American Express on the Rebound

  The outlook wasn't exactly cheery for American Express Co.'s card-issuing unit, Travel Related Services, as it started 2002. The weak economy and ongoing concerns about terrorism prompted many businesses to curtail traveling, striking at the very core of AmEx's profitability-travel and entertainment. And growing unemployment bode ill for credit quality.
  Nevertheless, net earnings for TRS shot up 46% to $2.14 billion last year from $1.46 billion at year-end 2001. The increase was due in part to the fact that AmEx in 2001 took one-time charges stemming from the Sept. 11, 2001, terrorist attacks and restructuring. But the unit also put in a solid performance last year, Kenneth I. Chenault, AmEx chief executive, told analysts in February.
  "Our underlying earnings growth was quite strong, and we moved back in the direction of our long-term financial targets," he said.
  TRS reported 2002 revenues of $17.72 billion, up 2% from 2001's $17.36 billion.
  AmEx says growth in both cardholders and spending can be traced to a 20% increase in marketing and promotion expenses last year. The promotions included the introduction of charge cards with Membership Rewards built in and the Cash Rebate credit card.
  In addition, there was a step-up in loyalty marketing and selected card acquisitions, AmEx says.
  At year-end, AmEx added its highest level of new cards since the first quarter of 2001, Chenault said. "Each of our card businesses had strong acquisition performance in the fourth quarter, including U.S. consumer, U.S. small business and Global Network Services," he said.
  The charge and cash-rebate products accounted for almost 500,000 new cards in 2002.
  American Express is focusing on products "that provide value and drive spending through incentives and rewards," including other reward-based lending products such the Delta Air Lines and Costco cards, he said. AmEx also enrolled an increasing number of Blue card holders into its Membership Rewards loyalty program.
  AmEx not only saw an increase in cards but also saw more cardholder spending. Worldwide charge volume increased almost 5% to $311.4 billion, from $298 billion in 2001. "Corporate billings continued to be weak, but consumer spending in the U.S., Canada, Europe and Asia remained relatively strong throughout the year," Chenault said. U.S. charge volume rose 4% to $234.1 billion in 2002 from $224.5 billion in 2001.
  What's more, U.S. non T&E-related volume categories grew 9% last year, while T&E volume decreased 2%. Non T&E-related volume represented about 63% of total U.S. volume last year, according to AmEx.
  Airline-related volume, which represented about 13% of total U.S. volume in 2002, dropped 6% worldwide on a mid-single digit decline in the average airline charge and flat transaction volumes, AmEx said.
  Spending per card grew 4% to $8,728 in 2002 in the U.S., up from $8,364 a year earlier. However, outside the U.S., there was a decline.
  The higher U.S. cardholder spending helped offset a lower discount rate, translating into a 3% rise in discount revenue, AmEx says. The average discount rate was 2.64% of the sale in 2002, compared with 2.67% in 2001. The decline in the discount rate reflected the impact of stronger-than-average growth in lower-rate retail and other so-called everyday spend merchant categories, such as supermarkets and discount stores, American Express says.
  Net card fees rose 2% as the increase in the number of cards in circulation was partially offset by a shift to low- and no-fee products. The average fee per card in 2002 was unchanged from $34 in 2001.
  American Express also saw a 22% decrease in its provision for losses on the charge cards because of an improved past-due rate and loss ratio.
  The net write-off rate for 2002 was 6% of managed credit card receivables, compared to 5.6% in 2001. "In terms of quality, our loss and delinquency trends improved in the fourth quarter," Chenault said.