American Express Q3 Earnings Hit by Lower Airfares and Co-Branded Card Costs in Travel

Declining airfares and increased costs related to renewing co-branded credit cards with Delta, Starwood, Cathay Pacific and Iberia were among the factors that negatively impacted American Express’ third quarter results.

In the U.S., airline spending accounts for 7 percent of the company’s total volumes. But while the number of U.S. transactions increased 7 percent in the quarter their average size decreased 3 percent.

The “slow airline spend,” said American Express CFO Jeff Campbell during the company’s third quarter earnings call October 21, “had a larger relative impact within GCS (Global Commercial Services), where airlines make up approximately 25 percent of total spend.”

Global Commercial Services is the American Express business line that provides expense management and travel solutions, through its American Express Global Business Travel joint venture, to companies worldwide.

American Express third quarter of 2015 results were also negatively impacted by an increasingly competitive co-branded card business and the higher costs, a 31 percent increase year over year, associated with renewing agreements and securing new business.

“… We estimate that all of the changes in our co-brand relationships reduced EPS (earnings per share) nby approximately 5 percent this quarter,” Campbell said. “This estimate includes the impact of our renewed co-brand relationships with Delta, Starwood, Cathay Pacific, British Airways and Iberia, as well as the net impact on our Canadian business from the end of our Costco relationship.”

For the third quarter, American Express saw its net income decline 14 percent to $1.26 billion on revenue of $8.2 billion, a one percent drop.