History and Corporate Profile
Smiles was created through a corporate restructuring of Gol to independently and exclusively manage and operate the Smiles Program. The Smiles Program was originally launched by Varig in 1994 as a frequent flyer program and was acquired by Gol in 2007 together with other assets of the Varig business. Starting in 1997, Varig co-branded credit cards were issued to allow members to accelerate their accumulation of miles, which were sold to commercial partners and rewarded to Smiles members. In addition to earning miles through flights and spending on co-branded credit cards, members also earned miles through purchases from select travel industry partners, such as large hotel chains, international car rental agencies and high-end restaurants. Because of its established brand recognition, Gol maintained the Smiles Program as a tool to generate customer loyalty.
Beginning in 2008, the Smiles Program, which had been essentially inactive for years, underwent a total restructuring and revitalization. Since then, the program has gained market share, which Company believes was approximately 52.2% of the loyalty program market in Brazil in 2017. Currently, the Smiles Program has over 17.6 million members, a number that has grown at an average rate of approximately 67,000 new members per month. Additionally, Smiles has an extensive and diversified network of more than 150 commercial partners in Brazil.
The Company began the activities as a stand-alone loyalty program but gradually evolved toward the current model, becoming a coalition loyalty program with certain unique characteristics that permit the accumulation and redemption of miles for flights operated by Gol and its international airline partners, as well as through the main Brazilian commercial banks, including through Smiles’ co-branded cards issued by Bradesco, Banco do Brasil and Santander, and Company’s broad network of retail partners, including Royal Dutch Shell. Under the current model, (1) Smiles sells miles to commercial and financial partners, including Gol, (2) members accumulate miles by flying with Gol or other partner airlines, which include American Airlines, TAP, Copa Airlines, Air Europa, Air Canada, Avianca, Aerolíneas Argentinas, AirFrance, Aeromexico, Emirates, Ehiopian, South African Airways, KLM, Korean Air or by purchasing products and services from one of 227 commercial partners that award miles and (3) members redeem miles in exchange for rewards in the form of airline tickets from Gol or other partner airlines or in the form of products and services from Smiles’ commercial partners.
On January 1, 2013, Company took over operations of the Smiles Program after entering into an Operating Agreement, a Miles and Tickets Purchase Agreement and a Back Office Services Agreement with VRG and Gol in December 2012. The Operating Agreement establishes the rules under which management of the Smiles Program was transferred to the Company, including the allocation of costs of reward redemptions, exclusivity rights and the management of client relationships, as well as VRG’s payment of a fee for managing its loyalty program. The Miles and Tickets Purchase Agreement establishes the terms and conditions of VRG’s miles purchases from Smiles and Company purchases of VRG tickets. The Back Office Services Agreement contains the terms, conditions and levels of services provided by VRG to Smiles, which are intended to develop the administrative activities needed to pursue Company’s corporate goals, such as controllership, accounting, internal controls and auditing, finance, information technology, call center, human resources, inventory and legal matters. The Brands Assignment Agreement assigns all brands of the Smiles Program to the Company.
Currently, Smiles’ partners include Brazilian and South American commercial banks, credit card companies, large retail chains, hotels, restaurants, car rental companies, gas stations, drugstores and publishing houses, among others, to guarantee members a wide range of ways to earn miles, not just through travel, but also through daily activities. The Company is continuously expanding reward options in order to provide more options to members. Smiles offer reward tickets to more than 1600 destinations in Brazil and abroad and also offer over 100,000 non-ticket reward products and services, including electronic devices, appliances, furniture, sporting goods, toys, books, shows, movie tickets and gift cards through the Smiles plataform.
Smiles is the exclusive manager of one of the largest coalition loyalty programs in Brazil, with 17.62 million members as of March 31, 2018. Between 2013 and 2018, Company’s miles issued increased at a CAGR of 26.0% . The Company is the exclusive manager of the Smiles Program, coalition loyalty company that allows members to earn and redeem miles in various partners. Smiles’ main commercial partner is Gol, an airline with an operating fleet of 141 B737-700/800 planes that provides 700 daily flights to 70 destinations and has a broad network of international airline partners. The Company’s main source of revenue is the redemption of miles.
Smiles was created through a corporate restructuring of Gol to independently and exclusively manage and operate the Smiles Program. On January 1, 2013, the Company took over the Smiles Program’s extensive and diversified network. On average, approximately 67,000 new customers become members every month.
The Company aims to create a coalition loyalty program that provides a single platform for accumulating miles through a network of commercial and financial partners. The Company has a simple cost structure and lean organization, generating operational efficiency for its partners. Smiles always encourages commercial partners to participate directly in the Program, and believes that coalition is an attractive feature to its members, by providing them with a single account and a seamless experience, also eliminating complexity and inefficiency typical when participating on multiple loyalty programs.
Currently, the Program allows members to accumulate miles mainly through: (I) flights with Gol and its international partners, which are currently American Airlines, TAP, Copa Airlines, Air Europa, Air Canada, Avianca, Aerolíneas Argentinas, AirFrance, Aeromexico, Emirates, Ehiopian, South African Airways, KLM and Korean Air which jointly cover more than 1600 destinations worldwide, (II) the main Brazilian commercial banks, including members who were issued a Smiles co-branded credit card by both Bradesco, Banco do Brasil and Santander, and (III) a broad network composed of more than 150 retail partners, such as drugstores, gas stations, car rental agencies and hotels. The Company’s most wanted redemption options are flights offered by Gol and its international partners.
The agreements that govern the Company’s commercial relationship with Gol is considered one of the main pillars of Company’s business model, as they allow Smiles unrestricted access to seats on Gol flights at competitive prices and afford significant flexibility when reacting to changes that may impact Smiles’ business, such as changes in economic conditions and prices offered by commercial partners and competitors.