AmEx Platinum-Card Loyalty Not Enough to Halt Revenue Slide

(Bloomberg) -- American Express Co. customers are still paying $550 a year for a premium travel card during the pandemic, they’re just not using it as much while stuck at home.

Revenue and spending on cards each fell roughly 30% in the second quarter despite the firm’s efforts in the early days of the Covid-19 outbreak to rework some of its most popular products, adding benefits such as credits for streaming services. Profit tumbled 85%.

“Our second-quarter results reflect the challenges of the current environment,” Chief Executive Officer Steve Squeri said in a statement Friday. Early results from the new rewards programs “have been encouraging. We haven’t seen an increase in total customer attrition levels from prior years.”

While card fees climbed 15%, revenue dropped 29% to $7.68 billion, missing analysts’ estimates. And AmEx’s discount rate -- a measure of the fees the company collects from merchants each time consumers swipe their cards at checkout -- fell to 2.23% from 2.37% a year earlier. The company expects a similar drop in the third quarter.

AmEx shares, down 22% this year, rose 0.1% to $96:74 at 9:58 a.m. in New York.

AmEx, which counts Delta Air Lines Inc. and Marriott International Inc. as its two biggest partners in the co-brand card business, is grappling with the worldwide slowdown in travel and dining. Spending on its cards dropped 34% to $205 billion, missing the $215 billion average of analyst estimates compiled by Bloomberg.

Attrition Levels

The firm said it expects card fees to continue to climb by a percentage in the double digits in coming quarters, and overall attrition levels on its cards are flat or down compared with a year ago.

“We think this is a really strong statement about the continued engagement of our card members,” Chief Financial Officer Jeff Campbell said on a conference call with analysts.

AmEx has pulled back on originating new cards and is systematically closing inactive accounts to avoid being the lender of last resort to nervous borrowers, Squeri said.

“If they hadn’t been using you before, more than likely you don’t want them to be using you now,” Squeri said. “We will cancel people.”

The firm’s spending on rewards dropped 49% to $1.35 billion in the quarter. Overall profit declined 85% to $257 million, or 29 cents a share, as the company set aside $1.56 billion to cover souring loans.

“Looking ahead, we will continue to focus on what we can control -- backing our customers, colleagues and communities, while managing our expenses prudently,” Squeri said in the statement.

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