American Express reported significantly increased spending
on travel and its corporate cards for the third quarter of 2010, as chairman
and CEO Kenneth Chenault cautioned of potential impacts from the recent U.S.
Department of Justice antitrust lawsuit and other regulatory activity.
In a conference call with investors on Thursday, American
Express CFO Dan Henry said travel sales were up 21 percent year over year for
the quarter, including a 20 percent increase in airline spending. Higher prices
and more transactions on both the corporate and leisure sides drove the air
sales growth, he said.
The company also reported that revenues net of interest
expense were up 17 percent to $1.1 billion, thanks to increased spending by
corporate card users and higher travel commissions and fees.
At the beginning of the conference call, Chenault addressed
the DOJ lawsuit filed earlier this month, claiming that it along with Visa and
MasterCard prohibits merchants from offering incentives for customers to use
forms of payment that cost them less in fees. American Express traditionally
has charged higher fees to merchants, called interchange fees, because it
claims its card has higher per-card spending and service levels.
Chenault said the differential between the high and low
interchange rates on Visa cards was about 90 basis points, or 90 cents on a
$100 purchase, and that American Express' average rate was about 25 basis
points higher than the Visa/MasterCard average. "Assuming that remains
constant, steering between credit products does not have payoff for merchants,"
he said.
He also said intervention from the government ultimately
would give more share to the dominant market forces of Visa and MasterCard
because of their lower fees.
Chenault cited the lawsuit as the latest in a trend toward
regulation that he said will reshape the card industry. This has included
limits on debit over-limit fees and the simplification in terms and conditions
of credit card agreements.
"This regulation and the legislation has been the most
significant in the history of the card industry," Chenault said. "Each
reflects the political environment and a turn towards regulation instead of
competition in the banking financial services and card industry."