Money world

A potential solution to Air Canada’s cash woes could lie in its former frequent flier program Aeroplan.

Rupert Duchesne, the loyalty program’s chief executive, said yesterday he isn’t ruling out the possibility of a deal with Air Canada that could see it buy additional reward seats in order to help inject some liquidity into the airline.

"We’re a significant partner of theirs and, if asked, I’m sure that we would look at any and all options," Duchesne told analysts during a conference call to discuss an 8.4 per cent increase in Aeroplan’s third-quarter earnings.

The loyalty program also announced that it would "simplify" its fee structure by raising the cost of rebooking reward flights by 64 per cent to $90 from $55 previously and lowering the fee charged for cancelled flights by 33 per cent to $90 from $135.

Unlike Air Canada, Aeroplan is comparatively flush with cash. It currently has about $627 million worth of cash and short-term investments, including $400 million that’s held in reserve to fund redemptions of members’ Aeroplan Miles.

As it heads into a seasonally weak period, analysts have been concerned the country’s largest airline could run low on money if Canadians curtail their flying in the face of an economic slump. As well, the airline is facing increased pension costs because of the market downturn and payments related to fuel hedges that are "out-of-the-money" because of the recent slide in oil prices credit score.

While the airline might normally be expected to borrow money to get it through a tough period, the credit crunch has effectively frozen traditional sources of lending and left executives scrambling for alternatives.

Air Canada has already inked an agreement with its former maintenance arm, part of which was sold off by parent ACE Aviation Holdings Inc., and executives are talking about selling and leasing back aircraft.

Duchesne described the loyalty program’s business as recession-resistant because its partner companies tend to use points as incentives to boost sales during slower periods while consumers become increasingly focused on bargain hunting.

Aeroplan said third-quarter income rose to $34.9 million, or 18 cents a share, from $32 million, or 16 cents, in the year-earlier period. Total revenue, meanwhile, rose to $334.9 million compared to $219.2 million a year-earlier, while the costs associated with redemptions increased 50 per cent to $191 million.

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