Our recent article on the fallout from the Air Canada - Aeroplan divorce garnered such vast attention because the implications for Canadian consumers, retailers, and loyalty providers truly are staggering. Perhaps no consumer sector will be disrupted more, however, than the Canadian retail credit card industry. With CIBC and TD locked into multi-year agreements with Aeroplan that they may or may not be able to exit, and with Air Canada soon to be chasing its own credit card partners, no one knows what will happen when the music stops. Will cardholders stick with their Aeroplan-branded credit cards, or abandon them? What impact will Air Canada's move have on CIBC and TD? Which issuers stand to gain from this move, and which will suffer? The Financial Post breaks down the players and their possible next moves.
By Rick Ferguson
The issuers most immediately impacted by this news are, of course, CIBC and TD, both of whom issue Aeroplan-branded reward cards. Some useful numbers from the Financial Post analysis, courtesy of National Bank Financial analyst Gabriel Dechaine (text courtesy of the Financial Post article:
- Based on an assumed five-per-cent return on assets for credit cards and $3-billion worth of balances, Dechaine estimates Aeroplan accounts for roughly three per cent of CIBC's 2017 earnings per share.
- Although TD’s Aeroplan cards portfolio represents a smaller proportion of overall earnings, at an estimated two per cent of 2017 EPS, the bank has made a bigger effort to partner with Aeroplan after it took on $3 billion of receivables in 2014.
According to Dechaine, CIBC stands to be harmed less than TD, even though it may take a bigger financial hit in the short term. That's because, unlike TD, CIBC has its own proprietary reward program, Aventura, to which it could migrate its Aeroplan cardholders. TD, in contrast, has no apparent Plan B. Money quote:
"The analyst doesn’t know what TD's plan is and that's cause for concern. 'Unlike CIBC, it would appear that TD does not have an easy product conversion strategy in place,' the analyst said. He believes TD could push forward with Aeroplan, and that might mean altering its structure to assign a cash value to the travel rewards."
What's interesting - besides the obvious millions of dollars at stake - is that this news will allow industry observers to witness, in real time, a market research study into the underlying drivers of consumer loyalty. Consider a longtime cardholder of the CIBC Aerogold Visa Infinite card, for example. When Air Canada leaves Aeroplan, we'll learn to which brand that cardholder is loyal. Will she follow Air Canada and take up its inevitable new card offering? Will she take up CIBC's offer to switch to an Aventura card, thereby demonstrating her loyalty to CIBC? And if she does stay with CIBC, is her loyalty based on an emotional connection to the brand, or merely on inertia and the difficulty of switching credit cards?
Meanwhile, what loyalty, if any, do Aeroplan members feel to the Aeroplan program? Is their loyalty to Aeroplan the brand, or to Air Canada via the Aeroplan program? To which of these brands are Canadian consumers actually loyal, and why? These are fascinating questions to ask - and we'll get to see the answers unfold over the next few years. In the meantime, as the Globe and Mail's Rob Carrick reports, Canadians can expect "all-out war" for their loyalty. Money quote #2:
"Air Canada’s decision to leave Aeroplan is a reminder of one more reality in loyalty programs. This is a business that has a definite life cycle. Programs emerge with a splash, and then gradually have their benefits pared in one way or another to boost profitability. You see this when you strike out trying to book reward flights and find nothing of interest when redeeming for merchandise."The lesson here is to grab up the deals to come in the reward card world. Earn your points, and redeem them in the short to medium term. If you hoard, you run the risk of having your rewards program changed for the worse. Remember, the golden era of reward programs is just about over."
Carrick's mercenary approach to loyalty programs is not wrong; his pronouncement that the "golden age" is over for legacy loyalty programs in Canada, however, remains to be seen. There is opportunity here: Opportunity for Air Canada, Aeroplan, CIBC, TD, Air Miles, and every other operator of loyalty programs in Canada to remember the purpose of these programs - to build sustainable, reciprocal, and value-added relationships with best customers. The only question is which of these brands will heed the call.
Rick Ferguson is CEO and Editor in Chief of the Wise Marketer Group.