Industrial Alliance slashes target on Aimia as Air Canada splits with Aeroplan

Air Canada’s decision to split with Aeroplan is a bombshell that could shake the foundation of Aimia (Aimia Stock Quote Chart, News: TSX:AIM), says Industrial Alliance analyst Neil Lindsell.

Yesterday, Air Canada announced it would launch its own loyalty program in 2020. The company said it would work closely with Aimia with the “objective of providing consistent service for Aeroplan members” until the June 29, 2020 expiration date.

“Our relationship with our more than 45 million customers sits at the core of Air Canada’s ongoing transformation as we continue to grow our business beyond the 200 destinations that we already serve, and work to become a global champion,” said Air Canada CEO Calin Rovinescu. “This decision is the right one for our customers, our employees and our shareholders.”

Linsdell says the news could be transformational for Aimia.

“While the current agreement still has three years to run, and Miles will still be valid to be redeemed for rewards post-2020, Aimia will need to completely revise the Aeroplan program positioning after losing this exclusive relationship,” he says.

In a research update to clients today, Linsdell downgraded Aimia from “Buy” to “Hold” and cut his one-year price target from $11.00 to $5.00. The analyst says he is now contemplating the value of the company’s shares if the extreme scenario of the Canadian Aeroplan program shutting down comes to pass. But he thinks the probability is that it will survive, albeit in a scaled down format.

“We expect Aimia to reposition Aeroplan as a third-party loyalty program in Canada (although international segments should not be affected); likely expanding reward options to include airlines other than Air Canada,” he says. “It will need to act quickly however to maintain the loyalty of its 5 million members, and provide compelling value as its credit card partners already offer competing loyalty options that they may favour even before the 2024 expiries of their agreements with Aeroplan.”

Linsdell expects Aimia will post Adjusted EBITDA of $230.1-million on gross billings of $2.13-billion in fiscal 2017. He expects these numbers will fall to EBITDA of $219.5-million on gross billings of $2.09-billion the following year.

Shares of Aimia today closed up 16.3 per cent to $3.87.