Aeroplan boss Duchesne is all about unhappy customers

Quite frankly-- it makes more money. Groupe Aeroplan CEO Rupert Duchesne commented Saturday in the Report on Business about the difference in profitability of a happy consumer versus an unhappy. If you're frustrated on the phone calling Aeroplan to redeem a flight, and you give up, they make more money.

With the 800,000 or so Aeroplan miles that Rupert Duchesne has on reserve - "Hoarding has sort of squirrel connotations," he notes - he could place an order via Aeroplan's online catalogue for a Vespa LX50 along with a Jura Impressa F50 Automatic 18 Bar Power Pump Coffee Centre. (It makes coffee).

This, however, would go against type. "I tend to stockpile them and wait until I can do something big and significant and have a really great, memorable experience," says the chief executive officer of the company now known as Groupe Aeroplan Inc.

Mr. Duchesne is laying down his thoughts on the human emotions that backstop loyalty, or rewards, programs such as Aeroplan. On the one hand, it can sound like Psych 101. On the other, it is the foundation upon which he has built a corporate skill set that he is now plying worldwide, hoping to transform Aeroplan into the global leader in loyalty marketing and loyalty management. More...

Fundamental to making Aeroplan a profitable proposition is what is known in the industry as "breakage," or unredeemed air miles. On average, the company receives approximately 1.20 cents for every mile sold by participants throughout the Aeroplan coalition, which includes Esso, Home Hardware and, of course, Air Canada, calculated largely on a volume-based model. Aeroplan's redemption cost - the amount it has to pay for that Vespa LX50 - averages 0.98 cents per mile sold, for an average gross margin of 0.22 cents per mile.

When a mile is broken - and 17 per cent of Aeroplan miles are never redeemed - Aeroplan earns a 100-per-cent margin. In loyalty economics terms, breakage is good, and 17 per cent is in line with the industry average. If the company were to improve the level of customer satisfaction, Mr. Duchesne says, "we destroy the economics, because people don't hoard and the miles don't break." Asked to clarify the degree to which members may be more frustrated in their attempts to redeem Aeroplan miles for flights than for products, Mr. Duchesne offers this: "If your conclusion is all the dissatisfaction on that [80/20] metric is related to air redemption, the answer would be absolutely yes." Refreshingly, he makes no effort to 'spin' this side of the Aeroplan story. "We have no objective at this point to improve that raw metric of customer satisfaction," he says frankly.