Awesome. Good morning, everybody. Welcome to day two of TD Cowen's 10th Annual Future of the Consumer Conference. We're delighted to be joined today by Scott O'Leary, Vice President, Loyalty and Product for Air Canada, and Ivan Zarate, Principal Investor Relations, Air Canada. Scott, before we dive into loyalty and Aeroplan, would you mind walking the audience through your background in aviation? For sure. Hey, good morning. Thanks for being here. I have just over 30 years of experience in the aviation sector. Spent just over 20 years, actually, here in the U.S. with Continental Airlines and United Airlines before coming to Air Canada in 2017, where I was brought in to help redesign and repatriate the Aeroplan program back to Air Canada. My current responsibilities include both loyalty and product. When you think about it's our collective experience in, call it, the customer, or generating Capital L Loyalty at Air Canada. That's great. We have a lot of generalists in the audience today, and I think on the line at home. It would be helpful to set the stage with just background on the history of Aeroplan, why investors should view it as a crown jewel, and Air Canada's broader loyalty strategy. For sure. Aeroplan is not a new loyalty program. It's over 42 years old. In the late 2000s, the program was spun off and was brought back to Air Canada in 2019. Really with bringing the program back in-house, we have completely reimagined the program. We spent over CAD 250 million in completely regearing the program, creating a digital-first member experience. We completely regeared the value proposition of the program, bringing in everyday partnerships, removing a lot of the friction that tends to exist in customer loyalty programs. We completely regeared our co-brand credit card value proposition, as well as our elite membership value proposition. Lastly, we did a complete rethink on the role of redemptions and being able to use your points and the rewards actually associated with the program. Could you maybe just go through some of the positives, whether economics, customer experience, data control, just in terms of bringing it back in-house versus when it was spun out? Oh, for sure. When it was spun out, really in its bare essence, Air Canada lost control of its direct relationship with the customer and understanding the behaviors of its customer, and that was the fundamental flaw of that structure. Think about it from a member perspective. Our members felt like they were doing business with two different companies. Because while Aeroplan remained the principal loyalty program for Air Canada, our goals were not necessarily aligned. What Air Canada found itself with was all the costs of a loyalty program, but none of the benefits of a consumer loyalty program. It didn't matter which area or which way you looked at it, there was a lot of member friction having to do business across multiple channels and feel like you were doing business with multiple companies. Certainly from an economic perspective, we had lost, call it, the main structural efficiencies and, dare I say, advantages as well of having a loyalty program in-house. How do you think about just the way the loyalty program can enhance your relationship with your customers throughout their daily life, and why engagement beyond just day of travel is so important? That was a key learning for us. We knew that for Aeroplan to be successful and to be hardworking for Air Canada, that it had to have appeal that extended just beyond those that were frequent travelers. We knew to be successful that we had to have broad appeal in the Canadian marketplace and beyond. Really with that, our belief was that Aeroplan, not an everyday brand, needed to turn into an everyday brand and have everyday appeal, everyday utility in the market. In doing so, we would essentially create a flywheel of engagement because we have the benefit of having one in four Canadians flying on Air Canada in a given year. They might not fly with us often, but they definitely fly with us. The question is, how do we generate engagement opportunities for them outside of when they're traveling with us? We found that structuring that the right way, it created a flywheel effect. There was a way to earn points and even use your points in an everyday context, which in and of itself would beget further engagement in the program, further attached to Air Canada, which would generate more interest and more curiosity to engage more in the program. Positive benefits such as attached to our co-brand credit card, more redemption behaviors, which would always beget more activity back with us. The program has over 10 million members, I believe, but I think around 1 million + is outside of Canada in the U.S., and I think also a decent membership base in Australia. Can you talk about your strategy there, and how that maybe ties into the Sixth Freedom strategy? For sure. Hey, the primary opportunity for Aeroplan still sits in Canada. We're not done growing there. I know that's not your direct question. Yeah. I would definitely preface my answer with our primary investments and growth aspirations still set in the Canadian market. That said, we are a very well-reputed program across all of North America, including here in the U.S. We view the U.S. as a second home market for Air Canada. When you consider the transborder franchise that we have, the transborder traffic corridor between the U.S. and Canada is the largest international transfer of passengers in the world. From a market standpoint, we also have the privilege of being one of