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Why is Air Canada so Cheap?

Learn how the airline makes money while flights are grounded.

Andrew Willis 11 February, 2022 | 4:58AM
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Andrew Willis: Do you ever wonder where Aeroplan points get made? Perhaps you picked them up at the grocery store, gas station, or with a new credit card. But that’s not where they came from. In exchange for your loyalty as a consumer, you’ve been contributing to a significant source of income for Air Canada (AC).

The business of frequent flier programs can be simplified to airlines selling miles to banks, and credit card companies – before they give them to you. Equity analyst Burkett Huey explains that the margins on this marketing revenue, or the difference between the selling price of a mile and its redeemable value, is ninety-percent.

Talk about a capital-light business. And while it’s supplementing capital-heavy operations that continue to struggle with the pandemic, it’s likely to continue growing in the good times too.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Air Canada Class B17.98 CAD6.77Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar.ca. Follow him on Twitter @AndrewWillisCDN.

 

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