AmEx’s Top Exec Looks to Vaccines To Help Spur a Comeback for T&E Spending

In a wide-ranging session, American Express Co.’s top brass Tuesday expressed optimism that increasing availability of coronavirus vaccines will soon induce consumers to travel and that the new Biden Administration’s policies are unlikely to have much impact on the New York City-based company’s core business.

On an early morning conference call to discuss AmEx’s fourth-quarter 2020 performance, chairman and chief executive Stephen Squeri and chief financial officer Jeff Campbell also pointed to 3.7 million new merchants added last year, while Squeri downplayed the prospect of any downdraft in AmEx’s overall discount rate.

For the coming months, Squeri said AmEx will launch a business account based on its new Kabbage property. Kabbage, a fintech specializing in lending and payments for small businesses, was acquired by AmEx in the fall. “It gives us a platform that can interact with small businesses—a term loan, cash-flow analysis,” he told equity analysts on the call. “We’ll roll that out in the first quarter into the second quarter.”

But Squeri saved most of his optimism for a comeback for the crucial travel business, sparked by the availability of new vaccines that can fight the virus that last year crushed the travel, hotel, and restaurant business so crucial to AmEx’s performance. “Last year, we didn’t have a vaccine. That [T&E business] will sort itself out over a couple of months, not a couple of years,” Squeri said. “By June, you’ll have herd immunity. There’s huge pent-up demand for travel.”

Most of the coming return to air travel will be domestic rather than international to begin with, Squeri predicted. “Our assumption is the vaccines will work, and off we go,” he added. Some 12% of the company’s proprietary card volume in the fourth quarter went to T&E spending, down from 28% a year earlier. Campbell pointed out that the proprietary business accounts for 86% of the company’s overall card volume “and drives our results.”

Vaccine or no vaccine, the recovery in T&E spending will take time. Campbell predicted that by the fourth quarter this year the category will recover to 70% of what the company saw in the final period of 2019. “Our recovery will be driven by what happens with T&E since non-T&E has already recovered,” he told the analysts. Non-T&E business in the fourth quarter was up 4% year-over-year, while T&E was down 65%.

The impact on discount revenue, which accounts for 59% of the company’s total revenue, has been dramatic. For all of 2020, this category totaled $20.4 billion, down 22% from 2019. In the fourth quarter alone, discount revenue came to $5.55 billion, down 19%.

But any impact on discount revenue from OptBlue, a program AmEx introduced in 2014 to allow independent sales organizations and other processors to sell AmEx acceptance alongside Visa and Mastercard, has been muted, Squeri said. “We’re completely through any downward pressure from OptBlue. That’s in the rear-view mirror,” he said. As T&E recovers, discount-fee income will add up, he added, since non-T&E carries a lower average discount rate than that for T&E.

The unknown factor, Squeri said, is how the new administration in Washington, D.C., will affect the business overall. He predicted any new regulation will focus on lending, an area where “we’re not as dependent [for revenue] as our competitors are.” Regulation for discount rates, he said, has “not been broached at all.”

Still, he added, “we’ll comply” with any new regulation that affects AmEx’s business. “We’ll do what we’ll need to do. It won’t be a deterrent to us in running our business.”

All in all, AmEx posted fourth-quarter revenue of $9.35 billion, down 18% year-over-year. Revenue for the year totaled $36.1 billion, down 17% from 2019.