Air Canada said it’s seeking a credit-card partner as it prepares its own frequent-flier program after years of relying on Aimia Inc.’s Aeroplan.

The Montreal-based airline “will be inviting key financial institutions to participate’’ in a request for proposals, Chief Executive Officer Calin Rovinescu said in a statement Tuesday. The co-branded credit card will “yield significant value for us,’’ he later told investors at a presentation in Toronto.

Canada’s biggest airline is looking to capture more benefits from a program expected to have a net present value of at least C$2 billion ($1.6 billion) over 15 years. Aeroplan was once part of Canada’s most popular credit card, Canadian Imperial Bank of Commerce’s Aerogold Visa. The two-decade partnership ended in 2013 when Toronto-Dominion Bank took over as the primary financial partner, though CIBC can still offer Aeroplan cards under a 10-year deal.

Air Canada’s contract with Aimia runs until June 2020. The carrier has used the Aeroplan loyalty program, which offers consumers rewards including points toward Air Canada flights, for more than 30 years. Aeroplan is owned and operated by Aimia.

“International travel is the most popular reward a credit card loyalty program can offer,’’ Rovinescu said at the investor presentation. “This makes us therefore a highly desirable partner as Canada’s largest carrier with the most expansive global network and three powerful hubs.’’

Interesting Offer

Canada’s biggest banks are likely to be “extremely interested,” said Steve Allmen, president and co-founder of Loyalty & Co., a Toronto-based consultancy to the industry.

“I believe all five banks are going to look at it, but whether all five banks respond is another story,’’ Allmen said in a telephone interview, citing the possibility that existing contracts might disqualify one or more banks. For example, Royal Bank of Canada, the country’s second-largest lender, already has a Mastercard relationship with Air Canada rival WestJet Airlines Ltd.

Allen also anticipates a focus on a lender with a stronger Quebec presence such as Desjardins Group or Montreal-based National Bank of Canada. Some U.S. banks may be interested in a co-branding agreement, he said. And Air Canada may not have to choose just one.

“If Air Canada can do it right, they can actually launch with multiple partners,” Allmen said. “They don’t have to be with one partner.”

Earnings Outlook

Royal Bank of Canada, Bank of Nova Scotia and National Bank declined to comment Tuesday on whether they would be interested in responding to Air Canada’s request for proposals. Representatives for three other large Canadian lenders didn’t immediately return messages seeking comment.

Among other goals unveiled ahead of the investor meeting, Air Canada said it’s targeting earnings before interest, taxes, depreciation, amortization, impairment and aircraft rent to represent 17 percent to 20 percent of operating revenue from 2018 until 2020.

Air Canada is also looking to achieve annual return on invested capital of 13 percent to 16 percent during the same period, cumulative free cash flow of C$2 billion to C$3 billion, and adjusted net debt of 1.2 times EBITDAR by the end of 2020. That last ratio would be “investment-grade” worthy, Chief Financial Officer Mike Rousseau said Tuesday at the investor presentation.

Air Canada’s Ebitdar to revenue margin trails that of its U.S. rivals by about 300 basis points, and most of the gap “is primarily due to the absence of a loyalty program,’’ Rousseau said.

 

©2017 Bloomberg L.P.

This article was written by Frederic Tomesco and Doug Alexander from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to [email protected].

Photo Credit: An Air Canada aircraft at Vancouver International Airport on November 13, 2013. Ben Nelms / Bloomberg