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American Express (NYSE:AXP) announced some major changes to its luxury credit card – The Platinum Card® from American Express. Effective October 6th, cardholders will earn 5 Membership Rewards (MR) points per dollar on airfare booked directly with airlines or through American Express Travel. This is a big jump from the card’s prior offering, which gave users just 1x points on these types of purchases.
The company teased at further improvements to the card’s benefits in the near future. In the company's press release, Denise Pickett, president of U.S. consumer services for American Express, said, “You’ll see further enhancements for Platinum and Business Platinum Card Members and new programs that leverage the expanded network of small business merchants.”
The improvements are best for business customers. Those with The Business Platinum® Card from American Express who redeem their MR points through Amex's portal on flights will receive a 50% points dividend. This effectively boosts the value of their MR points to roughly $0.015. Business owners who use the card to make purchases over $5,000 will earn 1.5x points on the transaction. As a result of all these changes, the Business card’s rewards rate will climb up to 3% on travel booked through Amextravel.com, 2.25% on purchases over $5,000 and 1.5% in other categories.
Analysts have anticipated this announcement ever since the launch of Chase’s popular Chase Sapphire Reserve®. In August, JPMorgan Chase entered the premium credit card market that has long been Amex’s domain. The Chase Sapphire Reserve® was wildly successful and received mass media attention. Chase officials announced the bank ran out of cards due to the high volume of applications they received.
Despite these changes, Amex won't successfully dethrone the Chase Sapphire Reserve®. Amex’s new offer is enough to beat the Chase card on a single front – booking airline tickets. The Platinum Card® from American Express will have a 5% rewards rate on airfare booked with airlines, compared to the 4.5% on the Chase Sapphire Reserve®. However, the Chase card takes that 4.5% rewards rate and extends it to the broad “travel” category, not just direct airfare bookings. That means cardholders can enjoy above-average returns on hotels, car rentals and other modes of transport. The Platinum Card® from American Express retains a measly 1% back in these categories. Additionally, the Chase Sapphire Reserve® comes with a significantly better sign-up bonus and annual travel credit. Amex's latest update has not done enough to address these points.
The Platinum cards have long been the flagship product for the company and have attracted high net worth members. These big spenders have historically been good performers for Amex, helping them drive their high discount revenue. As new players enter the field, the company will use moves like this to try and maintain customer loyalty and prevent cardholders from jumping ship.
American Express has been recovering since its messy divorce with Costco and JetBlue. The former made up 8% of Amex's global 2015 billed business. The loss of these two major co-branded relationship from their portfolio had an impact on the company's discount revenue – that is the revenue from merchant fees. According to their quarterly earnings report, part of the loss has been offset by the increase in cardmember fees collected, which has been “primarily driven by growth in the Platinum, Gold and Delta portfolios.” With this latest announcement, it seems American Express is doubling down on what has been working for them in the past. In Q2 of 2016, discount revenue was down $122M for the company year over year, while net card fees revenue was up $48M.