AEROPLAN CANADA INC.

AEROPLAN CANADA INC.

May 10, 2007 03:30 ET

Aeroplan reports 2007 first quarter results

    MONTREAL, May 10  - Aeroplan Income Fund (TSX: AER.UN) today
reported the first quarter results of Aeroplan Limited Partnership
("Aeroplan"), in which the Fund has a 100% ownership interest.First Quarter 2007 Financial Highlights

    - Gross billings $228.0 million, up 13.1% from the first quarter of 2006
    - Operating income $48.1 million, an increase of 23.3% over the first
      quarter of 2006
    - Adjusted EBITDA $60.0 million, compared to $54.4 million for the first
      quarter of 2006
    - Distributable cash $60.1 million, compared to $48.4 million for the
      first quarter of 2006

    "2007 picked up where 2006 ended for Aeroplan: with continued growth. On
the partnerships front, we announced our latest hotel partner, Barcelo; we
debuted our relationship with Home Hardware; and, just after the quarter
ended, we announced a new partnership with CruiseShipCenters," said Rupert
Duchesne, President and CEO, Aeroplan. "Aeroplan was recognized by our
industry peers with an award for innovation honouring the launch of
ClassicPlus Flight Rewards. Where it concerns sponsorships, we, along with the
Art Gallery of Ontario, launched The Grange Prize for contemporary
photography."

    Aeroplan Financial Performance

    Gross billings from the sale of Aeroplan Miles for the three months ended
March 31, 2007 amounted to $228.0 million compared to $201.5 million for the
three months ended March 31, 2006, representing an increase of $26.5 million
or 13.1%. This increase is primarily attributable to an increase of
1.9 billion or 11.5% Aeroplan Miles sold as a result of higher sales to
accumulation partners. The overall increase reflects growth in consumer
spending and credit and charge card usage, which translates into increased
volume from the credit and charge card accumulation partners; as well as the
positive momentum experienced by the travel industry in general, which has
positively affected Air Canada and its affiliates.
    Total revenue for the quarter ended March 31, 2007 was $245.3 million, up
22.6% from $200.1 million for the same quarter of 2006. This increase was
mainly driven by increased redemption activity during the quarter and higher
breakage revenue.
    Cost of rewards amounted to $155.1 million for the first quarter of 2007,
compared to $124.9 million for the corresponding quarter of 2006, an increase
of 24.2%, primarily attributable to a higher volume of miles redeemed.
    Operating income amounted to $48.1 million for the quarter ended March 31,
2007, compared to $39.0 million for the corresponding quarter of 2006; a 23.3%
increase mainly attributable to higher gross margin, partially offset by
increased operating expenses.
    At the end of the first quarter, Aeroplan had $643.6 million of cash, cash
equivalents and short-term investments, including the Aeroplan redemption
reserve of $400 million.
    Adjusted EBITDA and distributable cash amounted to $60.0 million and $60.1
million, respectively, compared to $54.4 million and $48.4 million for the
first quarter of 2006.

    Recent Corporate Developments

    Number of units

    On March 14, 2007, ACE Aviation Holdings Inc. (ACE) exchanged 40,545,835
units of Aeroplan for an equivalent number of units of Aeroplan Income Fund in
accordance with the terms of the investor liquidity agreement entered into at
the time of the initial public offering of Aeroplan Income Fund, and
distributed 20,272,917 Aeroplan Income Fund units to its shareholders as part
of its Plan of Arrangement approved in October of 2006.
    As a result of the exchange, Aeroplan Income Fund has 200,000,000 units
issued and indirectly holds 100% of the issued units of Aeroplan Limited
Partnership. ACE holds 80,285,585 units of Aeroplan Income Fund, representing
40.1% of the units issued, with the public holding the balance.

    Partnerships and Rewards

    Best Western International - Aeroplan's first "direct connect" hotel
    partner

    On January 9, 2007, Aeroplan announced that Best Western International had
become the first hotel partner to offer a totally web-based solution for
searching, booking and confirming hotel stay redemptions using Aeroplan Miles,
joining Aeroplan's three car partners - Avis, Hertz and National - that
already offer completely web-based redemptions through Aeroplan.com. Unlike
other loyalty and travel programs - which use a certificate-only or call
centre-based booking process - Aeroplan enables its members to search
Aeroplan.com for the Best Western property of their choice, make their booking
online and receive an immediate confirmation of the booking from the hotel.
This hassle-free redemption method eliminates the need for vouchers and
coupons and, because the process is immediate, there is no longer a need to
book seven days in advance or call the hotel chain to make the reservation.
What's more, reservations may be cancelled for a full refund of Aeroplan Miles
(provided that the cancellation is made in accordance with the reservation's
terms and conditions).
    Aeroplan has also teamed with Best Western to introduce another reward
option: for only 12,000 Aeroplan Miles, members may obtain a C$100 Best
Western Travel Card. Used by guests to pay for both accommodations and related
incidentals (such as room service and phone charges), the Best Western Travel
Card is accepted at Best Western hotels worldwide.

