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Aeroplan to have new product line-up, improved economics for Aimia

Additional details are surfacing around terms of the deal between TD and Aimia, including how the new product line-up might change. As reported by CNW:

Features of New Credit Card Offerings

New Aeroplan co-branded financial credit cards, to be launched in 2014, will provide cardholders with more flexible options, better earn rates and new recognition features; all of which is in addition to the benefits to be added under the Distinction program.

A new enhanced premium card targeted at high net worth Canadian households, with a higher earn rate, will be offered, in addition to premium and mid-market credit cards.

The launch of two additional co-branded targeted credit cards is expected to include:

    • one aimed at customers travelling frequently between Canada and the United States ; 
    • and a second specifically for Canadian small business owners, which will allow small business owners to choose additional features and benefits specifically designed for their needs.

Both the enhanced premium and premium cards will include a suite of unique Air Canada features and benefits.

In a number of instances during 2014, annual fees will be waived and bonus miles awarded to welcome members to the new cards.

Terms of a New Financial Credit Card Agreement

 The terms of a new 10-year financial credit card framework agreement will include:

    • a more than 15% increase in price per mile to align to market levels;
    • a commitment to minimum miles purchases for the first three years;
    • a joint marketing spend of around $140 million over four years to support new cards and new program features;
    • use of Aeroplan bonus miles to drive future member acquisition and longer term growth in Gross Billings; 
    • and more comprehensive collaboration around data and customer insight analytics.

In addition, the agreement provides for:

    • a $100 million upfront contribution payable in 2014 to Aimia to help fund program enhancements; 
    • and  an $80 million contractual break fee payable in 2013 by Aimia to TD in the event CIBC exercises its contractual right to match on or before August 9, 2013 . 

Should the agreement with TD become effective, Gross Billings growth could be dampened through the transition period to a new bank, however the miles purchase commitment would guarantee a value equivalent to the Gross Margin that would have been generated on approximately 65% of CIBC’s 2012 Gross Billings in 2014, increasing to a value equivalent to over 90% in 2015 and 2016. When combined with the upfront program contribution of $100 million and tax benefits to be realized, this should also ensure solid cash flow generation to maintain the dividend through any transition in 2014.

Higher Gross Billings, combined with new contract economics, are expected to offset increased program costs, and generate improving cash flow returns post-transition.

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