The early stage of a landmark marketing case study is unfolding before you, even though few Canadians would currently view it in such charitable terms.
I am speaking of two powerful marketers, American Express Canada and Air Canada. The battle lines were drawn in January, when Air Canada acquired Canadian Airlines. In so doing, Air Canada bought monopoly status in the airline industry in Canada, particularly from the point of view of the business traveller. Historically, business travellers have been Amex’s most valuable customers.
Air Canada’s acquisition of Canadian Airlines also put into jeopardy Amex’s long association with Canadian, including the point-for-point conversion deal between the two. Indeed, that arrangement was scrapped April 24 when, according to an American Express news release, "Canadian Airlines pulled out as a partner in its Membership Rewards program." But, that’s just the beginning.
Amex’s premium Platinum cardholders have been most closely aligned with Canadian Airlines. They enjoyed the right, once each year, to receive a free "companion fare" ticket with the purchase of a matching ticket (same flights, same dates, same class). As the promotional letter that accompanied the offer says, "With so many worldwide destinations to choose from, your Certificate can save you hundreds of dollars." That benefit also disappeared on April 24.
What is more, perhaps the most important benefit seems short-lived: Platinum cardholders enjoy Empress Lounge privileges and business class check-in by virtue of their automatic upgrade to Canadian Plus President’s Club status. When I spoke with an Amex customer service representative, I was informed that this benefit would continue "for the time being… until the end of the year."
Clearly, American Express needs to develop – and quickly – a replacement set of benefits for its cardholders to prevent them from downgrading (in the case of current Platinum cardholders) or, worse, abandoning their Amex cards altogether. Given the current situation, it should be only a matter of days before CIBC’s Aerogold card goes on an acquisition binge that trumpets its alignment with "the airline rewards program of choice" (or similar claim). Citibank, through its Diner’s Club/en Route brand, is currently touting its "Club Rewards" program that offers one-for-one conversion to Aeroplan points for a lower annual fee ($85) than CIBC’s Aerogold, or the American Express Gold and Platinum cards.
Amex has "moved quickly to protect the interests of its Cardmembers…(and is) immediately bringing forward plans to revamp the travel component of its Membership Rewards program." However, this plan appears to be linked to a scheme whereby members convert points into dollars (10,000 points = CDN$100.00) that can be used on a 50/50 basis to purchase tickets at American Express travel offices. Call it, "Membership Has Some Rewards". The program launches in May, and, at best, has the aura of an interim move.
Amex might like to think that the power of its card brands will carry the day, but even it would admit that the Membership Rewards program is seriously compromised by the lack of a competitive travel-rewards component. Based on Canadian Airlines’ withdrawal from the Membership Rewards program, three business acquaintances announced their intention to switch to an Aeroplan-linked card without delay; one person has over 500,000 points in her Amex Membership Rewards account.
As for the future, Air Canada seems to be an unlikely partner. Amex states "at this time, we have no plans to partner with Air Canada, nor participate in their Aeroplan frequent flyer program." It seems equally unlikely that Air Canada will offer the benefits of Maple Leaf Lounge membership to Amex Platinum Cardholders unless they have, separately, paid the full price of admission.
Continental and Delta currently accept Amex Membership Rewards from Amex customers, as Canadian Airlines did, but this is not significant since, first, neither is a major carrier in Canada, and, second, any rewards granted by them are international rewards. At present, Air Canada and its partners have absolute control over the domestic reward air-travel business.
In the U.S., Amex’s Membership Rewards program has points-transfer deals with a dozen airlines, something that is not possible in Canada. Our choice of two major airlines has been reduced to a choice of one, which is no choice at all. That’s why Air Canada can sit back and gloat…just as Amex’s senior management struggles with a major business problem…and while Aeroplan-linked card issuers compete for greater share of market.
Watch your mailbox. It will be an interesting summer!
David Foley is a marketing consultant and an instructor in database marketing at York University in Toronto. He may be reached at (416) 253-1224; by fax at (416) 253-4637 or via e-mail at dfoley@idirect.com
