Harvard Case - Air Canada: What to Do with Aeroplan?
"Air Canada: What to Do with Aeroplan?" Harvard business case study is written by Andrew Papadopoulos, Louis Hebert. It deals with the challenges in the field of General Management. The case study is 30 page(s) long and it was first published on : May 8, 2015
At Fern Fort University, we recommend Air Canada retains ownership of Aeroplan, but transforms it into a multifaceted loyalty program that leverages its existing strengths while embracing innovation and digital transformation. This strategy will involve a combination of:
- Redefining the program's value proposition: Shifting focus from solely reward points to a comprehensive ecosystem offering personalized experiences, exclusive benefits, and seamless integration with Air Canada's services.
- Embracing technology: Implementing a robust digital platform with advanced analytics, AI-powered personalization, and seamless integration with third-party services.
- Expanding partnerships: Strategically partnering with complementary businesses across various industries to offer a wider range of rewards and benefits.
- Strengthening customer engagement: Prioritizing customer experience and building a strong community through personalized communication, interactive features, and loyalty-building initiatives.
2. Background
This case study focuses on Air Canada's strategic dilemma regarding Aeroplan, its loyalty program. The program, once a major differentiator, faced challenges like declining customer satisfaction, increased competition, and evolving customer expectations. The case explores various options, including selling Aeroplan, retaining it, or pursuing a hybrid approach.
The main protagonists are:
- Air Canada: The airline seeking to maximize the value of Aeroplan while navigating a competitive landscape.
- Aeroplan: The loyalty program facing challenges in maintaining its relevance and profitability.
- Customers: The key stakeholders whose satisfaction and loyalty are crucial for the program's success.
3. Analysis of the Case Study
Strategic Framework:
The analysis utilizes a combination of frameworks to assess the situation:
- SWOT Analysis: Identifies Aeroplan's strengths (strong brand recognition, large member base), weaknesses (limited redemption options, declining customer satisfaction), opportunities (digital transformation, expanded partnerships), and threats (competition from other loyalty programs, evolving customer expectations).
- Porter's Five Forces: Analyzes the competitive landscape, highlighting the competitive rivalry, threat of new entrants, bargaining power of buyers and suppliers, and threat of substitutes.
- Value Chain Analysis: Examines the key activities within Aeroplan, identifying potential areas for improvement and cost optimization.
Key Findings:
- Declining Customer Satisfaction: Aeroplan's value proposition has become less compelling due to limited redemption options, complex reward structures, and a lack of personalization.
- Intense Competition: The loyalty program landscape is increasingly competitive, with airlines and other businesses offering innovative and customer-centric programs.
- Evolving Customer Expectations: Customers demand personalized experiences, seamless digital integration, and a wider range of rewards beyond travel.
Financial Analysis:
- Revenue Streams: Aeroplan generates revenue through membership fees, co-branded credit cards, and redemption fees.
- Cost Structure: The program incurs significant costs related to reward redemption, marketing, and technology.
- Profitability: Aeroplan's profitability has been declining due to increased competition and rising redemption costs.
4. Recommendations
1. Redefine the Value Proposition:
- Shift from points-based to experience-driven: Offer a wider range of rewards beyond travel, including merchandise, experiences, and exclusive benefits.
- Personalize the experience: Leverage data analytics and AI to provide tailored recommendations, offers, and content to individual members.
- Simplify the program: Streamline the redemption process, improve communication, and create a user-friendly digital platform.
2. Embrace Technology:
- Develop a robust digital platform: Integrate Aeroplan with Air Canada's mobile app, website, and other digital channels.
- Utilize AI and machine learning: Personalize recommendations, predict customer needs, and optimize program performance.
- Enable seamless integration: Allow members to seamlessly redeem points for products and services from third-party partners.
3. Expand Partnerships:
- Strategic alliances: Partner with complementary businesses across various industries, such as hotels, restaurants, entertainment, and retail.
- Co-branded products and services: Offer exclusive products and services to Aeroplan members, driving increased revenue and engagement.
