Aeroplan's program transformation
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The document outlines plans to transform Aeroplan over the next decade to drive member engagement and growth. Key announcements include: 1. Launching a new tiered recognition program called Distinction based on total miles earned across partners. 2. Replacing ClassicPlus Flight Rewards with new Market Fare Rewards offering 20-50% fewer miles for redemptions. 3. Extending their agreement with TD as the financial card partner for 10 years beginning January 1, 2014. The changes are aimed at maintaining Aeroplan's leadership in the Canadian loyalty landscape by innovating the program to better reward members.
Aeroplan's program transformation
- 1. JUNE 27, 2013 AEROPLAN: THE NEXT DECADE
- 2. FORWARD-LOOKING STATEMENTS Forward-looking statements are included in the following presentations. 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”, “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, objectives, goals, aspirations, intentions, 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, the effective implementation of Aeroplan program enhancements and a new financial card partnership and associated cardholder migration, dependency on top Accumulation Partners and clients, 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 throughout this presentation and throughout our public disclosure record on file with the Canadian securities regulatory authorities. Slide 27 of this presentation contains certain forward looking statements with respect to consolidated Gross Billings and consolidated Free Cash Flow in 2015. These statements are not intended to constitute, nor should they be considered as, financial outlook or guidance within the meaning of applicable securities laws. These statements exclude the effects of fluctuations in currency exchange rates and Aimia made a number of general economic and market assumptions in making these statements, 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. In addition, the Corporation has made a number of specific assumptions in making these statements, including (i) that any migration of the Corporation’s current financial cardholders will be completed by the end of 2014 within a range that is consistent with past comparable situations in North America, (ii) a level of growth for the Corporation`s financial card business that is consistent with the general Canadian premium credit card market, and (iii) growth in the Corporation`s non-Aeroplan related business consistent with the Corporation`s three year plan. The Corporation cautions that the assumptions used to make these statements with respect to 2015, although reasonable at the time they were made, may prove to be incorrect or inaccurate. In addition, these statements 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 the statements made at Slide 27 of this presentation. The forward-looking statements contained herein represent the expectations of Aimia Inc., (“Aimia” or “the Corporation”) as of June 27, 2013 and are subject to change. 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. For further information, please contact Investor Relations at 416 352 3728 or karen.keyes@aimia.com. 2
- 3. > A significantly strengthened value proposition for Aeroplan members which will be implemented on January 1, 2014 to reward member engagement through • The continuing value of market leading Classic Flight Rewards • The launch of a new tiered recognition program called Distinction, based on total miles earned across all coalition partners, designed to recognize top accumulating members • New Market Fare Flight Rewards to replace ClassicPlus Flight Rewards, offering members significantly improved value, starting at 20% fewer miles required for redemption, with Distinction members enjoying reductions of up to 50% • Cancellation of the seven-year redemption policy > A 10 year agreement with TD as our financial card partner effective from January 1, 2014, unless CIBC exercises its contractual right to match > Certain financial implications of the decisions announced today WHAT WE ARE ANNOUNCING TODAY 3
- 4. LEADING THE CANADIAN LOYALTY LANDSCAPE > The Canadian loyalty market remains attractive; it represents the world’s second largest addressable market for Aimia > Aeroplan co-branded cards and other travel cards already represent a large percentage of the overall loyalty market but the market has become more crowded with all major banks having a travel card product, backed by sizeable marketing activities > The changes we are announcing today are about transforming our program to drive leading levels of member engagement and accelerating growth to recapture and extend our position with premium Canadian consumers 4
