Loyalty Ventures Inc. Announces Bankruptcy Filings and Plan to Delist from the Nasdaq Global Select Market
On Friday, March 10, 2023, Loyalty Ventures Inc. (Nasdaq: LYLT) and certain of its subsidiaries filed voluntary petitions for Chapter 11 relief in the United States Bankruptcy Court for the Southern District of Texas. In addition, the company sought similar protection in Canadian Courts. Financial terms of the bank’s agreement with LoyaltyOne Co. were not immediately available. Loyalty Ventures listed assets of as much as $10 million and liabilities of as much as $1 billion in its bankruptcy petition.
Air Miles president Shawn Stewart called the deal a “significant step forward in solidifying the future of the Air Miles program” and went further to say the deal has “no impact on Air Miles collectors’ reward miles balances or on collectors’ ability to collect and redeem Air Miles reward miles.”
AirMiles is considered to be the first coalition or multi-partner loyalty program introduced to the market. It was launched in 1992 and quickly found success among Canadian consumers. The program's success led to expansion to other countries around the world, including the UK, Spain, and the Netherlands. The membership has fluctuated over the years and the bankruptcy filing stated that the membership was between 9 – 10M, representing about two-thirds of Canadian households.
The Wise Marketer has tracked the Air Miles program over its history and you can see that its real troubles originated in 2016 when the coalition proposal of a five-year expiry on Air Miles met with tremendous backlash. After both collector and legislature outrage forced the company to backtrack on the expiry, Air Miles somehow managed to badly botch the reversal. It was a textbook execution of how not to handle program changes, member communications, and public affairs. The end result left everyone angry, Air Miles reeling from the disaster, and parent company LoyaltyOne facing a significant revenue write-down.
More critical than a questionable decision about changing program rules was the loss of key partners over the past few years. Air Miles has lost a string of big retailers in Canada, with Sobeys and Safeway owner Empire Co. Ltd. and office supply retailer Staples scrapping the Air Miles program, a year after the Liquor Control Board of Ontario and Lowe’s Canada pulled out.
Richard Schenker, former Senior Leadership Team Member at Air Miles and current Founder & Chief Customer Engagement Officer at Loyal Strategy Consulting gave The Wise Marketer an exclusive insider’s view of all that led to the events of last week.
“The news last week about BMO’s intent to purchase Air Miles in Canada from Loyalty Ventures is exactly the tailwind that this once iconic coalition program needs to survive and thrive. For almost a decade, the program has been in freefall due to financial business decisions that did not center around the interests of collectors and partners.
Several years ago, Air Miles mandated some radical program changes in order to mitigate program liability. These included the segregation of cash and travel balances, forcing collectors to declare how they wish to collect and use their miles, and the announcement of a time-stamped miles expiry. These two measures were met with enormous confusion and vehement opposition by program collectors and partners. For many months afterward, Air Miles was the recipient of an onslaught of negative media attention and collector departures.
Consequently, provincial governments had to step in and mandate laws to limit any loyalty operator’s ability to expire points, to protect the interests of consumers. These events severely tarnished Air Miles’ brand reputation. During the years that followed these events, many collectors disengaged, and some major high and mid-frequency retail partners exited the Air Miles program. This negatively impacted miles earn velocity and reward attainability.
While there were several attempts to resurrect the affection of this program from Canadians, collector satisfaction continued to wane and many other national coalition-like programs like PC Optimum, Scene+, Aeroplan, and Canadian Tire's Triangle Rewards were seen as better alternatives and they grew in popularity.
BMO, one of two credit card partners of Air Miles, the other being Amex, had the most to lose if Air Miles were to crash. They have a very large installed base of BMO Air Miles credit cardholders which represents a substantial bulk of their credit card portfolio and market share. Without Air Miles, they would be forced to move those cardholders into their cashback cards or other credit products. There would be an enormous risk of cardholder attrition as other banks would aggressively court these disenfranchised cardholders.
With this intended purchase of Air Miles, BMO will undoubtedly instill confidence in its cardholders and be in a position to offer financial and strategic stability for Air Miles collectors at large. However, Air Miles will need to reinvent and modernize itself as its value proposition and collector experience lag that of its competitors. The Air Miles collector profile also skews older than most loyalty programs in Canada. Air Miles must begin to attract the future collector, a younger demographic, who currently does not relate to the program. Air Miles is often viewed by this sizable spending cohort as your parents’ or even grandparents’ program. This perception can only change by introducing new, exciting, and relevant program mechanics, features, partners, and rewards that engender emotional relatability and connectivity to a new Air Miles program.