    Barcelo Hotels & Resorts

    As of January 11, 2007, visitors to Barcelo Hotels & Resorts can now enjoy
their vacation and earn Aeroplan Miles. Registered Aeroplan members can earn
Aeroplan Miles by staying at any Barcelo property at published, corporate,
preferred, or BarceloBest Available rates. On stays of seven days or more,
Aeroplan members may earn 1,000 Aeroplan Miles at a Barcelo Premium brand
property, 750 Aeroplan Miles at a Barcelo property or 500 Aeroplan Miles at a
Barcelo Comfort brand location. Additional miles may be earned at select
properties on a promotional basis. Members may book their stay at
http://www.barcelo.com or directly with the hotel or through a travel agent.
    Barcelo Hotels & Resorts offers more than 130 hotels and resorts in
14 countries, and Barcelo all-inclusive resorts are located in popular
warm-weather destinations throughout Mexico, the Dominican Republic, Cuba,
Costa Rica and Nicaragua.

    Home Hardware

    On February 26, 2007, Aeroplan officially launched its partnership signed
in 2006 with Home Hardware, Canada's largest independent home improvement
retailer. The exclusive multi-year partnership allows Aeroplan members to earn
one Aeroplan Mile for every $2 spent at the more than 1,000 Home Hardware,
Home Building Centre, Home Hardware Building Centre and Home Furniture stores
across Canada. Additionally, Aeroplan members can redeem Aeroplan Miles for
Home Hardware Gift Cards.
    Home Hardware also marked the launch of the partnership with a one million
mile donation to Kids' Horizons, a partner in Aeroplan's Beyond Miles program.
Kids' Horizons supports paediatric hospitals across the country including
SickKids Foundation, one of Home Hardware's three national charities. One
million miles represents up to 66 flights for children in need of care, and
their families.

    CruiseShipCenters

    On April 2, 2007, Aeroplan and CruiseShipCenters International Inc.
announced a multi-year agreement to offer Aeroplan Miles on cruise vacations
booked at one of the company's more than 98 retail locations or online at
www.cruiseshipcenters.ca.
    Aeroplan members who book their vacation through CruiseShipCenters may
accumulate Aeroplan Miles for any cruise on all major cruise lines worldwide.
Those who love to cruise can now earn 1 Aeroplan Mile for every $2 spent;
CruiseShipCenters' 7SEAS(R) Cruise Club members can earn up to double Aeroplan
Miles.

    Sponsorships

    Art Gallery of Ontario

    February 6, 2007 was an auspicious day for Aeroplan as the company and the
AGO announced a partnership to establish The Grange Prize, an annual award
recognizing the work of Canadian and international contemporary photographers.
    Named in honour of the AGO's historic home, The Grange Prize is the
largest of its kind in Canada. The winner of the $50,000 prize will be
selected from among five Canadian and international artists each year. The
international candidates for the award will be invited to Canada for
artist-in-residency programs at art centres or photography schools. A student
or practising photographer will also be selected to intern with each
international candidate.
    The first Grange Prize recipient will be announced in spring 2008.

    Industry recognition: ClassicPlus Flight Rewards

    On February 27, 2007, Aeroplan was awarded with the Frequent Flyer Program
(FFP) Innovation Silver Award for the development and launch of its innovative
ClassicPlus Flight Rewards.
    ClassicPlus Flight Rewards is designed to offer Aeroplan members
unrestricted access to available seat inventory across the Air Canada and Air
Canada Jazz networks in both Economy and Executive Class. ClassicPlus Flight
Rewards offers unparalleled flexibility for reward travel, complementing
Aeroplan's existing ClassicFlight Rewards and global Star Alliance Flight
Rewards.
    Aeroplan was amongst 20 nominees for the FFP Innovation Award, introduced
this year by Airline Information and Global Flight, co-founders of the FFP
Conference. Airline employees working in the frequent flyer area voted for the
best program, making this award particularly prestigious as the only industry
FFP Award where industry frequent flyer executives recognize their best peers
in the field.

