Author Topic: AIM.TO - Aimia  (Read 89645 times)

Cardboard

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Re: TSX:AIM - Aimia
« Reply #10 on: June 07, 2016, 06:07:35 PM »
They held 12.1% per the latest Management Circular. Where did you see that they were getting out? If so, maybe that they are switching to the preferreds? LOL

Looking at the chart, they must also be contemplating some heavy losses unless they bought most of their stake close to recent lows.

For their real reason to sell (is it trimming?) you would have to ask them.

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MrB

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Re: TSX:AIM - Aimia
« Reply #11 on: June 08, 2016, 04:50:31 AM »
See attached

Cardboard

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Re: TSX:AIM - Aimia
« Reply #12 on: June 08, 2016, 08:24:02 AM »
Right, so they have not sold a share since March 14 or the date of the Management circular for the AGM. I have not seen any insider trade from them since then (for which they would qualify being above 10%).

12.1% of outstanding is still a heck of vote of confidence IMO.

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Nelson

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Re: TSX:AIM - Aimia
« Reply #13 on: June 10, 2016, 02:28:10 PM »
I bought the Series 3 (AIM.PR.C) prefs today at $14. Locked in 11.2% until the reset in 2019.

This reminds me a heck of a lot like the Dundee and Canaccord pref situations over the last few months. There's no way I should be getting 11% on an Aimia pref. The company generates plenty of free cash flow and has cash in the bank. Management has also been smart to really buy back shares when they've been low. Sure, they got in a little too early, but we've all made that mistake before.

Aimia reminds me a lot of the insurance business. Miles that have been bought but haven't yet been redeemed are a lot like insurance float. The bigger Aimia gets the bigger this float will become. I like float. I really like float plus a stock that trades at between 6 and 7 times forward free cash flow.

Cardboard

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Re: TSX:AIM - Aimia
« Reply #14 on: June 10, 2016, 03:42:53 PM »
I own some "C"s as well but, the "B"s is my larger position. The current distribution, plus the gap to catch to the "A"s into which they are convertible in 2020 gives them roughly a 12% overall yield.

Their current yield is 10.3% which is enormous for a floater. You still give up a bit of current income vs the "C"s but, you also have larger upside to reach par if some sort of corporate transaction occurs.

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SafetyinNumbers

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Re: TSX:AIM - Aimia
« Reply #15 on: June 10, 2016, 06:50:56 PM »
The B's are definitely the better value and as Cardboard said you have more capital gains upside, not only from a corporate transaction, but also when the C's reset and the dividend amount between the two classes tightens. I also prefer capital gains to dividend income.
Top 5 positions: ELF IAM GCM.NT/GCM PIF EFR.DB

misterkrusty

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Re: TSX:AIM - Aimia
« Reply #16 on: July 07, 2016, 03:00:18 PM »
So apparently Aimia's current deal (CPSA) with Air Canada grants them access to 8% of AC's seats at a special discounted rate.  Anybody have an idea how big this discount is?  I'm trying to figure out what Aimia's cash flows will look like under a renegotiated deal when the current one expires mid-2020.  New terms won't be as good - question is how much worse.

Has anyone ever seen the current CPSA?  I can't find it anywhere.

Cardboard

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Re: TSX:AIM - Aimia
« Reply #17 on: July 07, 2016, 04:51:20 PM »
I have not seen it. I assume it is confidential or if disclosed, must be under the headline Material Contract on Sedar whenever it was signed.

While there is a risk that this might get negotiated negatively for Aimia, I do believe that the risk of a major cut is small as Aeroplan is a key partner for Air Canada that effectively cannot be replaced.

However, why bothering with the stock when you can buy AIM.PR.B below $10 right now?

Just look at the total amount paid in dividends to the common vs all dividends paid to the 3 series of preferreds. Then think of the fact that you are ahead of them in the capital structure. The risk for dividends to not be paid on the preferreds is very small IMO and would require a massive breakdown in the business which Brexit and this new deal cannot do.

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sculpin

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Re: TSX:AIM - Aimia
« Reply #18 on: July 08, 2016, 07:28:43 AM »
So apparently Aimia's current deal (CPSA) with Air Canada grants them access to 8% of AC's seats at a special discounted rate.  Anybody have an idea how big this discount is?  I'm trying to figure out what Aimia's cash flows will look like under a renegotiated deal when the current one expires mid-2020.  New terms won't be as good - question is how much worse.

Has anyone ever seen the current CPSA?  I can't find it anywhere.

