American Express Co.'s rapid-fire break-ups in February 2015 with co-branded payment card partners Costco Wholesale Corp. and JetBlue Airways Corp. led to sharp declines in the company's blue chip stock. However, a number of financial analysts stated they expect AmEx to recover from these temporary partnership setbacks.
Costco and JetBlue are high-profile, publicly held brands. Seattle-based Costco, established in 1983, has 671 member-only locations worldwide. JetBlue, known for discounted airfares, was established in 1998 with headquarters in Long Island City, New York, and is expanding by adding U.S. destinations to its roster.
Both Costco and JetBlue AmEx card products have been offering unique value propositions to cardholders. Costco cardholders currently pay a single annual fee for both the AmEx card and Costco membership while getting discounts and rebates both inside and outside of Costco stores. JetBlue cardholders who make purchases using JetBlue co-branded cards earn airline miles that never expire.
AmEx share prices are down approximately 15 percent in 2015 after posting a 52-week high of $96.24 in July 2014. As investors debate whether to buy, hold or sell the stock, both internal and external forecasts remain favorable.
"While we expect the negative impact on earnings and revenue growth in 2015 and 2016, we remain confident in our ability to achieve our 12 percent to 15 percent EPS growth target over the moderate to long-term," said AmEx Chairman and Chief Executive Kenneth I. Chenault during a conference call after the breakup with Costco.
Yahoo blogger J. C. Parets, founder and President of Eagle Bay Capital LLC, advised shareholders to stay the course. "From a risk management perspective, which to us is the most important thing, the risk levels are very well-defined," Parets wrote. "This skews the risk/reward very much in favor of the bulls."
The Feb. 12 news of the AmEx-Costco split had been expected after Canada's Costco severed ties with AmEx in 2014. Canadian cardholders used AmEx cards at Costco warehouses and gas stations until midnight Dec. 31, 2014, when all American Express Platinum Cash Rebate cards expired, and Costco e-commerce and brick-and-mortar locations stopped accepting AmEx payment card products. Canada Costco is now in partnership with MasterCard Worldwide and card issuer Capital One Financial Corp.
American consumers are expected to follow suit, using their TrueEarnings cards until midnight March 31, 2016, when the co-branded cards expire. TrueEarnings card benefits include a 3 percent rebate on gasoline purchases, up to $4,000 each year (1 percent thereafter); 2 percent cash back on restaurant purchases; 2 percent cash back for travel; and 1 percent cash back for all other TrueEarnings card purchases.
The U.S. relationship between AmEx and Costco endured for 16 years, giving AmEx an exclusive at Costco locations across the United States, where only cash, checks, debit cards and AmEx-branded card products were accepted. Costco is exploring new card brand partnerships for its U.S. stores.
JetBlue disclosed on Feb. 17 that it has established a new partnership with Barclay's PLC and MasterCard. Industry analysts see this as part of a wholesale makeover of the company that includes a new chief executive officer, changes to its aircraft such as adding more seats to its fleet of Airbus A320 jets, and new airfare and baggage fee policies.
AmEx cardholder discussion boards lit up with reactions regarding the demise of the popular credit card products. Minutes after AmEx revealed news of its separation from Costco on Feb. 12, cardholder Manthu wrote, "I had predicted about this several months ago on this forum, based on what happened in Canada. There, too, the new contract went from AmEx to Capital One. I joined AmEx only because of Costco, but I will be happy to retain my membership if AmEx issues a replacement product with no annual fee and a product that is competitive in the current market situation."
Echoing cardholder and retailer sentiments, Bob Nelson, AmEx Vice President of Investor Relations, attributed the nonrenewal to economics and failure to agree on mutually advantageous partnership arrangements."[E]verything comes down to cost and saving money for our members," he added.
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