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The shares dropped 57 percent to C$3.88 at 10:15 a.m. in Toronto after earlier falling to C$3.13 in the biggest intraday decline since they started trading in 2005. Air Canada rose 6.4 percent to C$15.84.
Aimia faces the risk that other Aeroplan members may decide to terminate their membership because Air Canada is the “backbone,” said Martin Landry, an analyst with GMP Securities. The country’s largest airline amounts to about 10 percent of Aimia’s revenue, but more than 75 percent of Aeroplan miles are redeemed with the carrier.
Landry cut Aimia’s rating to reduce and lowered its price target to C$4 a share from C$10.50, citing possible cash-flow pressure.
Air Canada’s contract with Aimia runs through June 29, 2020. Until then, Aeroplan members will be able to earn and redeem miles under the program.
The departure of Air Canada will have a dramatic effect on Aeroplan’s revenue, according to Drew McReynolds, an analyst with RBC Capital Markets. He estimates Aimia’s earnings before interest, tax, depreciation and amortization will probably be lowered by C$75 million each year after 2020.
“The negative gross billings and margin impact on Aeroplan through any partner transition period is likely to be material and thus will weigh on the stock,” he said in a note to clients.
McReynolds added that Aeroplan will likely continue, given its contractual relationships with Toronto-Dominion Bank and Canadian Imperial Bank of Commerce through 2024.
Air Canada expects the net present value of the program repatriation to exceed C$2 billion ($1.5 billion) over 15 years, with more financial details to be provided Sept. 19. “This decision is the right one for our customers, our employees, and our shareholders,” Chief Executive Officer Calin Rovinescu said in a statement Thursday.
Groupe Aeroplan was spun out from Air Canada’s former parent company, ACE Aviation Holdings Inc., in 2005 before re-branding itself as Aimia in 2011.