This is from an Oct 15 report from Industrial Alliance:

Air Canada Partnership is a Key and Secured Driver to Aimia’s
Success

Event

The Commercial Participation and Services Agreement (“CPSA”) between Aimia
and Air Canada (AC-T, Not Rated) is up for renewal on June 29, 2020. We
examine the relationship between the two organizations and explain why we
remain convinced in the ongoing mutual benefit.

Highlights

 Aeroplan and Air Canada make a good team – Air Canada, with its Star
Alliance partners, is Aeroplan’s largest Redemption Partner. Conversely,
Aeroplan is Air Canada’s largest single customer. The partnership makes Air
Canada more competitive through attractive pricing which helps increase
the airline’s market share in a challenging leisure travel market. In 2014,
~71% of all rewards claimed by Aeroplan members were for air travel.

 Air Canada is a net beneficiary of payments – While Air Canada provides
approximately $250M per year to Aimia to purchase Aeroplan Miles to
reward its frequent fliers, Aeroplan purchases tickets on Air Canada flights
worth approximately $540M per year.

 Aimia will benefit as Air Canada grows Rouge – The expansion of Rouge
will only further contribute to Gross Billings, especially since Air Canada has
shifted Rouge’s fixed Miles allocation to the percentage format used by the
rest of Air Canada.

 The 2020 CPSA renewal will likely result in a $ based reward vs. distance
– As we see occurring in other airline loyalty programs, we would expect to
see Air Canada modify its reward system to base Aeroplan Miles issued on
the price paid per ticket rather than distance flown.

Summary

Some investors have expressed concern over the approaching June 29, 2020 renewal date between Aimia and Air Canada
(“AC”) of their Commercial Participation and Services Agreement (“CPSA”). For AC, Aeroplan has only grown in importance
since being spun-out from the carrier, and is the single largest purchaser of seats on AC flights. While AC pays approximately
$250M to Aeroplan each year for Miles to reward fliers, Aeroplan pays out approximately $540M per year for travel rewards
on AC flights. Approximately 71% of all rewards claimed by Aeroplan members in 2014 were used for air travel. Thus, we see
renewal of the CPSA as a certainty although we do foresee that the negotiation will provide the opportunity for Air Canada to
the way it awards Aeroplan Miles to be based on the value of the tickets that members purchased rather than on the distance
flown.

Overview of Aeroplan Program

On January 1, 2002, Aeroplan, an incentive program created by Air Canada in 1984, was spun-out as a wholly-owned limited
partnership of Air Canada, Canada’s largest domestic and international full-service airline. Aeroplan went public in 2005.
Aeroplan now acts as Air Canada’s exclusive loyalty marketing provider in Canada and earns service fees for managing the
airline’s tier membership program in addition to booking, service and administrative fees from members who redeem their
Aeroplan Miles when flying Air Canada, Air Canada Express and Air Canada Rouge, or with Star Alliance members and small
regional airlines. In return, Air Canada earns a stable and recurring revenue stream. Aeroplan extends to retail as well,
consisting of many partners across Canada. In H1/15, over 45% of Gross Billings from its sale of Loyalty Units stemmed from
deals with the Company’s three financial/credit card partners (TD, CIBC, AMEX), while Sainsbury’s represented 21% and Air
Canada 14%. More importantly, in 2014, ~71% of all rewards claimed by Aeroplan members were for air travel.

On January 1, 2014, Aimia introduced several new initiatives meant to improve Aeroplan’s operations and increase
membership, even if breakage and short-term profitability weaken. First, the new Distinction program awards top
accumulating members with preferential mileage levels for redemption, bonus mile offers and exclusive privileges. Moreover,
Distinction members, who achieve different levels based on the number of miles earned, are 2.5x more likely to visit Aeroplan
stores and 85% hold Aeroplan-affiliated credit cards. Secondly, the new Market Fare Flight Rewards (“MFFR”) replaced
ClassicPlus Flight Rewards, allowing members to redeem awards with 20% fewer miles for any seat on any Air Canada flight
based on a market rate. As a result, as more seats become available because of fleet and route expansion, more points will be
accumulated, which should benefit Aimia. Finally, in order to improve engagement, Aeroplan canceled the seven-year mileage
redemption policy so that Miles no longer expire after seven years if a member has at least one accumulation or redemption
activity every 12 months. Thus, while this strategy may weaken the Company’s profitability, higher engagement should help
lower Breakage, which is a gauge of active participation by members.