- 5. The strength of the Aeroplan program for members and our key partner relationships remain key to delivering value for shareholders over the longer term THE RIGHT FRAMEWORK FOR THE NEXT DECADE THE RIGHT ECONOMICS TO ALLOW LONGER TERM INVESTMENT IN VALUE FOR MEMBERS A TRANSFORMED AND MARKET LEADING AEROPLAN PROGRAM A FRAMEWORK FOR AN INNOVATIVE FINANCIAL CARD PARTNERSHIP 5
- 6. A MARKET LEADING AEROPLAN PROGRAM FOR THE NEXT DECADE
- 7. MAINTAINING PRODUCT LEADERSHIP HAS BEEN ABOUT INNOVATION AND LISTENING TO MEMBERS BEYOND 2013 – INNOVATING TO DRIVE THE VALUE PREMIUM CONSUMERS HAVE TOLD US THEY WANT 2010-2013 Exclusivity/ VIP Privileges Value & Availability Flexibility & Simplicity Engagement & Customization 1 Distinction program: Announcement Distinction program: Launch Removal of 7-year expiry policy Improved MarketFare Rewards value Remaining product improvements 2 4 3 1 2 4 3 7
- 8. SO WHAT’S IN IT FOR MEMBERS? 8
- 9. MAJOR ACCUMULATION PATHS TO DISTINCTION FLIGHT-BASED ACCUMULATION Altitude SuperElite 100K Altitude Elite 35K, 50K and 75K Altitude Prestige 25K FINANCIAL CARD SPEND Enhanced premium Premium Mid-market BOTH AMPLIFIED BY SPEND WITH COALITION PARTNERS diamond Earn 100,000 eligible miles or more in one year and reach our top level, dDiamond black Earn between 50,000 and 99,999 eligible miles and you’ll achieve dBlack silver When you earn between 25,000 and 49,999 eligible miles in one year, you’ll qualify for the first level of Distinction, dSilver 9
- 10. BETTER FLIGHT REWARD VALUE… COMBINING VALUE WITH CERTAINTY THE CONTINUED VALUE OF CLASSICFLIGHT REWARDS > We issued 1.6 million flight rewards in 2012, more than any other loyalty program in Canada, and remain unrivalled in business class > Our allocation of 8% seat capacity from Air Canada – as well as our access to capacity on Star Alliance carriers - remains unchanged and will continue to offer the same great value under the enhanced program Classic Plus 15% Classic and Star Alliance 85% PLUS THE INCREASED AVAILABILITY AND VALUE WITH NEW MARKETFARE REWARDS > From January 1, 2014, Classic Plus will be replaced with MarketFare Rewards > MarketFare Rewards will: • Preserve the access to any available seat on all routes Air Canada flies • Require up to 20% and 50% fewer miles to redeem compared to current ClassicPlus (dependent on Aeroplan Distinction tier status) > Takeup of new MarketFare Rewards is expected to lead to increased volume and changed mix of rewards redeemed; combined with Distinction benefits, this could generate significant incremental benefit to Air Canada over the next few years 1.6 Rewards issued (2012) 2.3 million Air rewards Non air rewards 2012 Air Reward Redemptions By Type 0.7 10
- 11. Source: Aimia estimates OUR NEW AIR TRAVEL REWARDS WILL BE UNPARALLELED IN THE MARKET Getting members to departures faster Months to North American Long Haul air reward redemption Based on combined average card spend and coalition activity, and average Toronto-Vancouver fare Market fare product Fixed grid product Notes: 1. Card spend assumed to be the same for all card products, not disclosed due to confidentiality. 2. Additional spend bonuses estimated for competitive cards (e.g., gas, grocery, drug, travel spend). 3. Months required to reach reward exclude impact of welcome bonuses. 4. Fare Source: Average fare observed for Toronto – Vancouver ClassicPlus rewards in 2012, confidential. 5. CIBC Aventura World Elite figure may differ depending on grid pricing at the time of redemption; figure displayed assumes points required matches RBC Avion (35K). TD First Class Visa Infinite Aeroplan MarketFare Scotiagold Passport Visa RBC Visa Infinite Avion CIBC Aventura World Elite MasterCard World Elite Vs ClassicFlight Rewards Vs MarketFare Rewards For Distinction Diamond Member 1.1x 1.8x1.2x 1.8x1.3x 2.7x1.8x 1.7x ~12 Months Aeroplan ClassicFlight Aeroplan CLASSICPLUS 11
- 12. WHAT ELSE WILL COME WITH DISTINCTION CATEGORY FEATURE SILVER BLACK DIAMOND Flight Rewards Reduced mileage levels on Market Fare Flight Rewards Up to an additional 20% Up to an additional 25% Up to an additional 35% Exclusive access to Distinction flights Bonus Miles Air Canada Getaway bonus 500 miles/ eligible roundtrip 1,000 miles/ eligible roundtrip 1,500 miles/ eligible roundtrip Bonuses on hotel stays 250 miles/ stay 250 miles/ stay Bonuses with Aeroplan eStore 2X 2X 3X Preferential Treatment Contact Centre call priority Privileges and limited-time offers 12
- 13. A FRAMEWORK FOR A FINANCIAL CARD PARTNERSHIP FOR THE NEXT DECADE
