RE:RE:Aeroplan is Shady Too = Air Miles Squared Unfortunately, the entire concept of "breakage" is the very definition of a scam.
An analogy would a store whose profits are dependant on customers paying for merchandise at the cash register…and then the customer forgets the merchandise at the cash register…and then the store clerk restocks the shelves with the forgotten merchandise.
And, the store only makes a profit if enough customers leave behind the merchandise that they have paid for.
Of course, this is an absurd retailing business scenario.
But…this is exactly what "breakage" is and how Air Miles and Aeroplan operate and also the reason why they are both a scam.
If Aimia/Aeroplan wants to re-invent itself into something much bigger and much better than it ever was, it should abandon this "scam" aspect of the loyalty program business and chart a flight path forward based on technological innovation and the new services that our modern economy demands.
One suggestion that has been mentioned before is cryptocurrency, and the proposed name was AeroCoin (BTW…good name).
Another suggestion would be a cryptocurrency called "AeroGold" in partnership with an existing regulated cryptocurrency financial services provider….more about this in the future…
cigarbutt1 wrote: Breakage is an important concept in terms of modelling different scenarios going forward.
For Aeroplan, breakage has varied over the years. In 2013 (probably worth reviewing the financial consequences in 2013 annual report), breakage was reduced from 18% to 11%, resulting from measures taken to “improve” the program. At year-end 2017, breakage was 13%. The idea is not to be picky but, as reported by AIM, for every 1% change in breakage, we can expect a 150 million impact on pre-tax earnings. Breakage results from observation of what has happened and what is happening but it is mainly “managed”. It is a two-edged sword. High breakage is good for the bottom line but detrimental to the long term viability of the program. In 2013, Aimia had negotiation leverage and partner banks pretty much “financed” the improvements in the program resulting in lower breakage.
It is very hard to have an idea about breakage after the transition in 2020 but this has very significant implications about profitability and viability.
References:
https://www.thewisemarketer.com/wp-content/uploads/2018/05/AirlineLoyalty_BestPracticesLiabilityManagement.pdf
https://medium.com/@dfcatch/loyalty-myths-is-breakage-good-873950da26dc