the, actually the largest international airlines serving the U.S. With that fun fact, we fly to just about as many cities here in the U.S. as we do in Canada, and this is really a function of not only the demand for transborder travel, but also the efficient connections that we're able to create over our geographically convenient hubs in Toronto, Montreal, and Vancouver. With that, there was a real impetus for us to invest in the loyalty instrument, to create more opportunities to earn points, redeem points, and be relevant in the U.S. market. I would say by and large, after the U.S., there's a long tail of much smaller opportunities where we want to show up and be present for our loyal customers. It's on a much lighter investment profile. You'll tend to see us in the markets outside of Canada and the U.S. participating in other banks' transfer currencies and whatnot, but you're not going to see us really try to build up the Aeroplan franchise in those markets. At Investor Day back in December of 2024, you outlined four focus areas for Aeroplan: optimizing the program for revenue incrementality, building a next-gen suite of partnerships, growing redemption options, and monetizing adjacencies. Let's walk through each of those focus areas, starting with incrementality. How does your strategy with Aeroplan incentivize customer behavior and drive revenue for the company that otherwise wouldn't have happened? As I mentioned at the beginning, one of the major changes that we made in the program is actually just effective earlier this year, is a complete rethink of our elite program. Our elite program and also the way our members earn points in the program, better aligning those rewards, benefits, and status levels to the revenue that our customers are bringing into Air Canada. By more closely aligning those, we now have an aligned incentive that enables us to reward our best customers in very meaningful ways that drive real competitive insulation for us. At the same time, ensuring that the benefits that we offer are sustainable, and that our elite tiers, at each tier of the program, are at sustainable levels to where you don't have to water down the benefits. This set of customers, whether they are elite customers or credit card, co-brand credit card holders, this has really generated for us, not only revenue premiums, but also competitive insulation in a very meaningful way. Yeah. Yeah. No, that's exciting. What about partnerships and redemption options? You have a large suite of air, non-air, and retail partners. I think folks are pretty familiar with the air partnerships. Can you just discuss how you design the non-air and retail side, and how you enable frictionless redemptions in those categories? Oh, for sure. Redemption is a key element of our value proposition, there's a lot of work that we're doing there. Specifically to your question about non-air opportunities, we did about a year and a half worth of research ahead of the relaunch of Aeroplan. I remember very well, in our one-to-one interviews with customers and Canadian consumers, we had one very frequent traveler tell us, "If I'm going to win a pie eating contest, the last thing I want is more pie." Sometimes, I find myself enjoying my rewards to be able to take trips with my family and loved ones, or to travel whenever I need to for personal reasons. I only have so many of those occasions in a year, and sometimes I just want to be able to buy a home computer, like an Apple computer. I want to be able to use my points for hotels or for rental cars. What we did is we worked very hard to build out a complete lineup of redemption options for our customers. Always have a reasonable answer for those redemption needs. How do you think about growth areas for redemption opportunities, whether by category or just ways to increase consumer engagement in that area? Absolutely. One of the challenges that we had in the Aeroplan program was actually getting our members to use their points. They were earning a lot of points, and then they were holding onto them for years and years. Really what we wanted to do is to create more of these micro-redemption moments, because we knew that the more often that our members can see value for their points and redeem their points, the more they would actually come back and engage with the program. We sought to, especially in our retail relationships, to create more of those moments. Whether you're fueling up your car, you can redeem as few as 300 points to receive CAD 0.05 off per liter. You can redeem Aeroplan points and convert them into Starbucks Stars. You can even redeem your Aeroplan points right at the till at the LCBO or essentially the Ontario liquor stores. Creating those micro-redemption moments, we have found not only does that come in at a very sustainable margin for Aeroplan, it's driving very positive engagement. We tend to see 15%-20% more engagement out of our members on the other end of a redemption. As you speak to that flywheel effect, those micro-redemption moments are quite important. Whether those redemption moments exist in our channels when you come to us, or better yet, in our partners' channels, we're looking to create more and more of those opportunities in our everyday partnerships. Do you see that type of engagement across all different levels of status within Aeroplan, or is it something where the core users are very familiar with it, and you're hoping to maybe raise more awareness in different tiers? It is an even split. Yeah between the two. When you're checking out, for example, I'll use the LCBO example, and you can use 1,000 points to take CAD 10 off of your order. 