Reports from Canada say that shares in Air Canada’s frequent flyer program, Aeroplan Income Fund, are trading too high for comfort ahead of its second quarter results Thursday, according to Versant Partners analyst Neil Linsdell, with speculation that Aeroplan may invest in Qantas Airways’ frequent flyer program supporting its current “lofty valuation,” Mr. Linsdell said in a research note.
Qantas chief executive Geoff Dixon confirmed last week that the Australian airline plans to undergo a similar restructuring to Air Canada three years ago, which will see its various parts, including its mainline carrier, its low-cost carrier Jetstar, its freight operations and its frequent flyer program spun off into subsidiaries of the larger company.
The speculation is that Aeroplan would invest in the airline’s frequent flyer program, a rumour that was brought closer to reality last week when ACE Aviation Holdings Inc. Robert Milton confirmed in an interview with the Financial Post that he had hosted “two of the biggest airlines in the world” at ACE’s Montreal office to discuss Aeroplan investing in their frequent flyer programs.
Mr. Milton said a potential deal with the airlines, which he did not name, could involve either investing in the spin off, taking it over altogether, or offering management services for a fee. However, the mounting speculation is not enough for Mr. Linsdell, who placed a “sell” rating on Aeroplan shares.
“Units are currently trading at such high levels on the assumption of a major transaction this year,” he said. “Without any insight on the details or realistic timing of such a transaction, we must recommend investor sell the units.”
Report by The Mole
