American Express issues unfavourable outlook on business travel spending
American Express Co is warning that business travel spending would not pick up before early 2022 after reporting underwhelming third-quarter profit due to weak spending on travel and entertainment by its card users.
In what appears to be a shift in strategy, the New York-based credit card issuer, for long a preferred choice of affluent Americans, walked back on its cost-cutting target of nearly US$3 billion in 2020 and decided to spend heavily to add new card customers.
“We're all consistent in terms of how we feel about business travel, which is probably not going to (pick up) till late 2021, early 2022,” chief executive Stephen Squeri said Friday in a post-earnings conference call with analysts.
Credit card companies have been hit hard as the pandemic-induced recession forces companies to lay off workers and consumers to stay at home, drastically reducing their purchasing power.
Spending on its cards fell 19 per cent to US$248.7 billion in the quarter, with travel- and entertainment-related spending sliding 69 per cent from a year earlier.
AmEx, which has tie-ups with large airlines and hotels and whose largest shareholder is Warren Buffett's Berkshire Hathaway Inc, set aside US$665 million in loss provisions during the quarter.
However, it was still lower than what it set aside last quarter, as the outlook for potential defaults improved, with AmEx saying that overall spending volumes had shown a “steady recovery” since the lows of mid-April.
Online consumer retail spending was a bright spot for the card issuer during the quarter, clocking a 32-per-cent jump over last year.
Non-travel and entertainment spending, which comprises most of the spending on AmEx's network and includes online and offline retail spending, inched up one per cent from a year ago after adjusting for cross-currency fluctuations.
Quarterly profit fell 40 per cent to US$1.07 billion, or US$1.30 per share, missing analysts' average estimate of US$1.35 per share, according to Refinitiv data, hurt mainly by higher expenses.
Total revenue, excluding interest expense, fell 20 per cent to US$8.8 billion, but came in ahead of muted expectations.