- 14. A FRAMEWORK FOR OUR FINANCIAL CARD PARTNERSHIP FOR THE NEXT DECADE > Over the last 18 months, we have run a financial card renewal process that has confirmed the Aeroplan co-branded financial card portfolio as an attractive asset in the Canadian credit card market > We have now entered into a new 10-year financial card agreement, the provisions of which will help fund and support a market leading Aeroplan program with increased investment in travel cost of rewards > TD will become Aeroplan’s new credit card partner as of January 1, 2014, unless CIBC chooses to exercise its contractual right to match the terms of this new agreement on or before August 9, 2013 > Aeroplan’s current agreement with CIBC will continue until December 31, 2013, with members able to earn and accumulate Aeroplan miles as usual through the end of the year 14
- 15. KEY TERMS OF A NEW FINANCIAL CARD AGREEMENT Our new 10 year financial credit card framework includes: > 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 > Joint marketing spend of around $140 million over 4 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 > 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 > An $80 million contractual break fee payable to TD by Aimia in the event CIBC exercises its contractual right to match on or before August 9, 2013 Should the agreement with TD become effective, the miles purchase commitment would guarantee a value equivalent to the Gross Margin which 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 15
- 16. New Aeroplan co-branded financial cards, to be launched in 2014, will provide cardholders with more flexible options, better earn rates and new recognition feature > 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, with features and benefits that will be added to allow small business owners to choose additional 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 A DISTINCTIVE NEW SET OF FINANCIAL CARDS 16
- 18. STARTING POINT: CANADA’S FLAGSHIP PREMIUM COALITION Canada’s Most Affluent Member Base 4.7 Million Active Members Leveraging the power of our brand and member base on behalf of our partners… …with our members as our partners’ best customers Unique and Flexible Set of Partnership Models EXCLUSIVE CO-EXISTENCE CONVERSION PROMOTIONAL & OTHER 34 million Canadians 18
- 19. PREMIUM COMSUMERS ARE AEROPLAN’S STRENGTH PASSIONATE AND ENGAGED Aeroplan’s Premium Cardholders: > 88% collect Aeroplan miles over any other currency > 85% collect more miles with Aeroplan than in any other program > 81% engage with Aeroplan communications >1 per month > Aeroplan has twice the market penetration of households with incomes greater than $100K > Aeroplan attracts 4 out of 5 Canadian households with an income of $500K PREMIUM CONSUMERS Source: Aimia proprietary research DRIVING SPEND IN DIFFERENT WAYS % of Current Membership PREMIUM CONSUMERS 45% TRAVELER 65% SMALL / MEDIUM BUSINESS OWNERS 23% 19
- 20. > Independent research findings have told us that a substantial majority of financial cardholders are loyal to the currency > Changes to the program will add certainty to the value Aeroplan already delivers to members today, which has been a key member “ask” > Around $140 million of joint marketing spend will reach members beginning in 2014 and raise awareness of the change > As members are educated about the enhanced benefits of the program through the second half of 2013, they will want to accumulate miles towards Aeroplan Distinction tier status for 2014 > Annual fee waivers in certain instances for new cards will provide incentives for members to apply for the new cards WHY FINANCIAL CARDHOLDERS WILL CHOOSE AEROPLAN Value Certainty 20
- 21. PARTNERING WITH A MAJOR CANADIAN BANK ISSUER 22% 20% 16% 13% 6% 22% CIBC TDRBC BMO BNS All other % Share of Canadian General Purpose Credit Card Purchase Volume, 2012 1. Ranked by purchase volume, 2012. Source: Nilson Report, #1015, April 2013 > Premium credit cards are estimated to represent over a third of the overall card market > The renewal process we have run has confirmed that the Aeroplan financial card portfolio represents an attractive asset in the premium credit card market > Either a TD or CIBC outcome would be an attractive one for Aimia and financial cardholders 21
- 23. 2013 IMPACT OF AEROPLAN PROGRAM CHANGES > The reduction in the Aeroplan breakage rate from 18% to 11% will be 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. > This will result in the following non-cash adjustments: • Revenue will be adjusted downwards by approximately $700 million (of which approximately $615 million relates to prior year revenue), resulting in an after tax impact to 2013 net earnings of approximately $520 million • Adjusted EBITDA to be reduced by $50 million in 2013 for breakage rate change to 11% > The benefit of tax losses will result in no cash tax payable in Canada for the remainder of 2013 and for the next few years 23
