Aimia to cut costs further as it prepares for end of Air Canada partnership
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MONTREAL — Aimia Inc. share plunged 27 per cent Thursday after the operator of the Aeroplan loyalty card reported a wider quarterly loss and plans to pursue deeper cost cutting.
The Montreal-based company plans to trim its costs by $70 million per year by 2019 as it continues to adjust to Air Canada's decision not to renew its long-term partnership in 2020. It has already sold several businesses, including its British Nectar coalition, and cut staffing in half since 2015 to about 1,600 people.
Chief executive David Johnston said efforts to simplify its business to drive further savings will come in ways other than further large layoffs.
"We've done quite a bit of that this year but there's some corporate simplification we're doing — properties, technology — I'm not envisaging material further job cuts," he said in an interview Thursday.
Shares of Aimia Inc. fell more than 27 per cent in mid-afternoon trading after it reported a $214.7-million loss in its latest quarter, hurt by a charge related to the sale of its Nectar program and related assets.
Aimia shares were down 65 cents at $1.73 in trading on the Toronto Stock Exchange.
Johnston declined to comment on the stock movement but said the company delivered good 2017 results despite the challenges of having to deal with Air Canada's decision in May, which raised questions about Aimia's future.
"The Aeroplan team and the Aimia team have delivered a fantastic financial performance in what was undoubtedly a tough year."
Michael Goldberg of DBRS said the stock decline is due to concerns about the quarterly results, including higher fourth-quarter redemptions, than lingering concerns about the company's future after Air Canada.
The company plans to unveil changes to Aeroplan in the coming months that will focus the card beyond 2020 more on leisure travel of its premium members. It will offer broader choice with multi-airline awards, tailored experiences beyond flights and a simpler customer experience.
Johnston said Aeroplan redemptions rose 9.9 per cent in the fourth quarter and four per cent in 2017 mainly because of the availability of lower airfares and more use for non-air rewards not because of member concerns about the program.
Gross billings rose two per cent but are expected to decrease a bit in 2018.
"Even after that redemption they're coming back re-engaging with the program and earning more points and that's a healthy behaviour in a loyalty program and I'm fine with that," he added.
Neil Linsdell of Industrial Alliance Securities said Aimia faces challenges even though more cost cutting is inevitable to address upcoming profit pressures.
"Rather than a grand Plan B replacement of Air Canada, Aeroplan may see itself evolve steadily through 2020," he wrote in a report.
Aimia investor Mittleman Investment Management LLC of New York increased its ownership to 10.6 per cent in January and said in a regulatory filing last week that it may push for changes to Aimia's board, management and seek a sale of some or all of the business.
Christopher Mittleman called on management during a conference call Thursday to justify the sale of the Nectar business to British retailer Sainsbury for $105 million earlier this month, saying the rationale behind the transaction was difficult to grasp.
Chief Financial Officer Mark Grafton said the sale was the "best risk adjusted outcome for the company."
Johnston declined in an interview to respond directly to the investor's push, but said efforts to revise Aeroplan post-2020, simplify its structure and maintain a strong balance sheet will deliver for shareholders.
"Our shareholders are very clear on those priorities because I talk about them every second I can and we'll deliver on those and then we'll deliver for shareholders."
The loyalty rewards company reported a loss of $1.44 per share for the quarter ended Dec. 31 compared with a loss of $57.2 million or 40 cents per share a year ago.
The results in the most recent quarter included an impairment charge of $180.5 million related to the Nectar coalition loyalty program and U.K. ISS business.
Revenue totalled $398.6 million, down from $440.1 million in the last three months of 2016.
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Companies in this story: (TSX:AIM, TSX:AC)