American Express CEO Ken Chenault was more disappointed with
the card network's corporate card business than with any other segment, he said
during a fourth-quarter earnings call. However, he's optimistic about corporate
card growth in 2016.
Card-billed business for American Express Global Commercial
Services, the division that houses corporate cards, dipped 3 percent year over
year during the fourth quarter to $45.5 billion, the fourth consecutive quarter
for which volume declined year over year. During the full-year 2015, the card
network reported $182.1 billion in GCS card-billed business, down 2 percent
from $186.7 billion the previous year.
After GCS's card-billed business increased 5 percent year
over year to $47.1 billion during the fourth quarter of 2014, Amex began what
CFO Jeff Campbell previously referred to as a "sequential
decline in growth." According to Chenault, "We've been very clear
throughout [2015] that the segment I've been most disappointed in has been the
corporate segment."
Chenault said the decline owed to clients' cutbacks on
T&E spend. "The easiest expense category to cut is T&E," he said.
"What we've seen in my 30-plus years' experience with the company is:
Cutbacks in T&E is an early indicator for a slowdown."
Net income in 2015 totaled $666 million, down from 2014's
$1.5 billion. Revenue net of interest also decreased 32 percent year over year
to $3.5 billion.
Focus On A U.S.
T&E Slowdown?
Since its second-quarter-2015 earnings call, GCS has focused
on the United States as the weak link in its earnings chain. In July, Campbell
reported that GCS had reviewed its customer base and determined the "sequential
decline" in revenue was "U.S-driven … T&E oriented." By
November's third-quarter call, Campbell had pegged the decline on dropping fuel
prices and the resulting lower average transaction sizes. He assured it did not
owe to less frequent card use or an Amex loss of market share.
Chenault's year-end comments seemed to veer from Campbell's
prior statements on dropping fuel prices and cheaper fleet and travel costs and
instead intimated that companies are actively reining in travel costs to a
degree that has significantly contributed to GCS's year-over-year revenue
decline. If so, the focus of GCS's revenue decline should be on the global
T&E market, not on the U.S. one as Campbell throughout the year reasoned it
should—except in that weaker-than-expected U.S. growth may have failed to shore
up softness in other global markets.
While sharp restrictions on travel spend could be generally
true for suffering verticals like oil and gas companies, similar restrictions
were not evident in the U.S. business travel market overall. The Global
Business Travel Association most recently projected that U.S. T&E growth
for 2015 would land at 3.1 percent. That is slower than the association's
original 5 percent growth projected for the year, but it's still growth.
Indeed, Amex U.S. T&E-billed business experienced a similar growth
trajectory during the year, posting 5 percent growth in the first quarter and slowing
to 3 percent growth in the third quarter.
This may be disappointing in terms of Amex's expectations
for 2015, but growth is growth. Translating that growth as the culprit of the
firm's 2 percent year-over-year decline in commercial card revenue would be a
leap. Still, Chenault anticipated an increase in business travel in 2016.
Amex's companywide fourth-quarter net income declined from
$1.4 billion to $899 million year over year in 2015, partly owing to 2014's
$719 million gain from the sale of Amex's stake in Concur. The company also
blamed the strong U.S. dollar for the decline. In response, Amex has committed
to cutting $1 billion in expenses through 2017.
Developing
Amex's discount rate, the rate merchants pay to accept Amex
cards, declined by 2 basis points compared to the previous year, which Campbell
owed to the rollout of OptBlue,
its small-business acquiring program. "We anticipate that our discount
rate will decline by a greater amount during 2016 due to continued expansion of
OptBlue, a greater impact of international regulatory pressures and continued
competitive pressures," he said.
The international regulatory pressures to which Campbell
referred were the European
Union's interchange fee regulation caps that took effect in December. While
Amex is excluded from the caps and its market share in those areas is small, he
maintained it would pressure the company to lower its discount rate.
In December, a U.S. court of appeals granted
a temporary stay on an April decision requiring Amex to amend its
antisteering rules. Amex's merchant steering agreements can remain during an
appeal of a judge's decision that those agreements violate
federal law and constitute "unreasonable restraints on trade."