The Aimia (TSX: AIM) zombie keeps on moving but when the corpse will finally lie down and die is another good question.
Today, it was reported that Esso’s partnership with Aeroplan will terminate at the end of May 2018. Instead, the loyalty program partner that will be picked up is the Loblaws’ (TSX: L) optimum program.
One of the issues when valuating the fundamentals of businesses that have setbacks (and judging whether they can make comebacks or turnarounds) is to determine whether the blow they suffer was critical. In the case of Aeroplan, it was Air Canada and the threat of substitutions. Although Aeroplan/Aimia used to be a subsidiary of Air Canada, it was spun out for financial reasons and it is pretty clear that Air Canada knows that there are other alternatives available (such as doing it in-house). The psychology damage done when you lose your major business partner, coupled with the effect that your business depends on large volumes of customers trying to collect aeroplan miles for the purpose of flying, suggests that the subsequent network effect (or opposite thereof) will significantly devalue Aimia’s offerings. Another way of thinking about this is a negative economy of scale, but from a marketing perspective. Or what would happen if some other competitor to Ebay spontaneously stole 90% of auctions from EBay (we’re talking in the late 90’s/early 2000’s context, not the present day EBay).
The other buzz is that Air Canada is just negotiating for a better deal (since Aeroplan is set to expire in June 2020) but this is wishful thinking. Likewise, Aeroplan can’t just sign up any other airlines spontaneously since it takes quite a bit of time to link up with the electronic information systems of competitor airlines (there is potential they will sign up with a new discount airline brewing in Canada, but the volume of this business will be much, much less and Aeroplan will not be able to receive commercially acceptable terms like they had with Air Canada).
This all points to a huge value trap situation still with Aimia, as I’ve been trying to illustrate since the Air Canada/Aeroplan collapse.
Personally I have cashed out anything of value from my Aeroplan account. As an interm measure they will be (and I notice they have already) devalued their existing rewards to offset their deferred liability balance.
I currently own a small position in Aimia preferred shares. I believe there is some value there. The thing is Aeroplan can continue to offer Air Canada flights after the contract ends – of course it will cost them more. The problem right now is the board and CEO don’t appear to be very competent. Nor do they have really any skin in the game. My hope is that Mittleman comes in and cleans house. My only fear is that it is going to be too little, too late. It’s also been 10 months since Air Canada announced they were not renewing so they need some good news soon. Confidence is fading, both for investors, consumers and businesses.
And their balance sheet is a train wreck, although not as bad as it used to be. The majority of that goodwill/intangible number will be written off for sure. I don’t really foresee a scenario how the preferred shareholders will get paid off. It would be another story if the entity had tangible positive equity.
Aimia today announced they will be supporting Amazon.ca and made some bru-ha-ha about it and the stock went up some 20% for god-knows what reason. This is in addition to the billion other online retailers that are already listed on the site.
Apparently nobody has ever heard of EBates or any of the other billion of link affiliate websites that give out cash instead of diluted currency. I should set one up for Divestor.
At first, by reading the new I tough you would be able to enter your Aeroplan on your amazon.ca account to automatically get points.
No….
See below for instructions… nobody will go trough that to get something like 0.01/dollars.
How it works:
1. Aeroplan Members simply visit aeroplan.com/estore;
2. Using the search function on the page, find Amazon.ca;
3. Enter your Aeroplan Number and last name;
4. Click on the ‘Shop Now’ button to be redirected to Amazon.ca. Happy shopping! Members will earn a minimum of 1 Aeroplan Mile per $1 spent.
I liquidated my position in Aimia preferreds yesterday at $19.90 for a 50 -60 percent return over a year and a half. Its been a rocky ride. I collected one dividend payment before Air Canada pulled the pin and they slashed the divy. At this point i was happy to grab the cash and run. Its really hard to see how this is all going to play out for preferred share owners. I’d love to get my unpaid dividends and par value but that may be a long ways down the road. The old cliche of “better a bird in the hand than 2 in the bush” seems applicable here.
http://adventuresincapitalism.com/2018/07/27/air-canada-screwed/
@Philbert: Congrats. There is a chance that Aimia might resume dividends, but it depends on how much of their liability book remains after the Air Canada sale (assuming they even transact it). But yes, the bird in the hand is still better than two in the bush in this marketplace.