American Express Co. may not have won Marriott International Inc.'s co-brand credit card relationship outright, but the terms of agreements announced Dec. 5 might amount to the next best thing.
Nearly three years removed from the loss of its largest co-brand relationship as Costco Wholesale Corp. and a smaller pact with JetBlue Airways Corp., American Express will maintain its status as the issuer of Starwood Preferred Guest-branded credit cards and gain the ability in partnership with Marriott to issue new co-branded products targeting the super-premium consumer and small-business segments.
Marriott said it continues to move closer to a goal of a unified loyalty program more than two years after it announced an agreement to acquire Starwood Hotels & Resorts Worldwide Inc., but this announcement put a timetable only on the rollout of a single technology platform. Resolution of separate co-branded card relationships with Marriott Rewards issuer JPMorgan Chase & Co. and American Express had been viewed as a key step in the integration process, and with the Chase pact due to expire in 2018, time was of the essence.
American Express executives put the size of the Starwood Preferred Guest card business at about 2% of billings and 5% of loans. It reported $271.9 billion in card billed business on a worldwide basis, including $176.4 billion in the U.S., in the third quarter. Cardmember loans totaled $67.9 billion globally, including $59.9 billion in the U.S. For the sake of comparison, when American Express announced in February 2015 that it lost the Costco relationship in the U.S. to Citigroup Inc., it disclosed that the co-branded card accounted for 8% of worldwide billings and 20% of worldwide loans.
Marriott put total customer spend across the existing Marriott-, Ritz-Carlton- and Starwood Preferred Guest-branded cards at nearly $60 billion in 2016.
American Express Chairman and CEO Kenneth Chenault said during an appearance at an investor conference that the returns associated with the new Marriott deal, much like the company's most recent extension of the agreement with Delta Air Lines Inc. under which it issues SkyMiles-branded cards, will be lower than those it had previously been generating. But he described the economics of the deals as "sustainable and attractive for us."
Chenault revisited the thinking that led American Express to give up the longstanding Costco relationship, reiterating that the economics of an extension in that case would not have been sustainable.
"We knew this answer would create short-term pressure on earnings, but we believed it was the right action for the company's long-term success," he said, noting the evolution of the retail marketplace toward digital channels factored into American Express' thinking in that respect.
American Express has shifted into growth mode as it lapped the June 2016 sale of the Costco portfolio to Citi. It also is preparing to on-board the approximately $1.2 billion in receivables in January 2018 associated with a Citi/Hilton Worldwide Holdings Inc program. At that time, American Express will become the exclusive issuer of Hilton Honors-branded cards. Much like American Express when it let the Costco co-branded business go, Citi said the economics to secure the Hilton portfolio did not make sense.
American Express made no secret of its desire to also serve as Marriott's exclusive co-branded card issuer, citing the range of travel-related assets it could bring to bear in such an arrangement and its success in building the Starwood Preferred Guest program. But Marriott will remain among a host of prominent consumer-facing brands that have opted to place their eggs in multiple baskets.
Amazon.com Inc. private-label cards are issued by Synchrony Financial, while Chase issues co-branded cards. Citi and Barclays Bank Delaware both issue co-branded cards for the AAdvantage loyalty program of American Airlines Group Inc. Bank of America Corp. and Capital One Financial Corp. issue co-branded cards in partnership with outdoors retailers Bass Pro Shops and Cabela's following the recent completion of their merger.
While the extent of the impact from the forthcoming rollout of the new Marriott-branded products and the merging of the two loyalty programs remains to be seen, the net result of the news may be that American Express wins by not losing.
