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When your entire brand is synonymous with a piece of business you've just lost, your tenure as CEO is not off to a great start.

David Johnston has inherited a full-blown identity crisis at Aimia Inc., the Montreal company that operates the Aeroplan program and other loyalty and data-marketing services around the world.

As he was making the transition from interim boss to permanent chief executive officer earlier this month, Aeroplan's most important partner, Air Canada, announced it will end its exclusive relationship with the company in 2020 and create its own loyalty program instead.

Air Canada's decision crushed investors' confidence in Aimia, obliterating 70 per cent of its stock market value.

Mr. Johnston's tall task is to rebuild that confidence and quickly.All of this is happening as he takes the reins from the only CEO the company has ever known: Rupert Duchesne, a former Air Canada insider who built Aeroplan when it was still owned by the airline and had just six employees, took a medical leave in January for a then-unnamed illness. Just before the Air Canada announcement, the company announced Mr. Duchesne's retirement. He is being treated for "chronic mercury poisoning," according to Aimia.

The crash in the stock price wasn't an irrational bout of investor hysteria. Aeroplan, a program that allows consumers to collect points from retailers, hotel chains, airlines and other partners in exchange for free flights and other rewards, is by far the biggest part of Aimia's business. About 70 per cent of the company's gross billings last year for giving out loyalty points came from its Americas Coalitions business, which is mostly Aeroplan.

Most Aeroplan members are motivated to collect points for trips: Of 2.5 million rewards doled out last year, 1.9 million were flights on Air Canada and other Star Alliance carriers. But suddenly, Aeroplan looks like an air-miles program without an airline.

Time for Plan B.

Aeroplan may be able to continue to buy seats on Air Canada after 2020, but likely not at the deep discounts it has enjoyed until now. And so Aimia is now "working on alternative partners" to keep its rewards attractive, Mr. Johnston said in an interview. "Members should feel confident that their points are still valuable," he said.

Securing new partnerships is crucial. Without some good news, Aeroplan faces two big risks. Its members could become less driven to accumulate miles, which is what brings money in the door – and they could also begin thinking about cashing out the miles they do have before 2020, which would mean more money out the door. Such a scenario has analysts and industry watchers concerned that Aimia will find itself in a cash crunch.

"We're talking to members right now about how they feel about the program and what they're going to do," Mr. Johnston said. "We've absolutely got our finger on that pulse. It's something that we're watching very closely."

Aimia is also facing bigger pressures: the latest dip in the stock is the acceleration of a years-long trend that has seen its market capitalization – nearly $5-billion a decade ago – crater to below $500-million. The company is contending with a vastly changed landscape for loyalty marketing programs. Brand loyalty has fallen precipitously and competition in the sector has tightened, with more companies deciding to launch their own programs and manage their own relationships with customers. In the last three years, the number of loyalty programs to which Canadians belong has gone up – to 12.2 on average a consumer from 9.8 – but engagement has not, according to a recent study by Bond Brand Loyalty. The number of programs in which people are active has actually fallen slightly, from 7.9 on average to 7.2.

All this means that Aimia will have to act fast to prove its worth to members as it faces the loss of its flagship partner and a proliferation of alternatives open to the people whose memberships are the bedrock of the company's value. Could that foundation start to crack?

Aeroplan started off in 1984 as Air Canada's frequent-flyer program and was spun off as a separate company in 2002. For a while, Aeroplan looked like the most successful business the once-hobbling airline had ever spawned.

Renamed Aimia in 2011, the company has done a lot of work to become more than just the company that operates Air Canada's loyalty program: it launched global businesses, including Britain's largest coalition loyalty program, Nectar. And it got into the business of data analytics at a time when every marketer was talking about "big data" on consumers' needs, buying patterns and behaviours.

Coalition programs such as Aeroplan and Air Miles make money from retailers or service providers who want to offer points as a bonus for customers on their purchases. They also spend money buying rewards for which customers can exchange points (often at discounts they can negotiate because of their purchasing power – or in Aeroplan's case, a contract requiring it to buy 8 per cent of Air Canada's inventory, but at a deep discount).

Aimia makes money on the "spread" between how much it sells points for and how much it spends on purchasing plane tickets and other rewards. It also earns investment income on the cash that sits around between when it sells a point and when a consumer redeems one – the same way a life-insurance company invests premiums, while waiting to pay out claims. Breakage is another important financial measure: It's a term for points earned that members never redeem — pure profit for Aimia. Every loyalty company estimates what percentage of points will never be used for rewards, and when those estimates are off, it can hurt the balance sheet.

For loyalty programs run in-house (such as Loblaw's PC Plus, Shopper Drug Mart's Optimum and most airlines' frequent-flyer programs) the economics are different. These provide their own points rather than paying to be part of a third-party program such as Aeroplan. The focus is bringing people into a store (or airline or hotel) more often and convincing them to spend more while there. It is also about building consumer goodwill for a single brand or family of brands – and studying how customers interact with that brand.

Coalitions such as Aeroplan can also make money by providing data analytics to marketers, looking at the shopping habits that loyalty members share, to help companies better advertise to them. But this has not been as significant part of Aimia's business as all the enthusiasm around "big data" marketing might suggest.

"All the analytics and all that other stuff, it barely moves the dial in terms of the financial results," said BMO analyst Tim Casey. "And that is the great disappointment in the company, that what the 15-year evolution of the company would do – all this other stuff would grow so much, they would deliver so much value to Air Canada, Air Canada would never leave them and Air Canada would be a much smaller part of the business. That didn't work out."

