as reported in accordance with GAAP, less adjustments for:
(a) total capital expenditures as reported in accordance with GAAP; and
(b) dividends, when stipulated, unless deducted in arriving at cash flows from operating activities.
For a reconciliation to cash flows from operations please refer to the Summary of Consolidated Operating Results and Reconciliation of EBITDA, Adjusted EBITDA, Adjusted Net Earnings and Free Cash Flow included with the financial results dated February 27, 2013 and May 13, 2013.
EBITDA and Free Cash Flow are non-GAAP measurements recommended by the CICA in accordance with the recommendations provided in their October 2008 publication, Improved Communications with Non-GAAP Financial Measures – General Principles and Guidance for Reporting EBITDA and Free Cash Flow.
Because exchange rates are an important factor in understanding period to period comparisons, the presentation of various financial metrics on a constant currency basis or after giving effect to foreign exchange translation, in addition to the reported metrics, helps improve the ability to understand operating results and evaluate performance in comparison to prior periods. Constant currency information compares results between periods as if exchange rates had remained constant over the periods. Constant currency is derived by calculating current-year results using prior-year foreign currency exchange rates. Results calculated on a constant currency basis should be considered in addition to, not as a substitute for, results reported in accordance with GAAP and may not be comparable to similarly titled measures used by other companies.
Caution Concerning Forward Looking Statements
Forward-looking statements are included in this news release. These forward-looking statements are identified by the use of terms and phrases such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “will”, “would”, and “should” and similar terms and phrases, including references to assumptions. Such statements may involve but are not limited to comments with respect to strategies, expectations, planned operations or future actions.
Forward-looking statements, by their nature, are based on assumptions and are subject to important risks and uncertainties. Any forecasts, predictions or forward-looking statements cannot be relied upon due to, among other things, changing external events and general uncertainties of the business and its corporate structure. Results indicated in forward-looking statements may differ materially from actual results for a number of reasons, including without limitation, dependency on top accumulation partners and clients, the effective implementation of Aeroplan program enhancements and a new financial card partnership and associated cardholder migration, conflicts of interest, greater than expected redemptions for rewards, regulatory matters, retail market/economic conditions, industry competition, Air Canada liquidity issues, Air Canada or travel industry disruptions, airline industry changes and increased airline costs, supply and capacity costs, unfunded future redemption costs, failure to safeguard databases and consumer privacy, changes to coalition loyalty programs, seasonal nature of the business, other factors and prior performance, foreign operations, legal proceedings, reliance on key personnel, labour relations, pension liability, technological disruptions and inability to use third party software, failure to protect intellectual property rights, interest rate and currency fluctuations, leverage and restrictive covenants in current and future indebtedness, uncertainty of dividend payments, managing growth, credit ratings, as well as the other factors identified in this news release and throughout Aimia’s public disclosure record on file with the Canadian securities regulatory authorities.
The forward-looking statements contained herein represent Aimia’s expectations as of June 27, 2013, and are subject to change after such date. However, Aimia disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.
Aeroplan, Canada’s premier coalition loyalty program, is owned by Aimia Inc., a global leader in loyalty management. Aeroplan’s millions of members earn Aeroplan Miles with its growing network of over 75 world-class partners, representing more than 150 brands in the financial, retail, and travel sectors.
In 2012, approximately 2.3 million rewards were issued to members including more than 1.6 million flights on Air Canada and Star Alliance carriers which offer travel to more than 1,000 destinations worldwide. In addition to flights, members also have access to over 1,000 exciting specialty, merchandise, hotel, car rental and experiential rewards.
Aimia Inc. (“Aimia” or the “Corporation”) is a global leader in loyalty management. Employing more than 4,000 people in over 20 countries worldwide, Aimia offers clients, partners and members proven expertise in launching and managing coalition loyalty programs, delivering proprietary loyalty services, creating value through loyalty analytics and driving innovation in the emerging digital, mobile and social communications spaces.
Aimia owns and operates Aeroplan, Canada’s premier coalition loyalty program and Nectar, the United Kingdom’s largest coalition loyalty program. In addition, Aimia owns stakes in Air Miles Middle East, Nectar Italia, Mexico’s leading coalition loyalty program Club Premier,Brazil’s Prismah Fidelidade, and i2c, a joint venture with Sainsbury’s offering insight and data analytics services in the UK to retailers and suppliers. Aimia also holds a minority position in Cardlytics, a US-based private company operating in transaction-driven marketing for electronic banking. Aimia is listed on the Toronto Stock Exchange (TSX: AIM). For more information, visit us at www.aimia.com.