Aeroplan Q3 profit cut nearly in half, revenue slips

By Ross Marowits, The Canadian Press

MONTREAL - Groupe Aeroplan Inc. (TSX: AER.TO) says its profit was cut nearly in half to $18.8 million in the third quarter due largely to higher taxes and the negative effects of the recession.

Aeroplan's net income amounted to nine cents per share, down from 18 cents a share in the third quarter of 2008 when it earned $35 million.

The Montreal-based company, which runs customer loyalty programs for Air Canada, Imperial Oil and other businesses, attributed the lower profit to a higher effective tax rate.

Aeroplan's third-quarter revenue slipped by a less dramatic 3.7 per cent, falling to $322.6 million from $335.0 million.

The overall results were in line with expectations, although revenues were less than analysts had forecast.

Excluding a foreign exchange loss of $5 million, adjusted earnings were 25 cents, two cents higher than the analyst consensus.

Gross billings decreased 5.5 per cent to $335.9 million. In Canada, proceeds from the sale of airline miles decreased 6.2 per cent, to $245 million, from $261.1 million a year earlier.

In Europe and the Middle East, gross billings fell 3.9 per cent to $90.9 million. Excluding currency adjustments, sales increased five per cent.

Chief executive Rupert Duchesne said the core results were in line with the general drop in the macro economy.

"Our third-quarter results demonstrate the resiliency of our business model," he said during a conference call.

Air Canada's gross billings increased 6.3 per cent in the quarter, partially attributable to special promotions celebrating Aeroplan's 25th anniversary.

But credit card spending continued to be negatively affected by the recession.

"Our financial card partners continue to be negatively impacted by the economy and its effect on spending for active cards which to date has not noticeably recovered," Duchesne told analysts.

Spending on CIBC Aeroplan cards, which account for 38 per cent of Aeroplan's overall billings, decreased 12.5 per cent to $127.6 million. Part of that decrease is attributable to bonus miles awarded last year.

American Express billings decreased 5.5 per cent.

Aeroplan expects gross billings will be down four per cent in 2009, signifying that fourth-quarter will mark a pickup.

Martin Landry of Desjardins Securities said he expects a turnaround for Aeroplan in the coming months.

"We view these results as positive and believe that this is the last quarter of negative earnings growth at Groupe Aeroplan," Landry wrote in a report.

"We like Groupe Aeroplan's business model, which we believe is difficult to replicate."

On the Toronto Stock Exchange, Aeroplan's shares increased 35 cents, or 3.57 per cent, at $10.15 in morning trading.