Thursday, May 18, 2017

Further thoughts, insight and tips on the split between Air Canada and Aeroplan

This is our second post covering the big news this month in the Canadian loyalty space of Air Canada launching their own program apart from Aeroplan. The first post covered the breaking news and touched upon some of our initial thoughts. Since then we have conducted over a dozen media interviews on the subject which has allowed us to delve even deeper into the subject and we wanted to give you a further update on this developing news story. What we can guarantee is that this won't be the last post covering the topic, in fact it will probably be front and center for the next three years!

Why did Air Canada do this? In our numerous interviews last week and this week we've put it out there that there are most likely several reasons why Air Canada has decided to launch its own program. Some but not all of those educated guesses are as follows:
  • It is well known that frequent flyer programs are big revenue generators. That's why Air Canada sold Aeroplan. They made a lot of money off of the sale to help them out when times were tough. Now, Air Canada only sees revenue by selling seats at a discount to Aeroplan. They don't see the very lucrative credit card and other partner revenues. By bringing the program back in house they have access to way more revenue and profits
  • The disconnect between Aeroplan and Air Canada saw some loyal Air Canada travellers jump ship to other airlines and other airline programs. I mean when you've been loyal and spent lots of money on an airline and then all of sudden you have to compete with millions of other members to get award seats because your frequent flyer program became a frequent shopping program? That does not make a happy customer especially one who has spent a lot of money flying your airline. By bringing the program back under their control it should mean more seat inventory for the loyal Air Canada traveller as those seats will be available to them first and then to programs like Aeroplan and AIR MILES. 
  • WestJet going full bore on premium classes. WestJet has already stated that they are putting a true business class on their new Boeing 787's and are exploring opening their own airport lounges. Air Canada will be in a fight for that high profit premium passenger and by having an in-house frequent flyer program they can utilize that program to try to keep attrition to WestJet at a minimum.
What about the current frequent flyer who is sitting on hundreds of thousands if not millions of Aeroplan miles? Won't they be mad at the lack of redemptions come 2020 even though they have been loyal to Air Canada and collected Aeroplan miles as part of being loyal? This is going to be tough and Air Canada may have to provide some sort of incentive package to their loyal elite flyers. I mean all of sudden they can't use those thousands of miles on Star Alliance partners? That's bad juju. Perhaps Air Canada will pad their loyal flyers account with some miles to begin with, or they may put in place some sort of transfer option although as we know from the news provided by both Aeroplan and Air Canada there will be no way to transfer between the two programs, at least for the time being.

What options do I have and what should I do now?
  • Stay put - at least for a little while and keep going on with Aeroplan as if nothing is happening. Keep earning those miles and keep redeeming them. The good news is you'll be able to use Aeroplan miles on Air Canada flights post-divorce. Bad news is we don't know what other airlines will be available to Aeroplan. As I mentioned in many of my interviews Aeroplan is most likely already negotiating with other airlines to bring them on board. It makes sense for those other airlines to do so. Will we see all the Star Alliance airlines with Aeroplan? No but there is a possibility of some of the larger airlines with lots of service to Canada like Lufthansa and United negotiating other contracts with Aeroplan. And why not. Aeroplan has access to over 5 million members and those airlines can utilize Aeroplan to fill empty seats and at least getting some sort of return from Aeroplan rather than letting a seat go unsold. Aeroplan knows these airlines well and these airlines know Aeroplan well. It makes sense for some of them to be part of Aeroplan. The relationship however will take on a role similar to AIR MILES who do have partnerships with several Star Alliance airlines like Air Canada, Lufthansa and Air New Zealand and access to seats will be limited but the option is there.
  • Use up your Aeroplan miles as soon as you can and start planning to use another reward program. We cover some of those in the next two points.
  • Hoard points in a program that may convert to the future Air Canada program - This is a speculative move but seeing that the new Air Canada program will be more of a true frequent flyer program it will have partnerships with other travel providers like hotels. You could switch to a hotel point earning credit card and try to funnel as many points to these programs. There are only three hotel credit cards in Canada from Marriott, Starwood and Best Western. Starwood has and is the best option for earning potential future miles for the future Air Canada program as their points typically transfer at a 1:1 rate to airlines. However the downside of this is Starwood Preferred Guest will no longer be around sometime in 2018 as their parent company Marriott will merge SPG into Marriott Rewards. The good news is that you will get 3 Marriott Rewards points (or whatever the new combined program may be called) for every Starpoint you have which makes conversion from Marriott to an airline more tolerable, especially if you take on one of their nights+flights packages.

    There is also high likelihood that American Express Membership Rewards will be a partner of the new Air Canada program. Again being speculative as there has been no announcement and it's too early in the development stages of Air Canada's program to say so. However Amex has a long standing relationship with Air Canada and Aeroplan so there is a good chance they would be a partner as well. Worst case scenario if you are collecting Membership Rewards points to eventually convert to the Air Canada program and that partnership never develops you have other options to use those Membership Rewards points, whether its Use Points for Purchases or converting to another airline like British Airways Executive Club
  • Move to a totally different program that isn't affected by moves like this. What we mean here is going to a proprietary credit card program which have discussed time and time again on Rewards Canada and in fact discuss Why proprietary credit card reward programs are the best option for most Canadians. Whether you are a frequent loyal Air Canada traveller or a frequent shopper utilizing Aeroplan you can look at a proprietary program like Scotia Rewards as your program for the next three years and beyond. Taking Scotia Rewards as an example, loyal Air Canada travellers could look at using the Scotiabank Gold American Express Card which offers a rich earn rate of four points per dollar spent on your everyday purchases at gas stations, grocery stores, restaurants and entertainment. Then when 2020 comes you can book Air Canada flights with the card and then redeem the points you have earned over the years for those flights (You can redeem for up to one year after you've paid for your travel). You’ll earn the new Air Canada loyalty program miles for the flights and elite status qualification since they are revenue tickets that you bought from Air Canada. All the while you are subsidizing the costs of the flight(s) with the Scotia Rewards points because you have the flexibility to book your travel through Scotia Rewards full service agency or any travel provider of your choice - you choose. This could be considered a stop-gap measure until the new program comes to place and launches an Air Canada credit card but we would recommend keeping the card since it can be used to pay for taxes and fees as well as any travel you may have outside of Air Canada (i.e. hotels, car rentals etc.)
We would love to hear everyone's continued thoughts on the subject! There were quite a few comments on the first post and we're guessing that now that we are week in most of you have had more time to digest this news and start developing a plan on what you are going to do. So what are you going to do? Are you going to follow some of the points we listed above? Is there something we didn't cover that you thought of? Let's keep the discussion going below!

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