American Express 2015 Annual Report Download - page 49

accounted for approximately 22 percent of our worldwide billed business for the year ended December 31, 2015. Card Member
loans held for investment related to our cobrand portfolio accounted for approximately 33 percent of our worldwide Card
Member loans held for investment as of December 31, 2015, which do not include Card Member loans related to our cobrand
partnerships with Costco Wholesale Corporation in the United States and JetBlue Airways Corporation that were transferred
to held for sale on the Consolidated Balance Sheets effective December 1, 2015. See Note 2 to the “Consolidated Financial
Statements” for additional information on loans and receivables held for sale.
We face the risk that we could lose partner relationships, even after we have invested significant resources, time
and expense in acquiring and developing the relationships. The volume of billed business could decline and Card
Member attrition could increase, in each case, significantly as a result of the termination of one or more partnership
relationships. In addition, some of our cobrand arrangements provide that, upon expiration or termination, the
cobrand partner may purchase or designate a third party to purchase the receivables generated with respect to its
program, which could result in a significant decline in our Card Member loans outstanding. For example, we previously
announced that our U.S. cobrand relationship with Costco is set to end in 2016 and we expect to sell the outstanding
Card Member loans associated with the Costco portfolio. For a discussion on Costco and our expectations regarding
the portfolio sale, see “Business Environment” under “MD&A.” In November 2015, Starwood Hotels & Resorts
Worldwide, with which we have a cobrand relationship, announced that it agreed to be acquired by Marriott
International, which has a cobrand relationship with a competing card issuer.
We also face the risk that existing relationships will be renegotiated with less favorable terms for us as competition
for such relationships increases. In 2015, both Card Member rewards expense and cost of Card Member services
increased when compared to the prior year, reflecting a portion of the increased costs related to several recently
renewed cobrand partnerships.
The loss of business partners (whether by non-renewal at the end of the contract period, such as the end of our
relationship with Costco in the United States in 2016, or early termination as the result of a merger or otherwise, such
as the withdrawal of American Airlines in 2014 from our Airport Club Access program for Centurion and Platinum Card
Members) or the renegotiation of existing relationships with terms that are significantly worse for us could have a
material adverse impact on our business and results of operations. In addition, any publicity associated with the loss of
any of our key business partners could harm our reputation, making it more difficult to attract and retain Card
Members and merchants, and could lessen our negotiating power with our remaining and prospective business
partners.
We have agreements with business partners in a variety of industries, including the airline industry, that
represent a significant portion of our business. We are exposed to risks associated with these industries,
including bankruptcies, liquidations, restructurings, consolidations and alliances of our partners, and the
possible obligation to make payments to our partners.
We may be obligated to make or accelerate payments to certain business partners such as cobrand partners and
merchants upon the occurrence of certain triggering events such as: (i) our filing for bankruptcy, (ii) our economic
condition deteriorating such that our senior unsecured debt rating is downgraded significantly below investment grade
by S&P and Moody’s, (iii) our ceasing to have a public debt rating, or (iv) a shortfall in certain performance levels. If we
are not able to effectively manage these triggering events, we could unexpectedly have to make payments to these
partners, which could have a negative effect on our financial condition and results of operations.
Similarly, we have credit risk to certain cobrand partners relating to our prepayments for loyalty program points
that may not be fully redeemed. We are also exposed to risk from bankruptcies, liquidations, insolvencies, financial
distress, restructurings, consolidations and other similar events that may occur in any industry representing a
significant portion of our billed business, which could negatively impact particular card products and services (and
billed business generally) and our financial condition and results of operations. For example, we could be materially
impacted if we were obligated to or elected to reimburse Card Members for products and services purchased from
merchants that have ceased operations or stopped accepting our cards.
The airline industry, which represents a significant portion of our billed business, has undergone bankruptcies,
restructurings, consolidations and other similar events in the past. The airline industry accounted for approximately
eight percent of our worldwide billed business for the year ended December 31, 2015. Our largest airline cobrand
portfolio, American Express’ Delta SkyMiles, accounted for approximately six percent of our worldwide billed business
for the year ended December 31, 2015 and approximately 20 percent of worldwide Card Member loans held for
investment as of December 31, 2015. We have credit risk to the airline industry to the extent we protect Card Members
against non-delivery of goods and services, such as where we have remitted payment to an airline for a Card Member
purchase of tickets that have not yet been used or “flown.” If we are unable to collect the amount from the airline, we
will bear the loss for the amount credited to the Card Member.
For additional information relating to the general risks related to the airline industry, see “Risk Management —
Institutional Credit Risk — Exposure to the Airline Industry” under “MD&A.”
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