Thursday , May 28, 2020

A Plunge in T&E Spending Hits AmEx As It Copes With the Pandemic’s Worldwide Impact

A trend toward a near-total collapse in travel-and-entertainment spending helped drive down overall first-quarter card volume and discount revenue for American Express Co., the company reported Friday. “March was a very difficult month,” Stephen Squeri, AmEx’s chairman and chief executive, told stock analysts during a morning conference call.

As with most payments companies and other businesses, AmEx is reeling from the impact of stay-at-home orders state governments have imposed in reaction to the novel coronavirus outbreak. T&E, which accounts for about one-quarter of AmEx’s total volume, began to swoon in late February and slid dramatically throughout March before leveling off so far in April in the face of near-empty planes and hotels, according to statistics the company released Friday.

This was true of both consumer and corporate T&E. Indeed, the latest seven-day average figure for overall T&E volume is down 95% compared to the same period last year, according to the numbers. Overall, global consumer volume was down 22% in March compared to the same month in 2019.

With travelers sheltering at home, T&E has taken a beating at AmEx. (photo: AmEx)

The decline has been sharper than what was seen even in previous downturns such as that of the 2008 financial crisis, AmEx executives noted on the call. “We’re in unprecedented times,” Squeri said. “We’re now operating in a very different world.”

The plunge in T&E volume is largely responsible for a drop in discount-fee revenue for AmEx, chief financial officer Jeff Campbell said on the call. Revenue from these merchant fees fell 5% in the quarter to $5.8 billion, but dropped fully 27% in March to $1.6 billion, compared to the year-ago periods. The company’s overall average discount rate for March was 2.27%, down 10 basis points. Campbell warned analysts to expect further “erosion” that could go as high as 14% to 18% in the second quarter. Overall, discount fees loom large for AmEx, accounting for 57% of revenue in the first quarter.

Compared to causes of previous economic downturns, the current shutdown, mandated by government, is unique, Squeri argued. Referring to both consumers and businesses, he said, “These are good customers who are in a bad time through no fault of their own.” Future results, Campbell noted, will depend on the answers to two key questions: “When and how quickly the economy improves, and what will happen to unemployment and the pace of small-business recovery.”

AmEx’s actions so far to combat the effects of the pandemic include bigger investments in mobile technology and in account servicing, including credit and collections, Squeri said. The company has raised its thresholds for contactless payments in 28 countries, he noted, to encourage less handling of cash and point-of-sale keypads.

The company also created a “Customer Pandemic Relief Program” that offers payment deferrals of one to three months, waivers on interest and certain fees, and protection from credit-bureau reporting. Squeri noted the program has yielded a possible bright spot. “We’ve seen enrollment slow a bit since the peak a few weeks ago,” he told the analysts.

Cardholder receivables for the quarter came to $44.7 billion, down 21% from last year’s first quarter. Revenue company-wide totaled $10.3 billion for the quarter, down 1% year-over year. Net income fell 76%, from $1.55 billion a year ago to $367 million.

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