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The Aeroplan Story
Four Years Later
22 October 2009
FFP Conference, Los Angeles
1 GROUPE AEROPLAN
Contents
• Groupe Aeroplan Today
• Were expectations met?
• What is keeping us up at night
• The next four years
• Q&A
2 Unless otherwise noted, all monetary figures in this presentation are in CAD GROUPE AEROPLAN
Groupe Aeroplan Today
3 GROUPE AEROPLAN
Who we are today
…10 years ago we were 20 people within
Air Canada's marketing department…
Groupe 2004 2009
Aeroplan
Revenues 143M 1421M
CAD
Employees 1060 1595
Programs / Aeroplan Canada Nectar UK LMG Insight & Reward Miles Italian Coalition
Services Communication Middle East Loyalty Program
Established 1984 2002 2001 2007 2010
Key Sectors Travel, financial Consumer goods, Consumer goods, Data analytics with Consumer goods,
services, groceries, utilities apparel, financial worldwide groceries,
consumer etc. services applicability utilities etc.
goods
Ownership 100% 100% 100% 60% 75%
4 GROUPE AEROPLAN
A closer look at the business units
Aeroplan Canada
1984 1991 2002 2004 2006 2009
Aeroplan was created Launched CIBC VISA Aeroplan created as a 3 major everyday 4 major everyday New retail
by Air Canada as an co-branded credit stand-alone entity of partners partners partner
incentive program for card, soon becoming Air Canada and American Express (insurance, drug,
its frequent flyer Canada’s No1 gold joined the program hardware) Rexall &
customers credit card Pharma
Introduction of Plus
Launch of new brand industry leading
identity ClassicPlus Flight drugstores
Rewards
1984 -1990 2000 2003 2005 2007 2008
Launched several travel- Merger and integration Expansion into As first ever loyalty program Aeroplan Conversion from
related partners and with Canadian Plus after non-air rewards going public, Aeroplan / ACE acquires Income Fund into
industry leading tier acquisition of Canadian (travel, Aviation Holdings raised LMG, Corporation “Groupe
program Airlines. Program size electronics C$288 m through an IPO of operator of Aeroplan”, becoming
100% independent
increased by 35% with merchandise, Aeroplan Income Fund Nectar
shrinking combined experiential) (14.4% float). Online retail store and
network . partnership with leading
Canadian grocer
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A closer look at the business units
Nectar UK
9 New Nectar Nectar Mobile Wine Club Online Launch
Sponsors Key eStores Phone & CTF DVD of I&C
join Tags Launch Recycling Launch Rental Self-Serve
Coalition
June 2005 Oct 2005 Dec 2006 July 2007 Oct 2007 Mar 2008
2002 2003 2004 2005 2006 2007 2008
Jan 2003 Jan 2005 Sept 2005 July 2006 April 2007 Sept 2007 Aug 2008
Sept 16th 2002
Argos Rolls Nectar Nectar Launch of Green New Card & Digital Music
Nectar Out RTR Business Credit Card Rewards Initiative Brand Relaunch & ePum
Launch Launch Launch “Sales” Launch
4 Sponsors
6 GROUPE AEROPLAN
A closer look at the business units
Insights & Communication (I&C)
Providing retailers and Retailer Services
Consumer Packaged Goods
manufacturers state-of- Supplier Services
the-art analytical services
based on SKU level
product and member
data
Insight Communication
Retailer E-Commerce
Availability Customer
Data
7 GROUPE AEROPLAN
Our future growth strategy
Diversifying the business through Global and Sector expansion
3. Selective FFP Investments
- Minority investments in FFPs world-wide
2. Operating company growth strategy
- Replicate coalition model in new markets: retail, FFP
- New marketing products & services (e.g. I&C)
- Strategic loyalty partnerships
1. Growth of core businesses
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Four Years After Spin-off
Were expectations met?