I have no doubt that with this new ownership stability, we will witness a rejuvenated coalition program. There is too much riding on this for BMO or Air Miles to fail. While Air Miles might not be able to reach its former altitude during its heyday, it will surely find a new path with far less turbulence for BMO, its collectors, partners, vendors, and employees.”
What does bankruptcy filing mean for the future of loyalty marketing in Canada?
Canada has a highly concentrated economic structure with a “top 5” or so in each vertical market that dominates its market segment. If the sale of Air Miles proceeds to the Bank of Montreal (BMO), we will see four of the top five banks aligned with what was formerly considered a multi-partner loyalty program, if not a true coalition that was operated by an independent group.
TD Bank, CIBC, and American Express are aligned with Aeroplan. TD Bank also has a proprietary loyalty program brand TD Rewards and CIBC has its Aventura credit card portfolio. Scene is becoming the loyalty brand for Scotia Bank, and now BMO will be using Air Miles as its loyalty model.
We expect to see the expansion of each of these programs through the creation of partnerships with external brands that add value to Members.
What does the bankruptcy filing mean for the future of Coalition Loyalty?
It would be tempting to jump to the conclusion that Coalitions as a distinct model has a limited future. We know that several coalition programs continue to thrive in other parts of the world. Dotz in Brazil, Bonus in Peru, and Puntos Colombia in Colombia are all on solid ground and growing.
The insight that carries more weight here is the future of partnerships to make loyalty programs more powerful and attractive to customers. Wise Marketer recently published an article authored by Wojciech Kempny, Consulting Director Africa, GCC, APAC Comarch which speaks to the power of partnerships in loyalty marketing.
Whether aligning with just one key partner that is complementary to your brand or assembling a portfolio of brands, the future of what we have labeled as Coalition Loyalty will more likely be thought of as Partnership Marketing in the future.
What can the industry learn from the bankruptcy filing of Loyalty Ventures?
The misfortune of the Loyalty Ventures group opens a tremendous learning opportunity for the rank and file among loyalty marketers. As the bankruptcy proceedings continue, you can find court filings and related documents at the website of Kroll Restructuring Administration, the company's third-party bankruptcy claims and noticing agent. If you track the proceedings and read the documents filed, you can embark in a grand discovery of the inner workings of a coalition. This is the most transparent opportunity to reverse-engineer the coalition model that has ever been available.
Our first pass through the “First Day Hearing” document filed with the bankruptcy court shared information including testimony from Charles Horn, Chief Executive Officer and President of Loyalty Ventures Inc. There is too much to share in this article, but here are three key areas of commentary that speak volumes to the state of the business and what led to the bankruptcy filing:
- “The business is subject to significant client concentration risk and had been suffering consistent declines in revenue and earnings since 2014. Prior to the Spinoff Transaction, AIR MILES’s top ten participating sponsors generated more than 90% of the Reward Miles issued under the program in 2020 and 2019, and represented approximately 55% and 46%, respectively, of the pre-spin LoyaltyOne segment’s revenue for the years ended December 31, 2020, and 2019. The largest client, BMO, alone represented approximately 15% and 12% respectively of the pre-spin LoyaltyOne segment’s revenue for the years ended December 31, 2020, and December 31, 2019.”
- “The AIR MILES Business lost three top ten sponsors in 2020 and 2021—Rexall, Liquor Control Board of Ontario, and Rona Inc./Lowe’s Canada—which amounted to approximately 10% of the Sponsor revenue at the time, and in 2021, another major Sponsor (Staples) gave notice that it was also leaving the AIR MILES Reward Program, citing concerns that the AIR MILES Reward Program no longer matched expectations based on the price.”
- “In addition to the challenges existing prior to the Spinoff Transaction and the high leverage and debt service obligations resulting from the Spinoff Transaction, the Company has also faced several challenges since the Spinoff Transaction that have led to further significant revenue declines and operational issues. Among other factors, these include, (i) the loss of Sobeys—at the time, the second largest Sponsor in the AIR MILES Reward Program—as a Sponsor and concurrent negotiations with other Sponsors that resulted in less beneficial contracts in respect of the AIR MILES Reward Program and (ii) supply chain issues that were compounded by the impact of the Russian invasion of Ukraine.”
The company’s deal to sell Air Miles to BMO is not final, according to a statement. And, an affiliate of BMO has agreed to provide $70 million of bankruptcy financing to a Loyalty Ventures affiliate. We will continue to track the proceedings and share significant news on this situation that you need to know.
Meanwhile, you might be interested to read past coverage of Air Miles on The Wise Marketer: