American Express braces for new competition in premium cards

American Express expects more pressure to win high-end cardholders, even though a major competitor, Citigroup, has dropped out of the market.

"I don't assume it's just us and Chase for long. Other people will try to get in this game," Stephen Squeri, chairman and CEO of American Express, said Friday during an earnings call. "We're focused on developing the best product possible and making sure we can take on all comers."

Citigroup last week said it would stop taking applications for its Prestige card, which charges $495 per year, though it will continue to serve existing customers. Citi's departure leaves JPMorgan Chase as American Express's primary competitor.

JPMorgan Chase charges a yearly fee of $550 for its Sapphire Reserve card. American Express' Platinum, which relaunched at the beginning of July, added features and raised its annual fee to $695 from $550.

"I don't know what Citi's strategy is, if it's just a pulldown for now. Wells Fargo is looking to get stronger in this space," Squeri said. "Our Platinum refresh is a shot across the bow."

Wells Fargo did not return a request for comment on its premium card plans by deadline.

The Platinum refresh includes features not directly tied to high-end travel in an attempt to offset the pandemic's impact. American Express added credits for subscriptions to Audible, The New York Times, SiriusXM and virtual fitness — perks that are aimed at consumers who are spending more time at home as well as younger customers. American Express reports more than 17% of Platinum cardholders put wireless services on the card and 10% use the card for streaming services, suggesting demand for nontravel perks.

American Express also added free membership in the CLEAR faster airport screening service to Platinum in anticipation of a travel recovery. CLEAR normally costs $179 per year.

During Friday's earnings call, American Express projected overall travel spending would reach 80% of prepandemic levels by the fourth quarter, though it did say the trajectory of the recovery could change depending on the severity of new outbreaks and possibility of new travel restrictions. 

Any headwinds in the travel recovery could lessen interest in travel-related perks for high-end cards.

"While travel rates are coming back up in some regions, namely the U.S., in most areas it's still way down, with a real lack of clarity of when it will bounce back to where it was," said Gilles Ubaghs, senior analyst for commercial banking and payments at Aite-Novarica Group. "It's not a technology or product issue, it’s a demand issue. The online uncertainty means a lot of business travel is still on pause."

American Express is raising Platinum's annual fee as JPMorgan Chase drops the annual fee for its Private Reserve to $550 from $595. It's the first time Amex has increased its Platinum fee since 2017, making Platinum the most expensive major travel card. The company also offers a limited number of specialty travel cards, such as the $5,000 per year Centurion Card and tailored gold-plated cards.

Squeri defended the Platinum fee hike during Friday's earnings call, saying the card adds $1,400 per year in additional value in exchange for $140 in added cost.

"It will be attractive to current and new customers, even with the increase in the annual fee. We've found customers are willing to pay more for value," and applications for the Platinum card have outpaced expectations in the first few weeks, Squeri said. American Express also will refresh more of its card products in the future, he said.

American Express reported second-quarter net income of $2.3 billion or $2.80 per share, compared with net income of $257 million, or 29 cents a share, a year earlier, when earnings took a substantial hit as the pandemic first took hold. It also reported revenue of $10.24 billion, up from $7.68 billion the prior year. The latest results beat analysts' revenue projections of $9.47 billion, according to Zacks Investment Research, and net income estimates of $1.64 per share, according to Yahoo Finance.

Squeri attributed the growth to increased spending at restaurants, stores and entertainment venues as coronavirus vaccinations accelerated. About 49% of the U.S. population was fully vaccinated as of July 23, according to The New York Times. The rise of infections in parts of the U.S. where vaccination rates are low is not a concern for American Express at this point, according to Squeri, saying the company's momentum will continue, enough for American Express to achieve the high end of its EPS expectations for 2022. The company's high-end outlook for full-year EPS for 2022 is $10.09 per share.

Amex reported continued softness in international markets where restrictions remain. Corporate travel also remains low, the company noted.

"We feel very good about where we are," Squeri said. "Our progress in rebuilding momentum for our core business is better than expected."