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Benefits to current shareholders
Current shareholders are attracted to a unique business model, proven
track record and ability to support growth
Our Message to Investors
• Scalable growth platform
• Diversified and recurring revenues with long-term agreements
• Predictable and flexible business model – significant control over the value and mix of rewards
available for redemption
• Strong free cash flow generation and cash position
• Investment grade profile
• Strong dividend
Meeting Expectations with strong growth
Groupe Aeroplan’s 2002-2008 financial results Full time employee count
1600
Millions of Canadian dollars
1421 1600
1400 CAGR 1400
1200 +15.57% 1200
1000
952
852 1000 Management
755 Gross billings
800 692
596 625 Adjusted EBITDA
800
600 600
Call Center
317 CAGR
400 216 252 +36% 400
108 131 168
200 50 200
0 0
2002 2003 2004 2005 2006 2007 2008 2005 2006 2007 2008
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2009 and beyond
2009 has been a tough year for current shareholders but expectations for
the future now look brighter
View of financial analysts following Groupe Aeroplan’s Q2 results
“Aeroplan is clearly not immune from economic challenges and negative “Results reflect recession
Air Canada headlines weighed on the program this quarter. Although the and travel slowdown”
recovery will take longer than expected, the company is well positioned when
consumer spending returns…Long-term we believe Aeroplan remains an - RBC Capital Markets
attractive play on the growing loyalty industry” - Credit Suisse August 17, 2009 August 17, 2009
“AER is well-positioned in a growing industry and should grow gradually
through organic partner additions and/or acquisitions. It has a strong
balance sheet, generally good partners and programs that feature flexible
currency.” – CIBC World Markets August 17, 2009
Groupe Aeroplan’s financial strength enabled it to
support Air Canada and positively impact the
share price
“The airline’s cash position has been bolstered by more than $1
billion in financing, including $150 million advanced by Aeroplan
as part of a much larger club loan provided to Air Canada on
commercial terms” - Groupe Aeroplan Investor Meeting September 2009
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Partners also expect practical and insightful
segmentation using both "hard" and "soft" data
• Aeroplan Canada's active membership has
Useable through transactional based segmentation
grown from 3 to 9 distinct segments that can be
Insightful through addition of attitudinal data
leveraged for marketing purposes
• Guiding principles for segmentation Transactional data
TFR
– Easy to identify in the database AND in the Based on accumulation only
marketplace segmentation Travel, Financial, Retail
– Quantifiable profitability
–
–
Reachable at an individual AND segment level
Segmentation definitions are useable by both
Aeroplan and partners
+
attitudes
Focus groups
Aeroplan panel
2 top segments Quantitative surveys
Gross billings by segment
12% of active members
=
Net profits by segment
47% of net profits
Mileage accumulation
Attitudes
complete
Consumption habits
segmentation
Socio-demographic profile
Gross billings Net profits 9 member personas
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Plus access to more relevant communication
channels at lower cost
• Aeroplan's increased capabilities in data
March 2009 analysis and investments into messaging
March 2005
technology have dramatically improved the
ability to target members with individual,
Needs based relevant offers from all partner
# of variables per e-statement mailout:
120
100
80
60
Behavioural 40
20
0
2005 2006-01 2006-10 2007-08 2009-04
2009 launch of Aeroplan Arrival
magazine in both print and on-line:
Needs Based
& Behavioural
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Members expect more places to earn & redeem
More relevant offers and opportunities for members, every day
• Innovative partnerships with retailers and directly with
consumer goods manufacturers make it easy for more
members to earn Aeroplan miles regularly
– Increases relevance and prominence of Aeroplan
offering
– Additional transactional data obtained from new
everyday partners can be used to create targeted,
more relevant messages to members
• Being a stand-alone company provided autonomy and
funding to invest into online functionality enabling members to
redeem for a wider choice of rewards
– Air rewards including Star Alliance multi-partner
itineraries and dynamically priced availability
– Wide selection of non-air rewards, including gift cards,
music downloads, merchandise
– Exclusive events such as tickets to current U2 tour
• Cash expenditure for non-air rewards is no longer an
impediment and enables Aeroplan to meet member demands
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Four years later
What is Keeping Us Up at Night
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Optimizing breakage for program sustainability
Given the importance of breakage, Aeroplan developed sophisticated modelling
and management skills to ensure profitability
Long term management of breakage
Short term management of
breakage • Maximize profitability through
integration of breakage with lifetime
• Seek to stabilize or improve member value
• Our breakage methodology
and technology is amongst the Member Engagement
most advanced in the world
today
• Breakage is a long-term Profitability
estimate subject to
assumptions and judgment
• Groupe Aeroplan has a
consolidated weighted average Breakage
breakage rate of 17%, which is Alignment
low relative to many other of Targets
programs and indicates higher Earn
member engagement Burn
Membership
16 GROUPE AEROPLAN
Delivering on member expectations
Balancing reward ambitions with a sustainable program performance
Member expectations Costs & sustainability
External reality Internal reality
1. Free flights at reasonable cost (good value) 1. Cost of reward seats in distressed
and commercial inventory
2. Desired destinations and dates (availability) 2. Availability agreements with Air Canada
and partner airlines
3. Easy, understandable redemption process 3. Labour and technology costs
(no surprises) 4. Competitive pressure from flexible
4. Non-air reward alternatives credit card programs
5. Predictability and stability of program policies 5. Need to adjust program to changing environment
6. Shareholder EBIDTA growth expectations
Program aspects to influence
Liquidity of currency (gift cards, cash + miles) Breakage
Transparent value per mile Aspirational "magic" of currency
Privacy concerns Personalized push offers
Ancillary member fees for contact center services Impact on member satisfaction
There is no panacea, new product developments have to strike an equitable balance.
