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Aeroplan flying high after TD adds 'extraordinary' number of cardholders: Aimia

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MONTREAL - Travel rewards company Aimia says its revitalized Aeroplan program got off to a strong start as two of its Canadian banking partners signed up more new credit card customers than expected in the first three months of the year, setting the stage for future growth.

TD Bank signed up 275,000 new cardholders while American Express added 30 per cent more new customers, raising the total number of co-branded credit cards to 1.4 million. CIBC's Aeroplan cardholders were stable.

In a typical year, between 50,000 and 80,000 new cardholders are added, so achieving such a large increase in one quarter was "extraordinary," Aimia CEO Rupert Duchesne said Wednesday after the company's annual meeting.

The new TD (TSX:TD) Aeroplan cardholders are in addition to about 550,000 that were transferred from CIBC (TSX:CM) as part of a 10-year deal making TD the primary issuer of Aeroplan's Visa credit cards.

"If each of those cardholders spends in the same way that our existing cards holders have done historically, that means significant growth for us over the medium to long term," Duchesne said in an interview.

He said it could take six to nine months until Aimia knows whether spending patterns will be different, but initial indications are encouraging.

About two-thirds of the new TD customer credit cards were immediately activated and customers started to use them for purchases, the rest typically followed within a month. However, the full use of the cards for spending may be delayed because customers tend to split purchases with other cards until they expire.

Gross billings for Aeroplan's financial partners rose 15.5 per cent in the quarter, better than analysts had expected. Overall gross billings in Canada increased by 41 per cent to $432.8 million, thanks to a $100-million payment from TD. Excluding this contribution, the increase was 8.4 per cent.

With TD giving new customers 15,000 miles to sign up, 15.4 per cent more miles were issued but redeemed miles were up just 2.9 per cent.

In addition to new customers, Aeroplan will charge 15 per cent more over two years for each mile purchased from the banks and spend up to $60 million to improve Aeroplan's program by reducing the number of miles needed to purchase some flights.

"We've sort of taken a bet that if we reduce our unit profitability per mile but we grow faster, the returns to the shareholders will be better, but also that consumers will get a better deal and therefore become even more engaged in the program," Duchesne said.

Duchesne said the changes, which make Aeroplan more competitive with rival plans such as RBC Avion, helped to boost rewards by 8.6 per cent and air rewards by 13.3 per cent since the Distinction program was launched in January.

Aeroplan's new Market Fare Flight rewards category, which charges a premium for access to any economy seat, is 20 to 35 per cent cheaper than the old ClassicPlus flights. For example, a trip such as Montreal to Los Angeles that used to cost up to 60,000 miles now costs between 32,000 and 38,000 miles.

At the same time, it increased the number of miles required for business and first-class flights between North America and Asia, the Middle East and the South Pacific by at least 20 per cent. However, one-way trips now require just half the number of miles of a round-trip flight, compared with 67 per cent before January.

Meanwhile, although 2013 was a year of uncertainty over its Canadian banking partner, Duchesne says 2014 will be one of stability.

"This year is all about communicating the value of the new program and really consolidating those new cardholders that TD has signed up so quickly."

On Tuesday, Montreal-based Aimia (TSX:AIM) said it was increasing its dividend almost six per cent to 18 cents per share despite swinging to a loss in the first quarter on revenue that was relatively flat year over year.

The company, which also operates or has stakes in other loyalty programs around the world, reported after markets closed that it had a net loss of $16.3 million or 13 cents per share in the quarter.

Total revenue for the three months ended March 31 slumped slightly to $608.9 million from $609.5 million in the same 2013 period.

Adjusted net earnings were 48 cents, up from 27 cents a year ago and well above analyst expectations of 34 cents, according to a survey by Thomson Reuters.

Adam Shine of National Bank Financial raised his target price for Aimia by $1 to $19.

"While it's still early days with respect to management getting a good understanding of how members are engaging with the refreshed Aeroplan program, enrolment at TD is off to a stronger start than expected," he wrote in a report.

On the Toronto Stock Exchange, Aimia's shares closed at $19.13, up 3.8 per cent or 70 cents in Wednesday trading.

Follow @RossMarowits on Twitter.

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