    Non-GAAP Measures

    In order to provide a better understanding of the results, Aeroplan uses
the following terms:

    Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
    -----------------------------------------------------------------------
    ("Adjusted EBITDA")
    -------------------

    EBITDA adjusted for certain factors particular to Aeroplan's business,
such as changes in deferred revenue and future redemption costs ("Adjusted
EBITDA") is used by management to evaluate performance, and is used in
measuring compliance with debt covenants and in making decisions relating to
distributions to unitholders. Management believes Adjusted EBITDA assists
investors in comparing a company's performance on a consistent basis without
regard to depreciation and amortization, which are non-cash in nature and can
vary significantly depending on accounting methods and non-operating factors
such as historical cost.
    Adjusted EBITDA is a non-GAAP measurement and may not be comparable with
similar measures reported by other entities, and is not considered an
alternative to operating income or net income in measuring performance. For a
reconciliation with GAAP, please refer to the Summary of Operating results and
reconciliation of Adjusted EBITDA and Distributable Cash. Adjusted EBITDA
should not be used as an exclusive measure of cash flow because it does not
account for the impact of working capital growth, capital expenditures, debt
repayment and other sources and uses of cash, which are disclosed in the
statements of cash flows.
    Refer to the attached schedule for a summary of operating results and
reconciliation of Adjusted EBITDA and Distributable Cash.

    Distributable Cash
    ------------------

    Distributable cash is a non-GAAP measure generally used by Canadian
open-ended trusts as an indicator of financial performance, and it should not
be seen as a measurement of liquidity or a substitute for comparable metrics
prepared in accordance with GAAP. Distributable cash may differ from similar
calculations as reported by other entities and, accordingly, may not be
comparable to distributable cash as reported by such entities.
    Aeroplan intends to make equal monthly distributions to its partners of
record on the last business day of each month. Management, the board of
directors and the trustees will periodically review cash distributions in
order to take into account Aeroplan's current and prospective performance.
    Refer to the attached schedule for a reconciliation of Distributable Cash
to cash flows from operations.
    The unaudited interim financial statements and the Investor Presentation,
as well as unaudited supplementary financial information will be accessible on
Aeroplan's investor relations website at aeroplan.com.

    Quarterly Investor Conference Call / Audio Webcast

    Aeroplan will hold an analyst call at 10 a.m. (Eastern Time) on Thursday,
May 10, 2007 to discuss its first quarter results. The call may be accessed by
dialing 416-695-5261 within the Toronto area, or 877-888-3855 (toll free)
outside of Toronto. The call will be simultaneously audio webcast at
http://events.startcast.com/events/20/B0047.
    The conference call webcast and the Investor Presentation will be archived
on Aeroplan's investor relations website at aeroplan.com. A playback of the
call can also be accessed until midnight ET, June 10, 2007 by dialing
416-695-5275, pass code 643683# from within the Toronto area, or 888-509-0081,
pass code 643683# outside of Toronto.

    About Aeroplan Income Fund

    Aeroplan Income Fund is an unincorporated, open-ended trust established
under the laws of the Province of Ontario, that holds all of the outstanding
limited partnership units of Aeroplan.

    About Aeroplan

    Aeroplan is Canada's premier loyalty marketing company, dedicated to
developing and executing programs designed to engage the loyalty of its
prestigious membership.
    Aeroplan's millions of members earn Aeroplan Miles with its network of
more than 60 world-class partners, representing more than 100 brands in the
financial, retail and travel sectors. Miles earned may be redeemed for
Aeroplan's industry-leading ClassicFlight Rewards, innovative ClassicPlus
Flight Rewards and global Star Alliance Flight Rewards, offering travel to
more than 850 destinations worldwide. In 2006 alone, more than 1.4 million
round-trip flight rewards were issued. Aeroplan's roster of non-flight rewards
includes more than 400 exciting specialty, merchandise and experiential
rewards, as well as hotel and car rental rewards. Members are encouraged to
stay engaged with Aeroplan and avoid mileage expiration due to inactivity by
earning or redeeming Aeroplan Miles as detailed in the Aeroplan program terms
and conditions.
    For more information about Aeroplan, please visit www.aeroplan.com.

    Caution Concerning Forward-Looking Statements

    This news release should be read in conjunction with Aeroplan Income
Fund's 2007 first quarter MD&A dated May 9, 2007 filed with Canadian
securities regulatory authorities (available at www.sedar.com). Certain
statements in this news release may contain forward-looking statements. These
forward-looking statements are identified by the use of terms and phrases such
as "anticipate", "believe", "could", "estimate", "expect", "intend", "may",
"plan", "predict", "project", "will", "would", and similar terms and phrases,
including references to assumptions. Such statements may involve but are not
limited to comments with respect to strategies, expectations, planned
operations or future actions.
    Forward-looking statements, by their nature, are based on assumptions and
are subject to important risks and uncertainties. Any forecasts or
forward-looking predictions or statements cannot be relied upon due to,
amongst other things, changing external events and general uncertainties of
the business and its corporate structure. Results indicated in forward-looking
statements may differ materially from actual results for a number of reasons,
including without limitation, dependency on Aeroplan's top three accumulation
partners, Air Canada or travel industry disruptions, reduction in activity,
usage and accumulation of Aeroplan Miles, greater than expected redemptions
for rewards, industry competition, supply and capacity costs, unfunded future
redemption costs, seasonal nature of the business, regulatory matters,
restrictions on certain unitholders and liquidity of units, as well as the
other factors identified in the "Risks and Uncertainties Affecting the
Business" section of the 2006 MD&A (available at www.sedar.com). The
forward-looking statements contained in this discussion represent Aeroplan's
expectations as of May 9, 2007, and are subject to change after such date.
However, Aeroplan disclaims any intention or obligation to update or revise
any forward-looking statements whether as a result of new information, future
events or otherwise, except as required under applicable securities
regulations.



