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Category: Portfolio Management

Condor Capital Wealth Management Credits New Rewards Program With a Buying Opportunity in American Express

MARTINSVILLE, N.J., Feb. 24, 2015 (GLOBE NEWSWIRE) — American Express, the second-largest credit card network in terms of payment volume, has endured a difficult stretch this month, but has a new rewards program that has the ability to change its fortunes. After failed negotiations with Costco, the world’s second-biggest retailer by revenue, the companies agreed to dissolve a nearly 16-year long partnership in early 2016 due a disagreement over the fees Costco would be paying AmEx going forward. AmEx significantly benefited from this partnership, as it had an exclusive grip on Costco’s members and the two co-branded a card together for use by members anywhere. To illustrate, approximately 10% of AmEx cards in circulation will be impacted and the domestic Costco business makes up about 20% of AmEx’s loans.

As if this divorce was not bad enough for business, a federal judge just ruled that AmEx violated antitrust laws by prohibiting merchants who accept AmEx cards from steering customers to other cards associated with lower fees. Ruling on the seven-week trial that took place last year, the judge essentially noted an absence of price competition between AmEx and its rivals, forcing its shares down and erasing yet another of $1.5 billion of AmEx’s market value. This ruling may also leave the door open for Visa and MasterCard to take greater market share.

While it is clear that AmEx has taken its share of hits that have wiped out a significant portion of its market value over the past month, it may now have what it needs to turn its fortunes around. After years of dissatisfaction over its rewards program that has led cardmembers to complain about the value of the points they have earned, the company has come out with a new cardholder-friendly promotion that Condor Capital believes has the potential to be the game-changer it sorely needs right now.

The invitation-only pilot program, which was offered to a relatively limited number of AmEx OPEN small business cardholders, is called “PointsMatch.” The company is essentially allowing the targeted cardholders to redeem one Membership Rewards point for one United MileagePlus (at United Airlines) or one American AAdvantage mile (at American Airlines). The process is rather straightforward and would be a significant coup for travelers; while domestic economy flights would likely be a very good deal, it would be an especially rewarding one should the prospective traveler find an international fight in first class where the total miles required to purchase a ticket differs greatly from the dollar value of the ticket.

For those who have been targeted by AmEx for this promotion, it works like this: after the cardholder finds available seats on one of the two airlines mentioned, AmEx will buy the ticket(s). At that time, points from the Membership Rewards bank, equivalent to the number of miles needed for an award ticket, will be subtracted. Note that the full ticket price, including taxes and fees, will be charged to the card as well, but will be reimbursed via a statement credit. As for those who are planning on running a scheme with this program, such as reselling the tickets for a profit, beware – AmEx reserves the right to stick the cardholder with the full cost and ticket if deemed guilty. In essence, you will have bought the ticket and no statement credit will be offered.

Providing attractive rewards that incentivize cardmembers and keeping its affluent customer base happy is clearly AmEx’s biggest priority, so a larger rollout of this program would be revolutionary. This would especially be significant if AmEx were to expand its partnership by adding other, major carriers that fly globally in addition to the two currently included in this promotion. Furthermore, whereas 1 reward point has generally translated to a value of $0.01 of rewards in the industry, this program has the potential to stretch the value of 1 reward point up to three, four, or even five times as much – a rarity in the current landscape. Imagine a rewards program where a traveler can redeem points for a first class round trip ticket to the other side of the world for half the cost of the ticket!

Although competition is increasing in the credit card space, AmEx’s introduction of this program on a larger scale would help keep its grip on the well-off customer base whose strong loyalty it has historically enjoyed. Prospective members, who may have been on the fence when considering a few different cards, may also sign up with AmEx to take advantage of a program that would truly corner the market on travel rewards if offered on a larger scale. In the end, Condor Capital believes that a broad expansion of PointsMatch to more cardmembers who could choose from many different airlines to travel all over the world using this program has the ability to be a true game-changer – and propel the iconic brand back into the limelight.

NOTE – At the time of publication, Condor Capital was LONG American Express (AXP) stock. Condor Capital has not yet received, nor will it receive in the future, any compensation by any entity for this article, from American Express or otherwise. The opinions expressed herein are solely those of Condor Capital; investing in AXP stock carries risk, including the loss of principal. This article shall not act as solicitation to commit any action in any way.

Condor Capital Wealth Management

Founded in 1988, Condor Capital Wealth Management is an employee-owned, SEC-registered investment advisor based in Martinsville, N.J. employing 16 professional and support staff. Since Condor is a fee-only investment management firm, its fees are based on portfolio size, not sales commissions or number of trades. For more information on Condor Capital Wealth Management, please visit www.condorcapital.com or call 732-356-7323.


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