Why Air Miles needs more than just a new owner to appeal to customers

For the millions of Canadians with an Air Miles account, the news that Bank of Montreal wants to buy the rewards program from its financially troubled parent company may have eased worries that the dream of a free flight was dead.

But the baggage that has led the program to skid off the runway after more than 30 years in Canada could still pose problems for the program and its collectors.

In court filings relating to the parent company's bankruptcy proceedings in the United States, Air Miles said it has more than 10 million active accounts at this time.

The problem, according to some rewards industry watchers, is that it doesn't have lucrative-enough business partners actually offering Air Miles to make the program worth it for those millions of account holders.

Air Miles lost some long-standing partners

The loss of Empire Co.-owned Sobeys and Safeway in 2022 was a "huge blow," according to Ricky Zhang, founder of Prince of Travel, a website that tracks and compares travel reward systems in Canada.

"It was probably going to be a matter of time until something like this happened," said Zhang, in reference to Air Miles U.S. parent company, Loyalty Ventures, seeking bankruptcy protection from its creditors in the U.S. and Canada.

Canada Safeway, in particular, had been with Air Miles since the early 1990s. Former Safeway clerk Albert Sirk worked at a location in the Vancouver area when the program first launched.

"The managers took us employees in and sort of outlined what was going on, we're bringing in the Air Miles program," he told CBC News in an interview from his home in Surrey, B.C.

But according to Sirk, the cost of Air Miles to his retail employer was clear, and from Sirk's perspective it was being passed on to the customer.

"We're having to change all the prices in the store and we sort of noticed that pretty much every item in the store went up by about 10 cents," said Sirk.

A 31-year-old anecdote could provide some insight into the business model for programs such as Air Miles. The company charges retailers a fee for every reward point handed out. 

When Sobeys and Safeway pulled out of the program, it lost those fees from one of its most prominent national partners.

Ten per cent of Air Miles' parent company's revenue evaporated, according to court filings.

The lack of a national grocery chain in the Air Miles program contributed to its financial problems, according to Zhang.

"I'd say it's a major gap in the lineup of partners that Air Miles has at the moment," said Zhang.

Air Miles relied on BMO before bankruptcy, too

The rewards program was not only dependent on revenue from Sobeys and Safeway. In 2020 and 2021, it lost retailers such as the Liquor Control Board of Ontario (LCBO) and Rona hardware stores.

The company's bankruptcy filings indicate that those retailers were among a 10 per cent drop in revenue that happened even before Sobeys pulled out.

After Sobeys and Safeway's departure, Air Miles says it tried to re-negotiate deals with Shell gasoline stations and the Bank of Montreal. While it locked both companies in for longer terms, it did so in a way that the Air Miles parent company presented to a U.S. court as being less favourable for the rewards program.

All in all, this presented a dire financial situation as per the bankruptcy filings, one that leaves Air Miles as very dependent on the company now seeking to purchase it.

One court document states that in 2022, the Bank of Montreal actually gave out 50 per cent of the total Air Miles handed out to program members. In an Ontario court filing, Air Miles states that either the Bank of Montreal — or another financial institution — must remain a partner of the program or they would lose even more Air Miles sponsors.

BMO says rescue could 'revitalize' program

In an emailed statement to CBC News, the Bank of Montreal said it's excited for the future of the program, and that "we have always believed in the value of the program for Canadians."

The bank has said it will "revitalize" and "bring new energy" to Air Miles, if the deal is approved, but loyalty points experts aren't so sure.

"I'm thinking there isn't too much they can do in terms of gaining the nationwide glory the program once had," said Patrick Sojka, founder of Rewards Canada. 

To Sojka, BMO purchasing Air Miles is about maintaining their existing business and customer relationships.

"They have so many credit card customers who are Air Miles credit cards customers, and for them they stood to lose a lot of those credit card members if Air Miles went under. People would have a sour taste in their mouth," said Sojka.

Rewards Canada publishes rankings of the "best" travel rewards programs in the country. It was originally planning to include Air Miles but dropped it due to the uncertainty of the current court proceedings.

"I have to consider it on the brink until we see BMO's signature on the dotted line," explained Sojka, who said he didn't feel comfortable recommending a program with an unclear future.

"Will [Air Miles] be dissolved as part of the bankruptcy protection in order to pay off their creditors? We don't know that."

Bank may see upside, but are miles safe?

Air Miles has said in statements that reward point balances are safe at this point. Bank of Montreal has echoed that messaging from Air Miles.

BMO may be able to leverage the Air Miles customer base to expand its own, says Charan Bagga, associate professor of marketing with the Haskayne School of Business at the University of Calgary.

"This presents opportunities to potentially cross-sell to non-Bank of Montreal customers," said Bagga.

He added there may also be customer profiles on shopping habits at other stores that could provide insight for the bank, which says it has no plans to merge Air Miles with its existing BMO Rewards program.

"A lot of times the reward programs use insider customer data in terms of providing information on consumer behaviour and preferences," said Bagga.

But to keep customers, the offering may need to change, according to Nicole Rourke at St. Clair College in Windsor, Ont.

"They just need to be a bit more creative. And it could be financial incentives instead of just a blender or piece of luggage ... coming up with some real financial incentives to encourage people to remain loyal to BMO," said Rourke.

Bank of Montreal pointed to a statement from Air Miles which indicated customer miles are still available to redeem at this time for existing travel and merchandise rewards.

Air Miles initially agreed to an interview with CBC News, and then declined several days later. In response to further requests from CBC News, the company said as the sales "process unfolds we look forward to sharing more details with collectors."

Bankruptcy hearings for Air Miles parent company continue in a Texas court over the next few weeks.