        SUMMARY OF OPERATING RESULTS AND RECONCILIATION OF ADJUSTED EBITDA
                           AND DISTRIBUTABLE CASH
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (in thousands, except miles, unit        Three months ended
     and per unit information)                         March 31

                                            2007          2006      % change
                                            ----          ----
    -------------------------------------------------------------------------
    Number of Aeroplan
     Miles issued ( in billions)            18.4          16.5          11.5
    -------------------------------------------------------------------------
    Number of Total Miles
     redeemed (in billions)                 18.6          15.6          19.2
    -------------------------------------------------------------------------
    Number of Aeroplan Miles
     redeemed (in billions)                 16.3          13.0          25.4
    -------------------------------------------------------------------------
    Gross Billings from the
     sale of Aeroplan Miles             $227,977      $201,502          13.1
    -------------------------------------------------------------------------
    Aeroplan Miles revenue               228,561       183,072          24.8
    Tier management, contact
     centre management and
     marketing fees from
     Air Canada                            3,701         3,152          17.4
    Other revenue                         13,052        13,834          (5.7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total revenue                        245,314       200,058          22.6
    Cost of rewards                     (155,134)     (124,883)         24.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Gross margin                          90,180        75,175          20.0
    Operating expenses, excluding
     depreciation and amortization       (39,403)      (32,438)         21.5
    Depreciation and amortization         (2,704)       (3,742)        (27.7)
    -------------------------------------------------------------------------
    Operating income                    $ 48,073      $ 38,995          23.3
    -------------------------------------------------------------------------
    Depreciation and amortization          2,704         3,742
    Change in deferred revenue
      Gross Billings from the
       sale of Aeroplan Miles            227,977       201,502
      Aeroplan Miles revenue            (228,561)     (183,072)
    Change in Future
     Redemption Costs(1)                   9,787        (6,777)        244.4
     (Change in Net Aeroplan Miles
     outstanding x Average Cost
     of Rewards per Mile for
     the period)
    -------------------------------------------------------------------------
    Adjusted EBITDA                     $ 59,980      $ 54,390          10.3
    -------------------------------------------------------------------------
    Net Interest Income (Expense)(2)       2,513           459         447.5
    Maintenance Capital
     Expenditures(3)                      (2,373)       (6,475)        (63.4)
    -------------------------------------------------------------------------
    Distributable Cash                  $ 60,120      $ 48,374          24.3
    -------------------------------------------------------------------------
    Weighted average number
     of units                        199,539,544   200,000,001
    Distributable Cash per unit         $ 0.3013      $ 0.2419          24.6
    Net earnings, in accordance
     with GAAP                          $ 50,116      $ 38,985          28.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per unit, in
     accordance with GAAP               $ 0.2512      $ 0.1949          28.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributions declared              $ 42,000      $ 34,980          20.1
    Distributions declared per unit     $ 0.2105      $ 0.1749          20.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) The per unit cost derived from this calculation is retroactively
        applied to all prior periods with the effect of revaluing the
        liability on the basis of the latest available average unit cost.

    (2) Excludes amortization of deferred financing charges which are
        presented with interest.

    (3) Maintenance capital expenditures in the comparative three month
        period ended March 31, 2006 have been restated to reflect the actual
        amount of maintenance capital expenditures incurred in that period.
        The amount previously reported for that period was based upon a pro-
        ration of the estimated yearly spend.


     RECONCILIATION OF CASH FLOWS FROM OPERATIONS TO DISTRIBUTABLE CASH
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (in thousands)                                        Three months ended
                                                                    March 31,
                                                  ---------------------------
                                                          2007          2006
                                                          ----          -----
    -------------------------------------------------------------------------
    Cash flows from operations                        $ 73,229      $ 46,350
    -------------------------------------------------------------------------
    Changes in non-cash working capital items          (21,235)       15,760
    Stock-based compensation                              (817)         (484)
    Funding of stock-based compensation plans            1,529             -
    Change in future redemption costs                    9,787        (6,777)
    Maintenance Capital Expenditures                    (2,373)       (6,475)
    -------------------------------------------------------------------------
    Distributable cash                                $ 60,120      $ 48,374
    -------------------------------------------------------------------------
    Distributions declared                            $ 42,000      $ 34,980
    Payout ratio - Distributions declared /
     Distributable cash                                     70%           72%

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