Meanwhile, its global expansion is facing headwinds. In 2015, Aimia decided to shutter its Nectar program in Italy, citing a "difficult economic climate" there. The company signalled for some time that it planned to launch a coalition in the United States that has yet to materialize. This year, in Britain., Nectar issued 20 per cent fewer points in the first quarter because its main partner, Sainsbury's, decreased its promotional campaigns with the program.

Aimia has been restructuring, selling "non-core" businesses and cutting about one-third of its work force since 2015. It now has roughly 2,300 employees worldwide. Earlier this month, it targeted $70-million in further cost cuts by 2019.

Coalition plans are already under pressure. An annual survey by Bond Brand Loyalty found that in 2016, one-quarter of Canadians who were members of coalition programs were very satisfied with those memberships; this year that number dropped to 16 per cent.

"There's been an erosion of trust," said Rob Daniel, executive vice-president of Bond Brand Loyalty in Toronto, which designs loyalty programs for companies and advises on strategies to use them. "Consumers are wondering whether or not the value proposition is what programs have promised."

Aeroplan's member satisfaction was also low — 15 per cent, according to the study. That's way below the average of 36 per cent who were very satisfied with loyalty programs overall. Aeroplan scored significantly lower than average on ease of redeeming for rewards and the time it took to do so; customer support; and general ease of participating in the program.

A big driver of the rise of in-house loyalty programs has been the increasing value of data. It's become glib to say that "data is the new oil," but it is shorthand for the fact that information about customers is now orders of magnitude more valuable to marketers than it used to be. At a time of plummeting brand loyalty, brands have to work harder to target fickle customers with offers tailored to them and to earn their trust with better service.

"If you have data in house, you're able to understand customers' preferences and behaviour, you're able to create more enhanced brand experiences," said Catherine Parsons, vice-president of CRM [customer relationship management] at Publicis Hawkeye, a part of the Publicis ad agency network focused on digital and data-driven marketing. "The company that holds the data ultimately holds the customer relationship."

Exerting control over that customer relationship was a big part of Air Canada's decision to drop Aeroplan.

"Strengthening our relationship with Air Canada customers and the service we provide to them is at the core of our decision," Mark Nasr, Air Canada's managing director of e-commerce, loyalty programs and ancillary revenue, said in a statement.

Talk of "building a relationship" with customers may sound unctuous, but there is a real business imperative behind it. A recent BCG survey of personalization programs at more than 50 companies spanning 10 industries (including travel and tourism) found that half were spending more than $5-million (U.S.) each year on developing more personalized marketing campaigns. Those that did saw revenue rise by 6 per cent to 10 per cent, according to the research – vastly outpacing revenue growth of those that did not invest in personalization.

This is particularly important for airlines, who want to appeal to their most lucrative customers. Price-sensitive leisure travellers who comb through Google Flights, Expedia and other search engines for the lowest possible fares are not likely to be brand loyal. But business class is where the profit comes from, so courting those customers with better perks is a major priority.

"If somebody has the potential to get an upgrade or a business-class seat at a better fare, Aeroplan only makes money on the difference between what they sell a point for and what they buy a seat for. But what if Air Canada sees this guy has been flying with them for 25 years?" said Mark Satov, strategy adviser and founder of Toronto-based Satov Consultants. "They could make sure that they direct the best treatment to the very best customers of the airline, as opposed to the best customers of Aeroplan."

Air Canada has already been working on this, building its own program, Altitude, which lets members earn Aeroplan points but also rewards frequent flyers with perks including upgrades, lounge access, and other personalized extras. Moreover, airlines such as Air Canada may want to be more strategic about the company they keep in loyalty partnerships, rather than relying on an existing coalition.

"In travel, you already see and will see even more partnerships, data exchanges, co-funded offers and integrated experiences across airlines, hotels, car rental companies and credit card companies to serve the end-to-end travel experience from booking to trip to post-trip," said Mark Abraham, a Seattle-based partner with BCG.

Often, companies become partners in coalition programs because it's easier to take part in an established loyalty brand than to build one from scratch. Air Canada was in dire financial straits when it spun off Aeroplan. But the airline has now determined it can afford to run its own.

"Why do they have to give Aeroplan all the margin for running what is essentially something they can do themselves?" Mr. Satov said. "My guess is, they go and get a credit card partner, and they don't need a coalition."

Aimia is currently making the case for Aeroplan's value to Air Canada and other partners, pointing out that the data it collects on its five million members is actually more valuable, since it paints a broader picture of those consumers. "It's a frequent shopper program, not just a frequent flyer program," Mr. Johnston said. "… Arguably, in a coalition, you have a much richer set of data, and in this case, a much broader set of members than you would have just through a frequent-flyer program."

This is all part of Mr. Johnston's sales pitch to prospective partners in the program, and it's a message on which its future viability now hangs.

"Our members are sitting on a balance of something like 200 billion unredeemed miles. That's a huge amount of traffic that can be directed into other partners – whether that's other airlines or other partners more broadly. ... That's miles of travel that they're going to take at some point in the future. That traditionally went to Air Canada and it now can go toward Air Canada, and some of the alternatives that we're going to be working on."

***

Aimia by the numbers

Two years: How frequently Aeroplan members redeem their points for rewards, on average. The most active members represent much higher volumes: "diamond" status members redeemed six times on average last year

$70-million: The targeted annualized savings Aimia wants to reach by 2019, "to build flexibility should we see an expiry resulting in lower gross billings or high cost of rewards after 2020"

$700-million: The amount spent on Aeroplan redemptions last year

80 billion: Approximate number of miles members redeem each year

144 billion+: Miles redeemed for non-air rewards since 2004

$1.75-billion: Aimia's gross billings from the sale of loyalty units in 2016

70 per cent: Approximate share of those billings that came from Aeroplan.

Five million+: Active Aeroplan members

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