How does aeroplan make money?

Answer 1

has more than 70 commercial partners in the financial, retail and travel sectors. It has four million active members and one of its main partners is, of course, Air Canada.

Every time an Aeroplan member flies on Air Canada, or uses a CIBC Aeroplan credit card, or stays in a partner hotel, or fills up at an Imperial Oil (Esso) gas station, the customer "earns" Aeroplan reward miles. What is actually happening is that Aeroplan's commercial partners buy miles from Aeroplan - paying for the benefits of belonging to a popular travel reward program. Aeroplan then credits its members with their miles. Aeroplan makes money from the sale of its Aeroplan Miles to its commercial partners.

By the end of 2008, Groupe Aeroplan reported that more than two million rewards had been issued to members, including more than 1.5 million round-trip flights on Air Canada and other Star Alliance carriers. Also, in its annual report in 2008, the company calculated that in the past 25 years, Aeroplan members had accumulated approximately 821 billion miles.

Interestingly, Groupe Aeroplan has observed that more reward miles are accumulated in the last six months of any given year, while more miles are redeemed in the first half of any given year.

When it comes time to redeem their miles, Aeroplan uses the revenue it has received from its partners to buy preferentially priced Air Canada seats or a host of other rewards. Aeroplan makes money on the spread between what it sells its points for and what it costs the program to buy the relevant reward. It also makes money by managing the rewards program for Air Canada. It further benefits from what is known in the industry as breakage - the estimated 17 per cent of Aeroplan miles that will never be redeemed.