1,000 points against a balance that you might have of 40, 50, or 500,000 points seems inconsequential. It truly feels free. For our members that have large balances, it's a no-brainer. You have members that have small to medium-sized balances that, again, 1,000 points feels very reasonable, and here I am able to use these points that I wasn't sure how I was going to use. It is an even split between very infrequent and frequent travelers. Where do you see in terms of percentage of customers who are redeeming for air versus non-air today, and then how do you think about that growing over the longer term? Air redemptions are going to continue to be, and will continue to represent the lion's share. One of the great things about a program like Aeroplan is we are, as the travel provider ourself, but also with the partnerships that we've established with over 50 airlines around the world, we've created a leading award-winning redemption network that enables our members to enjoy outsized value for their points that are redeemed. Behind the scenes for us, those come in at very sustainable costs. Those will always represent, call it the lion's share of the 70+% of our redemptions. The non-air redemptions, we're looking to grow those in two major ways. Number one, it was those retail redemptions. Whether it's using your points for merchandise or for savings with one of our partners, or if you're using it for travel outside of air to help your travel budget go further. Those areas of our redemption value proposition have effectively doubled since the relaunch of the program. It collectively now represent over 25% of all of our redemptions. Yeah. I will mention on the air side, there's also innovation happening there. We continue to add more airline partners to our roster. More impactfully, we're going to be adding more redemption inventory from the partners with whom we have redemption agreements. In the current context, a lot of our partners only provide us redemption inventory when it's seen as truly surplus. We don't have access to seats beyond that surplus inventory. That dynamic is fundamentally changing, starting with some of our largest partners. That's an area to watch in the years ahead. Oh, that'll be great. Yeah. That's really exciting. I look forward to seeing more on that. There was a really fascinating slide at Investor Day teasing Aeroplan's natural adjacencies and maybe a potential to unlock new revenue streams. I think media was specifically teased. We wrote a deep dive last year on the opportunity for media for airlines, which we think is really compelling. Maybe could you walk investors through how to think about those opportunities and the way technology can play a role there? That's right. It was true then, it remains true today. When you consider the properties of Air Canada, especially on board the aircraft, you're combining a very valuable audience of customers in a very captive context. There's a very natural opportunity. I'd say the progress that's been made since that Investor Day presentation is, there's what I would say the broad strokes of media investments and media prospects has increased significantly. Air Canada, the way I would characterize it, knows its value and is commanding the right value for those assets. The next step function of that is to really start to use the tremendous data asset that Air Canada has to really put that to work for greater personalization from one seat to the next, from one customer to the next. Now, with that, there's hardware changes and software changes that need to occur, but you're going to see us begin to go down that journey here in the years ahead. It remains a very attractive prospect for us. Do you view low Earth orbiting satellite technology as a key enabler of that, or can it happen independent of those options? It can happen independent of it, for sure. The Wi-Fi connectivity to the aircraft certainly helps. Yeah be more dynamic in that regard. Yeah. It seems like there'd be a lot of white space just in the media opportunity for you guys, just given the amount of different products and again, to your point, the high fidelity data that you have. That's right. on customers. Maybe talk about how Aeroplan can underpin and dovetail some of your other key initiatives around premium growth and network optimization. For sure. When you think about it, Aeroplan really creates it. We have over 10 million members in the program, and those 10 million members, think about them as very highly qualified leads for Air Canada. These members can be very easily activated for route support, they can be activated for ancillary attach, they can be activated to drive behaviors, and they respond very well to our calls to action. They also tend to skew premium themselves as an audience. What we're finding is they already have an inclination to be attracted to our premium strategy, our premium growth strategy. It's the Aeroplan program that really helps lock them in terms of that competitive insulation. What we tend to see from this audience is significant revenue premiums, higher revenue activity, and with that, almost no inclination to shop with anyone outside of Air Canada, again, the deeper that you go in that relationship cycle. No, that's great, just building that brand loyalty. How does the program and the data that it throws off inform your investments in the product, both in terms of the cabin on board and then on the ground, like your lounge networks and things of that nature? Oh, for sure. In order to be as successful