AmEx Cuts Jobs as Digital Age Transforms Travel Business
Jan. 11 (Bloomberg) -- American Express Co. will eliminate 5,400 jobs this year, mostly in travel services, as consumers and businesses rely more on digital technology for bookings.
The lender posted a 47 percent drop in fourth-quarter profit and recorded after-tax charges totaling $594 million, including costs tied to severance and changes in how the firm estimates future redemptions of credit-card rewards, New York- based AmEx said yesterday in a statement.
“Travel has gone through a great deal of change,” Chief Executive Officer Kenneth I. Chenault said in a conference call with analysts. The economics of corporate travel has “changed more dramatically over the years than any part of the business.”
American Express, the biggest U.S. credit-card issuer by purchases, also provides clients worldwide with travel-booking and advisory services. Competitors include Internet firms Priceline.com, the most valuable online-travel agency, and Expedia Inc. (EXPE)
The lender reported preliminary results ahead of its formal earnings announcement scheduled for Jan. 17. In the third quarter, travel commissions and fees declined 3.1 percent to $465 million from a year earlier, according to an Oct. 31 regulatory filing.
Fourth-quarter net income declined to $637 million from $1.19 billion a year earlier, according to the company. Adjusted profit, which excludes one-time items, was $1.09 a share, 3 cents more than the average estimate of 27 analysts surveyed by Bloomberg. The after-tax charges include $287 million in severance costs and $212 million tied to changes in how the firm calculates redemptions.
AmEx also took a $95 million charge that “deals with fees, interest and bonus rewards as well as an incremental expense related to the consent orders entered into with regulators last October,” according to the statement.
The U.S. Consumer Financial Protection Bureau announced Oct. 1 that AmEx would pay $112.5 million to settle claims it deceived customers who signed up for a particular card, leading them to believe they would get $300 and bonus points. The firm also charged illegal late fees, discriminated against some older applicants and failed to report consumer disputes to credit- reporting companies, regulators said.
The job cuts account for about 8.5 percent of AmEx’s 63,500-person workforce, a number that will be mitigated as the company refills some jobs, according to the statement. The total number of employees by year-end will drop by 4 percent to 6 percent and American Express expects to hold increases in annual operating expenses to less than 3 percent, the firm said.
“Against the backdrop of an uneven economic recovery, these restructuring initiatives are designed to make American Express more nimble, more efficient and more effective in using our resources to drive growth,” Chenault said in the statement.
The last large-scale job cuts at the company came during the financial crisis. The lender said in May 2009 that it would eliminate 4,000 positions, about 6 percent of its workforce, as cardholders squeezed by rising unemployment failed to pay debts. That followed 7,000 reductions announced in October 2008.
Customer card spending, the company’s biggest revenue source, climbed 8 percent in the three months ended Dec. 31 from a year earlier even after “a brief dip” in late October and early November as Hurricane Sandy affected consumers in the U.S. Northeast, according to the statement. AmEx, which has the lowest rate of soured loans among the biggest U.S. credit-card issuers, said write-offs in the quarter were 2 percent.
“Credit performance continued to be outstanding with write-off rates remaining near all-time lows,” Chief Financial Officer Dan Henry said during yesterday’s conference call.
Total revenue rose 5.2 percent to $8.14 billion, the company said. Full-year operating expenses climbed 12 percent to $12 billion from $10.7 billion in 2011, AmEx said. Adjusted 2012 operating expenses, which exclude $580 million in costs tied to a legal settlement with Visa Inc. (V) and MasterCard Inc. (MA), rose 8.6 percent.
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