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The Next Four Years
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9 Trends that are guiding future developments
Focused on solving seat
Devaluation of FFP currencies Creating standalone FFP entities
capacity issues
FFP currencies are perceived as FFPs focused on developing Airlines / owners are still
losing value against competitive solutions to ensure a evaluating the possibility of a
(non FFP) programs sustainable seat allocation standalone FFP entity
FFPs now perceived as offering similar FFPs implementing solutions to Several airlines have announced or
value to retail programs, given: solve air reward demand issues: completed the establishment of their
FFPs as stand-alone units
- Increased high priced seat allocation - Push to non-air rewards
- Decreasing airline fares Rationale driven more be desire to
- New reward grid
have economic clarity of the FFP
- Growth of competitive programs with business model (ie transfer pricing) and
generous value propositions - Market fare rewards
management focus on growth, rather
than IPO
- Market price driven
fares into points
Service providers introducing liability
Credit cards gaining independence from With market recovery, IPO will re-
management services/securitization
FFPs to provide more choice: emerge as a corporate strategy
and business strategy:
alternative
AMEX Blue TD Visa Infinite RBH Financial Group
19 GROUPE AEROPLAN
Trends that are guiding future developments
Increasing acceptance of Increasing instant liquidity of Emergence of new interactive
new technologies loyalty currencies marketing strategies
The increasing adherence to chip New loyalty point pooling Fragmentation of traditional media
and RFID based cards will mechanisms, growth of on- shifts attention to interactive
promote new loyalty applications demand cash-based rewards channels, real-time intelligence
Increased development of in-store
Emergence of new loyalty point retail channels to communicate /
The use of new technologies is pooling and reward swapping interact with captive customers:
increasingly endorsed by the payment mechanisms: - Retailers/Airlines leveraging in-
card market: Global points Reward swapping store TVs / in flight entertainment
exchange platform systems
- Chip technology currently focused
on security but will likely lead to
new applications
Continuing growth of on-demand • Developing engaging websites to have
•Instant rewards, memberships direct access to customers:
cash-based rewards with transparent
value - Using reward programs to lead
- Eeee - 60% of non-air rewards back to proprietary websites
redeemed for gift cards - Customer invitations to online
- Growth in cash-based cards surveys, accessing discounts on
In emerging markets, lack of robust next purchase
- 18% cash rebate card growth
payment infrastructure promotes
growth of mobile payments: - 14% points card growth
- But: accumulation schemes still
fairly opaque especially FFPs
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Trends that are guiding future developments
Transforming data into Increasingly personalized card Growth of non-traditional
business intelligence value propositions payment players
Retailers seeking to use data to Flexible card value propositions Non-traditional payment players
manage all business aspects, engage niche consumers looking continue to emerge to capture
beyond targeted marketing for choice, eroding popularity of growth in online spend
fixed products
Loyalty program data has gained a Alternative payment growth drivers:
broader use, beyond targeted New financial card products are - Increasing consumer trust in online
marketing: personalizing their value proposition to transactions
- Merchandising, ops, store design, further engage target segments: - Strong proportion of non-credit card
inventory mgt, product decisions users, e.g. immigrant & young
consumers
3 reward tiers B2B network - Under penetrated credit card
GE green card geographic markets (eg. China,
An increasing number of retailers are India)
calling on suppliers to manage their
Emergence of cards with increasingly
business intelligence
flexible card features and reward Deferred payment Online platform
choices: platform w/ cash POS
payment
New products emerging to penetrate
micro-payments:
Chase Capital One Garanti Bank
Freedom Card Lab Flexi Card
Tim Card Oyster Card
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Looking at new geographical markets
Attractive markets offer potential high return
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Looking at other loyalty business models
On the way to become a global loyalty leader across industries
Loyalty Program White Labelling Alternative Loyalty Delivery Channels
Loyalty Marketing Services Non-points Based Loyalty Programs
Data Analytics & Insights Data pooling
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An amazing journey
Aeroplan's loyalty business model has proven a success, and we are
now looking to grow across geographies and consumer industries
• The independent structure was the key enabler allowing Aeroplan to evolve as it did
• Since the IPO, Aeroplan has provided significant incremental value to all its key stakeholders
– members have a larger, more rewarding program
– Air Canada attracts a wider, prosperous audience and
accesses a powerful, inexpensive distribution channel
– partners have use of a more sophisticated,
effective loyalty tool
– shareholders benefit from a sector and geographical
diversified, profitable business
– employees drive an innovative, global loyalty leader
(it's been an amazing journey from 40 people to 1500!)
• Aeroplan has proven the true value of loyalty management as a business, and has become a
role model and award winner
• Aeroplan now looks to grow by leveraging its unique loyalty skills across various consumer-
facing industries and across the globe
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Q&A
25 GROUPE AEROPLAN
