Reeling from the sudden termination of its contract with Canadian Airlines, Amex Bank of Canada is scrambling to add bonus deals and other incentives to its Membership Rewards Program to discourage American Express cardholders from abandoning the program and moving their business to competing card-issuing organizations.
The threat of losing customers is a very real possibility for Amex now that cardholders can no longer redeem their Membership Rewards for flights on Canadian Airlines.
The problem arose April 24, when the Calgary-based air carrier unilaterally terminated its eight-year partnership with Amex after negotiations on the renewal of the contract – which was due to expire at the end of 2002 – broke down. The two sides had been in discussions since February.
For Membership Rewards program enrollees, the termination of the deal between Amex and Canadian means they can no longer transfer their earned points to travel on the airline.
In response, Amex has accelerated the planned rollout of several new options to the travel component of the program. For instance, members can redeem points for up to 50% off the purchase of air travel, package vacations, hotels and car rentals booked through an Amex Canada travel office. In addition, a 10% bonus will be added to membership points earned between May 1 and Dec. 31.
Whether the bonus offer will be enough to convince American Express cardholders to stay loyal is questionable. Frequent flyer guru Randy Peterson, for one, is doubtful.
Peterson, editor and publisher of Inside Flyer, a widely read frequent flyer newsletter based in Colorado Springs, Colo., says Amex will have a tough time explaining to its customers that although they are entitled to discounted air travel, they’ll now have to make an actual ticket purchase. "These people don’t want to buy things when they have free miles to use," he says.
"American Express has taken a big hit on the chin," he adds. "A lot of the people I’ve talked to are considering cancelling their American Express card."
Peterson thinks their loss could prove a gain for other credit card companies and financial institutions, including the Canadian Imperial Bank of Commerce, which is Air Canada’s exclusive partner on the Aeroplan frequent flyer program.
According to Ernie Johannson, vice-president of marketing for CIBC Visa, the bank is not currently planning any efforts to target Amex customers specifically. However, she adds: "We’re always looking to increase market share, which obviously means share-steal from competitors. That’s our normal growth strategy."
Amex spokesperson Audrey Adams White says the company is confident it can keep its customers from defecting. "The (customers) think it’s a lousy situation to be in right now, but they’re going to give us some time. We’ve always come through for our customers and I think they know that," she says.
Canadian Airlines, meanwhile, still has a partnership in place with Royal Bank Visa. "We looked at that agreement…and it’s one that will continue," says Renee Smith-Valade, media relations manager for Canadian Airlines, adding that the main reason behind the airline’s decision to sever ties with Amex was over the latter’s refusal to raise its financial commitment to the program.
Smith-Valade says that because of Canadian Airlines’ well-documented financial troubles, it was necessary to re-evaluate virtually every one of its supplier contracts on the basis of their economic viability. Pointing out that Amex was not paying enough to cover Canadian Airlines’ fixed costs for delivering the service, she adds, "This contract [with Amex Bank of Canada] is one of the reasons why we are in the financial situation we are in."
