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There’s something appealing about a business model that makes money by saving other people money. So why is Amex GBT, the largest corporate travel management company, losing money?
American Express Global Business Travel (Amex GBT) said Tuesday it continued to pursue a two-pronged strategy as the world’s largest travel-management company: maintaining its lead in serving multinational corporations while aggressively expanding into the fragmented small- and medium-sized business market.
The strategy led to measured growth in the third quarter. Transaction volume rose 9% year-over-year, while revenue rose 5%.
Yet the company posted a net loss of $128 million. It hasn’t broken even since the pandemic.
The company said its cost-cutting program this year should generate $100 million in savings. The cuts were part of a three-year plan for cost reductions that began last year and included layoffs. The $100 million figure for this year was first quantified on Tuesday.
Adjusted EBITDA jumped 23% to $118 million, with 300 basis points of margin expansion.
Two-Pronged Strategy
Amex GBT has seen share gains among two customer segments: large corporates and smaller players.
Amex GBT said it won $3 billion worth of new business (measured as “expected annual average total transaction value”) over 12 months through September 30.
About two-thirds of that estimated value came from new small- and medium-sized clients.
Yet existing customer spending diverged across the segments. Global multinationals showed healthy 8% transaction growth while existing small and medium enterprises limped along at 2%. This divergence matters because the “long-tail” segment of smaller companies represents AmexGBT’s biggest growth opportunity.
Among large corporates, Amex GBT already has about 40% market share. It leverages network effects to maintain its position, enjoying a 97% client retention rate over the past year.
The large corporate segment is resilient. Amex GBT’s top 100 customers project an approximately 5% increase in travel spending in the fourth quarter, driven by an expected strong performance in the financial services, pharma, and automotive sectors.
By growing through acquisitions, Amex GBT gains scale, allowing it to negotiate better supplier prices. Analysts at Evercore ISI noted that the company has offered its corporate clients an average 10% discount versus publicly available fares.
Chasing the Long Tail of the Market
Meanwhile, among businesses that spend less than $20 million a year on air travel, Amex GBT estimated it had just about a 6% share of these companies that use outside help to manage their travel.
Small- and medium-sized businesses spend about $675 billion a year on business travel without the help of travel managers — twice the transaction volume managed by agencies like Amex GBT today.
Credit Suisse analysts estimated that if all unmanaged spending shifts to managed, Amex GBT and its rivals like Navan and TravelPerk could capture over $80 billion a year in incremental transaction value over roughly a decade.
The small- and medium-sized segment could potentially deliver 25% to 30% higher contribution margins than large enterprises due to a few factors summed up by Credit Suisse:
- Less negotiating power, leading to higher fees
- Higher usage of Amex GBT’s preferred rates (roughly 40% higher usage over the industry average)
- Lower service costs through greater use of self-booking tools
Weakness in the Small and Medium-Sized Segment
In the quarter, small- and medium-sized businesses saw transaction growth limping in at just 2%, representing a modest one-percentage-point improvement from the second quarter.
AmexGBT’s management pointed to two primary culprits holding back growth among small- and medium-sized business clients: sustained high interest rates and persistent inflation.
Management saw potential relief on the horizon, citing gradually declining rates in the U.S., the Eurozone, and Britain.
“If you look at the Amex card spending with small businesses across a very large base in the US, the card spending also stabilized in the third quarter,” said CEO Paul Abbott.
“As the macro conditions improve and interest rates continue to move down, we’ll start to see a gradual improvement,” Abbott said. “The SMEs [small and medium-sized enterprisees] are more sensitive to those conditions.”
Amex GBT’s commentary appeared to contradict what global hotel group CEOs have said in their recent earnings calls about how they’ve seen small and medium-sized businesses fully recover in hotel spending to 2019 levels while large corporates and groups are still catching up.
Cost Control to Fuel the Engine?
Amex GBT executives appeared content to grind out efficiency gains by leaning heavily on cost discipline and automation to drive profitability.
“We obviously have to focus on the things we can control,” said Karen Williams, CFO. “That means making sure that we’re driving greater productivity and greater results from all of our SME [small- and medium-sized business] sales and marketing channels.”
In the quarter, Amex GBT became somewhat more efficient. Operating costs grew just 1%, year-over-year.
Artificial intelligence has become an increasingly important tool for the company to automate manual processes — especially in sales, which represent half of its costs.
“We have deployed automation for our credit card reconciliation process, reducing the average handling time by approximately 50%,” Williams said. “We deployed AI to respond to our customers’ program change requests faster, reducing these time zones by approximately 80%.”
Few Updates on the CWT Deal
Amex GBT executives were sparse in their commentary about the pending $575 million CWT acquisition, limiting remarks to timing and the regulatory process rather than strategic details.
Abbott offered just a single line, stating they “continue to work through the relevant regulatory approval processes,” with an expected close in Q1 2025.
The deal would combine two of the largest corporate travel managers globally, and UK competition authorities are reviewing its potential impact. In the global multinational space, Amex GBT’s main competitors are BCD and CWT, with CTM as a smaller rival, Credit Suisse analysts said. Amex GBT has closed 9 acquisitions since 2016.
The lack of discussion of integration planning, updates on potential synergies, or details on regulatory hurdles or requests raised questions among some analysts about the deal’s likelihood.
The CWT acquisition would test whether Amex GBT can successfully integrate a competitor while maintaining its course to improve margins.
If regulators deny the merger, Amex GBT’s effort to scale up may be hobbled for a while, affecting its growth forecasts as the company tries to trim its $860 million in net debt.
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