or to have a successful premium product and to be a successful premium carrier, you have to show up in terms of your premium product. The loyalty instrument will only go so far. It really is that one-two punch of ensuring that we remain on the top end of competitive in our premium investments, both on board and in our lounges, and ensuring that the loyalty instrument is compatible with that to ensure that you wouldn't want to shop anywhere else, that the incentives to continue being loyal to Air Canada are built in. I'll highlight the lounge network, because this is true not only for our elite members, it's also true for our co-brand credit card holders. We're continuing to see consistent growth in demand for our lounges. We're amidst a super cycle of investment. We literally can't expand and build lounges fast enough. It's an area where, again, as you consider the overall premium experience, again, you want to make sure that as a premium customer, when you show up on an Air Canada property, that there's a premium product for you to enjoy. We want to stay ahead of the curve on that investment, for sure. Absolutely. We've talked about this in a couple different ways, but maybe just other potential benefits for personalization created by the program and some of the data it throws off. I'm sorry... just some of the benefits that personalization can drive for the company, how investors should think about that. Oh, my goodness. Again, the program itself structurally advantages our customer and structurally incentivizes them to engage more and more with our brand and our partners. The personalization, we almost have an embarrassment of riches in terms of value proposition elements that are going to be attractive to our customer. We can't be all things to all people. This is really where personalization has a role to play. We're quite privileged in that our program, when you look across our 10 million members, just about 70% of them are contactable. That's about double the rate of contactability of a typical loyalty program in the Canadian marketplace. Wow. We actually hold that as a real mark of pride insofar as our customers believe that our communications to them are quite relevant, they're driving the right behaviors, and that can only be done through personalization, coming up with the right opportunity to the right customer at the right time. We're quite privileged. We sit on top of a very healthy data asset. Not only understanding our customers' travels, but we also understand their purchase behaviors on their co-brand credit card. With that, we can create very focused insights on those customers. For the customers for whom we don't have that data, we can do lookalikes. So our ability to really put our data asset and our personalization to work is ultimately what ensures that our members stay engaged with us, and that they ultimately drive that incrementality that we're looking for. We've gone through a lot of really exciting things in the flywheel and how that's been developing. How have some of the initiatives been performing since Investor Day? It's about 18 months, give or take. Very well. I'll start with the new elite program. That was the single largest change that we made to the program outside of the relaunch of the program itself in 2020. It doesn't matter what KPI you look at, we're seeing performance beyond the targets that we had set for ourselves. We are going to have more elite members in the program at every tier, but in a very sustainable way. We are seeing revenue and yield improvement across all of the segments, including the segments of customers for whom we're not going to be better off with the changes that we made. We couldn't be more pleased. More broadly, as you consider the KPIs that we set for the program, I'll highlight three different dimensions. You look at member growth, you look at gross billings, and you look at EBITDA growth. Across all of those, we achieved our 10-year business plan targets at the end of year four of the relaunch of the program. We couldn't be happier. In terms of the targets that we set for ourselves for the next five years, we're well on the way to achieving those targets. Just to pick on each of those, over 10 million active members in the program. That's almost a tripling of the size of the program when we took it over in 2019. Wow. Number two, gross billings. Gross billings, that for us, it's the number one indicator of member engagement because it's how they're spending on their credit card. It's how they're engaging with our everyday partners. It's basically all of the purchase points in the program. Those targets are exceeding expectations as well. They've actually nearly doubled since the program relaunched. We're ahead of the targets that we even set for ourselves at Investor Day that year. From an EBITDA perspective, the EBITDA growth, again, corresponds to the gross billings growth, also super healthy and beyond expectations. Should we think about in terms of the credit card, I guess, how penetrated are you within Aeroplan members? Where do you see room for growth there? There continues to be room for growth. We kind of talked about 10 million members, a little more than 1 million of them sitting outside of Canada, which gets us to about 9 million active members in the Canadian market. It's worth defining. Active members is our members that show some sort of earning or redemption activity within 18 months. A lot of programs quote databases of 100+ million members. The true measure for us anyway, and what we believe is the right way to measure it, is your members