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.

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Jarislowsky jabs at BCE

Diane Francis of the Financial Post sits down with one of Canada's top money men to discuss the latest opinions of BCE. With Michael Sabia out, and George Cope in, as well as the supreme court's ruling on the legality of the BCE Board of Directors actions regarding bond-holder rights, Stephen Jarislowsky speaks his mind.

Q: BCE?
A: “It’s outrageous that the board of directors took $1 billion from BCE’s bondholders. It’s also just plain stupid that the Supreme Court of Canada, in a 7 to 0 opinion, briefly heard the case and overturned the Quebec Appeal Court’s unanimous 5 to 0 opinion upholding the rights of bondholders.”

Q: The Supreme Court’s overturning of the Quebec Appeal Court’s unanimous decision in any other issue would have sparked a constitutional crisis? What was this all about?
A: “The whole field of investor law is a joke in Canada. What was allowed to happen to BCE bondholders is unbelievable. The dividends were cut for BCE shareholders to reduce the price paid. The board did not look after the bondholders as well as the shareholders. The Quebec Appeal Court’s decision was the correct one.”

Q: Wasn’t this lack of protection for bondholders in the fine print of the deal?
A: “In Canada, the board is responsible to the company and not the shareholders or bondholders. Thomson Reuters just sold bonds and had a clause which stated that bondholders were not protected or subordinate to shareholders. We would not buy bonds like that which mean that they can go from As to junk based on board decisions in the future.”

Q: How is it that BCE is now run by the buyers even though the deal hasn’t closed?
A: “It’s unacceptable.”

Q: Will BCE get the debt it needs to close the deal?
A: “I don’t know. The banks have been out of control and are now having difficulties.”

Q: What legal reforms should occur in Canada?
A: “Much work needs to be done and I am setting up a foundation with others to come up with legislative ideas. Take Conrad Black. He stole more money in Canada than he did in the U.S. and he wasn’t even pursued here. We do not have police or securities commissions who are on the ball. We do not have specialized courts who understand what to do. Suing in Canadian courts is not a remedy because it takes ten years to get anywhere and why should shareholders have to suffer when a board has done something wrong?”
“Arbitration, not lawsuits, is the best way to handle disagreements and problems.”

Q: Why has BCE been so badly managed for so long?
A: “All the company did for decades was go to Ottawa and ask for higher rates of return. They blew money on bad investments and never fixed their customer relations problem. This is a company that has been disliked as much as Air Canada with its hated, high-handed employee behaviour toward customers. That still hasn’t been fixed. I used to have lunch with Michael [Sabia, former CEO]. I like him but he never fixed it.”

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Rupert Duchesne

President & Chief Executive Officer, Aeroplan

Rupert's role is to provide his team with the vision for the company's growth; to hire talented, innovative and creative executives; to challenge everyone to do their best; and, to hold the team accountable to deliver on every stake holder's expectations as we evolve and expand Canada's premier loyalty company.

Rupert joined Air Canada in 1996 as Vice President, Marketing, and in 1999 was promoted to Senior Vice President, International. During that year, he served on the Executive team which defeated the Onex take-over bid, and was appointed Chief Integration Executive, overseeing the integration of Canadian Airlines with Air Canada. He was appointed President and Chief Executive Officer of Aeroplan in August 2000.

Rupert holds an MBA from the University of Manchester and a Bachelor Honors degree in Pharmacology from the University of Leeds, both in England.

He is a member of the Board of Trustees of the Art Gallery of Ontario where he was recently elected Vice President of the Board, is a member of the Executive Committee, and chairs the Public Affairs Committee. He is also a member of the Boards of the NeuroScience Canada Partnership and NeuroScience Canada Foundation.

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