Aeroplan could take a hit from cuts at Air Canada, analyst says

The Aeroplan loyalty rewards program could take a hit if consumers begin to fear that Air Canada cuts will limit their travel options, an analyst said Friday.

Neil Linsdell of Versant Partners said Aeroplan members who pay $120 to gain miles on credit cards could question the value of the expenditure if they lose confidence in the airline's ability to address its financial challenges.

The replacement of Air Canada CEO Montie Brewer earlier this week with Calin Rovinescu, a restructuring expert who helped the company emerge from bankruptcy protection five years ago, suggests Air Canada may be thinking of another major round of cost-cutting in the face of falling revenues.

In 2008, 17 per cent of Aeroplan's gross billings came from its partner airline, Air Canada. However, 48 per cent was derived from CIBC and American Express.

Since it was spun out of Air Canada as an independent company in 2005, Aeroplan has diversified its business by acquiring loyalty programs in Britain and the Middle East.

However, about 80 per cent of its rewards are used for air travel.

Air miles would continue to be valid should Air Canada file for bankruptcy protection from creditors. But Aeroplan would run the risk of having its agreement with the airline renegotiated at less favourable terms.

And additional costs or reduced opportunity to use accrued miles could reduce members' interest in collecting them, Linsdell said in an interview.

But airline analyst Jacques Kavafian, who suggested Air Canada needs to cut the size of its network in half, said the impact would only be short term.

He said Aeroplan would align with other airlines, including Jazz, should Air Canada abandon many routes it currently serves.

On the Toronto Stock Exchange, Aeroplan's shares fell 12 cents to $7.85 in midafternoon trading.