who are actually engaging in the program. I'm sorry, I kind of lost my train of thought there. Just thinking about of Aeroplan members, how deeply penetrated- Opportunities is the credit card, and for growth there? We have about 9 million. Yeah. We are- That have the credit card as well? No. Okay. We're very heavily penetrated. Actually, our penetration for our co-brand credit card exceeds the penetration levels of any of the North American airlines in terms of credit card penetration. Wow. As not to quote a number. Again, as you consider that flywheel effect, we are finding that the average Canadian member is seeing value. It's not just those that are flying frequently with us. There's value even if you find yourself traveling once or twice a year. The value of having no checked bag fees. Yeah is of value to you. If you find yourself flying moderately frequently, the value of our premium credit card, which essentially unlocks elite level benefits for our members, all the way to inclusive of privileged access at the airport, and lounge access. It's a way to ensure that you have a premium experience every time you travel. That's our number one fastest-growing segment of our co-brand portfolio. As we consider our metrics on the co-brand portfolio, we're interested in certainly the number of cardholders. We're more interested in their engagement or the overall purchase volume on the credit cards, which continues to grow at a pace beyond our expectations. Within that, we're very focused on the growth of the premium purchase volume. I'm sorry, purchase volume on the credit cards. Yeah. That really is a sign of deeper engagement. As you grow up the tier, both in terms of purchase volume and premium purchase volume, that increases Air Canada's competitive insulation and revenue premiums from those customers because those customers tend to have a higher yield premium with us. There's a decent chunk of the U.S. membership that also has the credit card as well. Is that correct? That is correct. Are those folks typically maybe corporate road warriors in the transborder market? Are they folks who are connecting onwards in your Sixth Freedom franchise? Is it a mix of both? I'd put it in rank order. Number one, you have close to 1 million Canadians that have homes in the U.S. You've got even more than that have Canadian ties. Either they're working for companies that are Canadian based, or they're Canadian themselves and have since moved to the U.S. but have some form of Canadian ties. Let's call it number one. Number two, Aeroplan does win awards. We're recognized for having the best redemption ability of any program in North America. For those that actually see the value of Aeroplan points, we have a very loyal following in the U.S., and I would consider that to be the second largest population. Said another way, we have a lot of members in our program that fly Air Canada occasionally, but even more so see the value of just earning the points and taking advantage of the redemption network. That's very attractive and very relevant. Yeah in the U.S. market. Then the third is that Sixth Freedom. Those that just find themself traveling transborder or using our geographically convenient hubs to fly between the U.S. and Europe, the U.S. and Asia, U.S. even and South America. We are seeing growth in that area as well. Those are the three populations in rank order. That's really exciting. How should investors think about the benefit that Aeroplan and the credit card provide overall, in terms of whether revenue resilience, margin quality, cash flow visibility, tying more of the business to overall consumer spending versus just discretionary travel, all the above? How should we think about that? It really is all the above. Obviously, the margins that the program enjoys are accretive to our bottom line. From a cash flow perspective, we have the benefit of receiving cash and being able to sit on that cash for 18- 24 months before it gets used. When it does get used, those funds tend to come back to Air Canada. Yeah. For all those reasons, it's all tremendous focus for us. That's really exciting. It's definitely crown jewel parts of the business. We've covered a lot today. Would you guys like to make any closing remarks or things you'd like to really re-emphasize for investors? Really just, it's a couple things. First of all, we've come a long way in the way that we regeared the program. We're so excited to see it taking hold. It's a value proposition that is resonating with our members and more broadly with Canadian consumers and North American consumers in particular. That's for us to protect and that's for us to continue investing in because you're only as good as your last interaction, as your last redemption. We're onto something there, and we're going to continue to invest in that. Number two, not to be underestimated, Aeroplan is our number one competitive insulation for Air Canada. It is what's driving revenue premiums, it is not the only thing that's driving revenue premiums, but it's leading the charge in terms of driving revenue premiums for Air Canada and creating a competitive insulation for Air Canada in the market. I think the team has called it the second most valuable currency in Canada after the loonie. Do you still feel that way? We like to think so. It's really exciting. All right, well, I think that was a really great conversation. I think investors learned a lot about the program and some of the advantages Air Canada has. Scott, Ivan, thank you so much for being here today. Thanks so much, Tom. Thanks everyone. Thanks, guys.