- Cross-promotional opportunities: Leverage partnerships to reach new audiences and create cross-selling opportunities.
4. Strengthen Customer Engagement:
- Personalized communication: Utilize targeted email marketing, push notifications, and in-app messaging to engage members.
- Interactive features: Offer gamification, challenges, and social media integration to foster a sense of community.
- Loyalty-building initiatives: Implement tiered loyalty programs, exclusive events, and personalized rewards to incentivize engagement.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: Retaining Aeroplan aligns with Air Canada's mission of providing exceptional customer experiences and building loyalty.
- External customers and internal clients: The recommendations prioritize customer satisfaction and engagement while streamlining operations for internal stakeholders.
- Competitors: The proposed strategy positions Aeroplan to compete effectively in the evolving loyalty program landscape by offering a more comprehensive and personalized experience.
- Attractiveness ' quantitative measures: The recommendations aim to increase revenue, reduce costs, and improve customer lifetime value, ultimately enhancing Aeroplan's profitability.
Assumptions:
- Air Canada is committed to investing in Aeroplan's transformation.
- Customers are receptive to a more personalized and experience-driven loyalty program.
- Technology advancements will continue to support the program's evolution.
6. Conclusion
Retaining Aeroplan and transforming it into a multifaceted loyalty program represents the most strategic path forward for Air Canada. By leveraging technology, expanding partnerships, and prioritizing customer engagement, Aeroplan can regain its competitive edge and become a valuable asset for the airline.
7. Discussion
Alternatives:
- Selling Aeroplan: This option would generate immediate cash flow but would relinquish control over a valuable asset and potentially harm Air Canada's brand image.
- Hybrid approach: This option could involve partnering with another loyalty program or selling a portion of Aeroplan. However, this approach could lead to complexity and potential conflicts of interest.
Risks:
- Implementation challenges: Transforming Aeroplan will require significant investment, organizational change, and technological expertise.
- Customer resistance: Some customers may resist changes to the program, particularly if they value the current reward structure.
- Competition: The loyalty program landscape is highly competitive, and Air Canada must continuously innovate to stay ahead.
Key Assumptions:
- The recommendations assume that Air Canada is committed to investing in Aeroplan's transformation.
- They also assume that customers are receptive to a more personalized and experience-driven loyalty program.
8. Next Steps
Timeline:
- Phase 1 (Year 1): Redefine the value proposition, develop the digital platform, and launch key partnerships.
- Phase 2 (Year 2): Expand partnerships, implement AI-powered personalization, and launch loyalty-building initiatives.
- Phase 3 (Year 3): Monitor performance, refine the program, and expand into new markets.
Key Milestones:
- Q1 2024: Launch the new digital platform and announce key partnerships.
- Q2 2024: Begin rolling out personalized recommendations and offers.
- Q3 2024: Launch loyalty-building initiatives and track customer engagement metrics.
By implementing these recommendations and staying agile in response to evolving customer needs and market dynamics, Air Canada can transform Aeroplan into a powerful engine for growth and customer loyalty.
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Case Description
Having just emerged from bankruptcy protection, Air Canada faces a corporate restructuring. Many of its assets, including its frequent flyer program, Aeroplan, offer ways to raise cash to stabilize its balance sheet and return capital to its shareholders. Frequent flyer programs have been core marketing tools for airlines since their launch in the early 1980's. Aeroplan represents an important asset for Air Canada as both a strategic and a financial resource that provides rewards through its lucrative frequent flyer program and allows it to reap the financial benefits of its relationship with the Canadian Imperial Bank of Commerce (CIBC) Aerogold credit card. On the other hand, as Aeroplan is diversifying away from the airline and travel industry into a broader loyalty program, its resource requirements, organizational needs, and desire to control its cash flow are not necessarily aligned with those of Air Canada. Air Canada must decide how it should divest Aeroplan and what kind of relationship it should have with Aeroplan after that divestment. What corporate and business relationship would best suit all parties concerned: Air Canada and its shareholders, on the one hand, and Aeroplan and its commercial partners on the other?
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