American Express CEO brushes off Delta's controversial rewards shift

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Delta Air Lines' changes to its loyalty program — tying rewards to money spent instead of miles flown — caused major pushback from travelers, enough for the airline's CEO to walk back some of the strategy and for American Express' CEO to face questions about the situation during the Amex earnings call on Friday.

Amex contends that the controversial shift has not hurt the financial institution's partnership with Delta nor resulted in a loss of business.   Amex is in the midst of implementing a strategy to enhance user experience as other payment firms such as Brex add travel payments.   

"As Delta makes changes, we are in lockstep with them all the way," Amex Chairman and CEO Steve Squeri said during the call. Delta's co-brand relationship with American Express dates to 1996, with Amex being the exclusive issuer of SkyMiles credit cards. The companies renewed this partnership in 2018 for an 11-year term. 

In September, Delta said it would change its SkyMiles co-branded Amex loyalty program to focus on payments volume instead of miles flown. Delta CEO Ed Bastian this week sent a note to customers saying he had received hundreds of emails from travelers opposed to the plan, and that the new loyalty policy would be eased in line with some consumer requests.

For Amex, which gets nearly 10% of its total card spending from its Delta relationship, the battle over Delta's loyalty program has not harmed business, Squeri contends. "As far as spending goes there has been zero impact,
Squeri said. "Delta card spending is up 20% year over year." 

The airline's loyalty shift is meant to deemphasize traditional travel points that focused on more expensive flights for business trips and focus on travel-adjacent card spending that's not directly related to airfares. Delta's reduction in flight credits would make it harder for consumers to advance to premium reward status based on flights alone. Delta's partial reversal this week makes it easier to reach premium status than under the September changes. But the airline is still changing its rewards focus to overall card spending over flight purchases, effective Feb. 1, 2025. 

Delta's changes will also affect access to Sky Club lounges as a perk for Amex cards. The original change, announced in September, cut Sky Club access, placing caps on lounge visits for some cards that had unlimited visits and curtailing access for other cards. Delta tweaked that change by increasing the caps and easing some of the other cuts. 

"They have made some changes, their team got a reaction, and they made other changes to the program that have been received in a good fashion," Squeri said. Delta did not provide comment for this story. 

For the quarter ended Sept. 30, American Express reported net income of $2.45 billion, up 30% from the prior year. Earnings per share were $3.30, up 37% from $2.47 per share the prior year. Analysts were projecting $2.95 per share, according to FactSet. Total revenue was $15.4 billion, up 13% from a year earlier and in line with FactSet analysts' projections.

Total network volume was $420.2 billion, up 7% from about $392 billion in the third quarter of 2022.

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"The investments we have made in our value propositions are driving brand relevance across generations, with millennial and Gen Z consumers remaining our fastest-growing consumer cohort," Squeri said in a release before the earnings call. Spending by those groups increased 18% in the latest quarter compared with the prior year, he added. Amex affirmed its full-year growth projections of earnings per share in the high teens and revenue growth of about 10%.

Inflation and concerns over a potential economic downturn have not weighed on Amex's payments volume or overall financial performance, giving the company the confidence to stick with its forward projections, according to Squeri. In the U.S., Amex reported 9% year-over-year growth in overall consumer spending, 6% on goods and services and 13% on travel and entertainment. International spending was up 15%. Amex's focus on relatively higher-earning consumers has thus far shielded it from a broader pullback in consumer spending. 

"Our card base is really a small piece of the overall U.S. economy," Squeri told analysts on Friday. "You probably had this same question at this time last year, and I probably gave you the same answer." 

Amex is preparing for a nominal impact from a slower economy. Provisions for credit losses rose from $778 million to $1.2 billion, which Amex attributed to lower net-reserve build. The company said write-offs and delinquency rates are below pre-pandemic levels. 

"Good quarter overall but volume and expense trends may be signaling something," said Jeffries analysts in a note following the earnings release. 

"The quarter reflected consistent revenue driven mainly by [net interest income] as billed business was slightly slower quarter over quarter, combined with normalizing credit trends and lower operating expense," Jeffries said. "Billed business may be decelerating as results remain relatively stable within travel and entertainment and millennial cohorts but are slowing with traditional cohorts such as boomers."