- 24. IMPLICATIONS FOR AIMIA 2013 CONSOLIDATED OUTLOOK1 Adjusted EBITDA to be around $375 million principally due to the $50 million reduction to reflect the full year impact of breakage rate at 11% Free Cash Flow before dividends expected to be between $255 million and $275 million In the event that CIBC exercises its right to match on or before August 9, 2013, both Adjusted EBITDA and Free Cash Flow before dividends will be revised downwards by $80 million to reflect the contractual break fee payable to TD by Aimia No further cash tax in Canada for the remainder of 2013 REVISED 2013 OUTLOOK Aimia expects to be in a position to provide more precision with respect to these revised 2013 guidance ranges following confirmation of its financial credit card issuer. 1 This excludes one-time benefit of VAT ruling announced June 20, 2013. Please refer to Forward Looking Statements on slide 2 of this presentation and our press release of June 27, 2013, for further details, risks and assumptions relating to this revised 2013 guidance. 24
- 25. A YEAR OF TRANSITION IN 2014 FINANCIAL IMPLICATIONS RELATED TO PROGRAM CHANGES Approximately 6% reduction in Consolidated Adjusted EBITDA margin expected from 2014 to reflect: • breakage rate adjustment • Investment in value proposition Elevated redemption for flight rewards expected to drive free cash flow reduction Expected cash tax benefit related to loss carry back ADDITIONAL IMPLICATIONS IN THE EVENT OF CHANGE IN FINANCIAL CARD ISSUER Marketing expense budgeted will be aimed at maximizing transfer of existing financial credit cardholders to TD, with miles purchase commitment representing a value equivalent to the Gross Margin which would have been generated on approximately 65% of 2012’s Gross Billings from CIBC in 2014 (and increasing to a value equivalent to over 90% in 2015 and 2016) protecting against downside transition risk FINANCIAL IMPLICATIONS RELATED TO NEW FINANCIAL CARD FRAMEWORK A more than 15% increase in selling price per mile under new financial card framework $100 million upfront program contribution payable to Aimia 25
- 26. A BALANCE SHEET TO SUPPORT TRANSITION AVAILABLE CASH $ millions Mar. 31, 2013 Cash and cash equivalents 476.9 Restricted cash 29.5 Short-term investments 15.4 Long-term investments in bonds 312.6 Cash and Investments 834.4 Aeroplan reserves (300.0) Other loyalty programs reserves (118.5) Restricted cash ( 29.5) Available cash 386.4 DEBT $ millions Annual Interest Rate Maturing Mar. 31, 2013 Revolving Facility(1) Apr. 23, 2016 - Senior Secured Notes 2 7.9% Sept. 2, 2014 150.0 Senior Secured Notes 3 6.95% Jan. 26, 2017 200.0 Senior Secured Notes 4 5.6% May 17, 2019 250.0 Senior Secured Notes 5 4.35% Jan. 22, 2018 200.0 Long Term Debt 800.0 (1) As of March 31, 2013, Aimia held a $300 million revolving credit facility which comes to term on April 23, 2016. Interest rates on this facility are tied to the Corporation’s credit ratings and range between Canadian prime rate plus 0.20% to 1.50% and Bankers’ Acceptance and LIBOR rates plus 1.20% to 2.50%. As of March 31, 2013, Aimia had issued irrevocable letters of credit in the aggregate amount of $25 million. This amount reduces the available credit under the revolving facility. 26
- 27. 27 27 A STRONGER LONGER TERM INVESTMENT THESIS * Please refer to Forward-Looking Statements on slide 2 of this presentation for a view of the assumptions related to forward-looking statements The increased long term sustainability of the program aimed at driving consolidated free cash flow back to approximately $250 million by the end of 2015* and supporting continued dividends New financial card economics to help fund increased member engagement ; program changes expected to affect margin profile and deliver longer term growth Premium Canadian consumers are loyal to Aeroplan. By enhancing the value the program delivers to members and our largest partners - including Air Canada, we will extend our leadership of the Canadian loyalty industry We will be targeting Consolidated Gross Billings in excess of $2.6 billion in 2015* with an enhanced program delivered in partnership with a strong and committed card issuer ATTRACTIVE BUSINESS MODEL FOCUSED ON GROWTH OPPORTUNITIES SOLID FINANCIAL CHARACTERISTICS STRONG FREE CASH FLOW GENERATION
- 28. THANK YOU