Overall, these changes are amongst some of the initiatives that Aimia is taking in order to handle complaints that Aimia’s
points are difficult and expensive to redeem, that the number of available seats to choose from are limited (MFFRs extend to
100% of available seats).

Air Canada and Aeroplan Depend on Each Other

Air Canada, with its Star Alliance partners, is Aeroplan’s largest Redemption Partner. Conversely, Aeroplan is Air Canada’s
single largest customer. Aeroplan helps Air Canada be more competitive through attractive pricing, which helps increase the
airline’s market share in challenging leisure travel markets. Aeroplan’s partnership with Air Canada is further enhanced by its
ancillary relationship with car rental companies and hotels, which allow members to accumulate Aeroplan Miles and use them
towards airline ticket rewards.

In order to participate in the Aeroplan Program, Air Canada pays a fee which is based on Aeroplan Miles awarded to Air
Canada customers who travel on AC flights as part of Aimia’s Gross Billings. Aeroplan must annually purchase a minimum
number of reward travel seats on AC flights, or 85% of the average number of seats utilized in the three preceding calendar
years (currently ~$460.5M based on the previous three years). The CPSA prevents any other transportation business that
competes with Air Canada or Star Alliance members from participating in the Aeroplan Program. In 2014, Air Canada
purchased $248M Aeroplan Miles and the estimated minimum requirement in 2015 (based on an average from the past three
years) is $212M.

Success of Air Canada’s Turnaround

Over the past two years, CEO Calin Rovinescu has successfully turned around a once near-penny-stock airline faced with
significant labour issues, high expenses, unhealthy debt levels and poor pension plan funding. Its new budget segment, carrier
Air Canada Rouge, has provided improved core results and record load factors. Although the addition of more economy-class
seats through Rouge and the new high-density aircraft has brought about lower yields (the average fare paid per mile flown),
the cost per available seat mile is declining faster than yields, resulting in higher profitability. Air Canada is looking to expand
internationally through Rouge, whose cost per available seat mile is said to be 29% lower than Air Canada’s mainline fleet and
whose labour costs make up a much smaller percentage on long-range flights than domestic ones.

The interest for air travel from Aeroplan members has resulted in significant demand for Air Canada tickets. Air Canada
continues to be an important contributor to Gross Billings, even as Aeroplan’s expansion into new business segments (such as
the yet to be detailed partnership with Toyota) has reduced its contribution, highlighted by the gradual share decline in
Exhibit 1.

One of the benefits of using Aeroplan is that Air Canada can entice members towards routes that it wants to increase its load
factor on, by offering bonus Miles, but also by offering more reward seat availability on certain routes at certain times to
entice members to cash in Miles and further fill planes. We expect that the additional aircraft being added for the expansion
of Air Canada Rouge will result in Air Canada leveraging this tool.

Air Canada Enticing More Members to use Rouge – Showing the Value that it Places on Aeroplan
Initially, Air Canada significantly reduced the number of Aeroplan Miles that it provided members for booking through Tango
and on Rouge flights with its launch in 2012. By November 2013 (see Exhibit 2) Air Canada Rouge fliers started earning Miles
comparable to the mainline carrier. With Rouge, Air Canada was looking to increase its business to leisure destinations in
Europe and the Caribbean with lower prices, more seats per plane, and lower costs. Contributing to the lower costs was a
reduction in the number of Aeroplan Miles that members earned for flights because Miles earned were based on a fixed rate.
Air Canada now seems to have re-evaluated the importance of Aeroplan Miles in customer decision making and in rewarding
loyalty and has significantly increased rewards on Rouge flights to match rewards on the main carrier. This further
demonstrates the importance and value of Aeroplan Miles to Air Canada.

Our Forecast for a Change in Aeroplan Miles Reward Structure (from Air Canada only)

Air Canada and Aeroplan have modified earnings and redemption grids several times to optimize the program. We expect that
with the CPSA renewal in 2020, the partners will move more to a dollar-based earning model to more closely align Air
Canada’s marketing spend with revenue generation. We have seen other airlines following the same track, such as WestJet’s
reward program issuing WestJet dollars, and Delta’s use of both base SkyMiles on flights combined with Medallion Qualifying
Dollars to track member spending on Delta flights.

kab60

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Re: TSX:AIM - Aimia
« Reply #19 on: July 08, 2016, 10:46:55 AM »
I think this Company looks very interesting - espescially since Tor Lønnum joined. Check out the returns at Danish Tryg since he joine. Also like his comment on the recent CC. Anyway, I need to understand the business better. Anyone have a primer on the industry? And some good public comps?