Aimia hit by labour strife at Air Canada

An AIMIA logo is shown at the company's annual general meeting in Montreal, Friday, May 4, 2012. THE CANADIAN PRESS/Graham Hughes

MONTREAL - Aimia, the company behind the Aeroplan loyalty rewards program, expects labour disruptions that hurt Air Canada's quarterly performance will also affect the accumulation of airline points for the year.

The Montreal-based company had thought that arbitrated settlements with mechanics and pilots would allow gross billings to return to normal levels in the second half of the year.

But, it said Friday, that promotions by the airline won't be sufficient to offset reductions this year caused by the labour strife and changes in accumulation rates, such as on Asian routes.

"Clearly they've had a tough couple of quarter with some business disruptions, with the uncertainty caused by the various labour disputes but that is now behind them," Aimia president and CEO Rupert Duchesne said during a conference call.

With new labour agreements that appear to be economically favourable, Duchesne said promotional activity should increase in the second half of the year.

"But we don't expect that to catch up the deficit of the lower levels of spending in the first part of the year as well as some of the grid changes that they've made in terms of how many miles are earned on what routes."

Aimia earns revenues when members use its cards or partner credit cards to purchase products and gain Aeroplan points. Air Canada is one of Aimia's largest partners representing 13 per cent of gross billings.

Accumulation of points on Air Canada fell eight per cent in the second quarter compared with a year ago, while a rebound in credit card performance allowed Aimia to offset the impact.

Overall, Aimia more than doubled its quarterly earnings compared with a year ago, helped by strong results at its Canadian and European businesses.

Aimia (TSX:AIM) earned $34.9 million or 19 cents per share for the quarter ended June 30, up from $15.3 million or seven cents per share a year ago.

Revenue totalled $504.2 million, down from $507.6 million.

Duchesne said that the business is expanding margins and delivering "robust" free cash, which allowed the company to confirm its guidance for 2012.

He said the company is focused on expanding its client base in Canada.

Canadian gross billings increased to $332 million compared with $324.1 million a year ago, while billings in Europe, the Middle East and Africa improved to $157.6 million, an increase of 14.4 per cent.

Gross billings in the U.S. and the Asia Pacific region slipped 19 per cent to $65.6 million.

Aimia said it benefited from revised and new contracts with key customers in Britain, which helped to offset the impact of macroeconomic weakness in Europe on consumer and business confidence.

While the European economy is likely to get worse, Duchesne said it doesn't negatively affect Aimia's business because it delivers measurable increased consumer use especially during recessionary times.

It also plans to announce a new UK partner soon.

Drew McReynolds of RBC Capital Markets increased his share price target for Aimia by $1 to $18 Friday.

"The risk-adjusted return remains compelling," he wrote in a report.

Meanwhile, Aimia said a U.S. settlement between retailers and credit card companies Visa and MasterCard could have an impact in Canada if the Competition Tribunal adopts similar measures this fall.

The changes allow retailers to impose surcharges on credit card use, which could prompt consumers to shift to other payment options such as cash or debit.

But Duchesne told analysts that Aimia's research has determined that surcharges don't materially change credit card use and could entice a backlash from consumers.

Aimia is in negotiations with Aeromexico to expand its minority stake in Mexico's Club Premier loyalty program. Aimia currently has a nearly 29 per cent stake.

On the Toronto Stock Exchange, Aimia's shares closed at $13.60, up 17 cents in Friday trading.