American Express Co.'s first quarter report for 2011 shows a 33 percent rise in profits over the same quarter last year, but expenses were 19 percent higher. Although the company seems to be making a comeback after the past few years of recession, that improvement has relied on costly rewards programs that keep high-spending customers loyal to American Express over other credit cards.
Rewards cards remain popular
In today's competitive credit industry, rewards programs and bonuses for top members are a necessary part of staying relevant in the business world. More American Express customers are redeeming their rewards points than a year ago, and AmEx expects to see competition in the rest of 2011 from MasterCard and Visa, who were slower to recover from the impact of the financial crisis but have begun to make a comeback in the past year.
In the wake of the recession, when many cardholders defaulted on outstanding credit card bills, AmEx chose to focus on wealthier customers who spend more on credit and who typically pay their bills in full each month. In order to win the loyalty of these desirable clients, AmEx has invested more money in rewards programs that give free flights and other bonuses. Other card companies have since followed suit, offering similar rewards programs to compete with AmEx for a share of the high-spending market.
What's good for cardholders is good for AmEx
As a result, the most recent quarterly report shows a 17 percent rise in spending on AmEx cards, with revenues 7 percent higher than last year's $7.0 billion. The company spent a total of $5.2 billion on rewards benefits in 2010.
In the first quarter of 2011, American Express Co.'s shares were worth 97 cents per share, a full 4 cents higher than analysts' average prediction of 93 cents, and up from 73 cents per share a year earlier.