american-express-announces-900-million-joint-venture

American Express Announces $900 Million Joint Venture

American Express recently announced to enter a joint venture with an investment group led by Certares.

This deal also means American Express will separate its Global Business Travel division (GBT) operations into a dedicated holding structure in which American Express and the investor group will hold an ownership of 50% each in exchange for a $900 million investment in the joint venture by the investor group. The venture will be led by Bill Glenn, former President of Global Commercial Services at American Express.
When the plans to spin off the division were announced back in September 2013, I was really surprised as of why a company like American Express which heads the leading TMC worldwide and was recently named No2 on Travel Weekly’s 2013 Power List would feel the need to enter a joint venture and in exchange receive a substantial sum of money, which would comprise to date the largest single investment made in a travel management company (as Bill Glenn himself mentioned in an company announcement on March 17th). More surprisingly, American Express had also announced job cuts of about 5,400 in 2013 to be made over the course of a year, predominantly from the business travel division.

When looking into American Express’ portfolio they have a sound market capitalization and revenue stream. Glenn himself said in an interview published on The Beat on March 24th that the investment would be used to create an additional capacity for products, technology and servicing capabilities. He disclosed that among other things they were working on specific products and services for mobile application. Obviously, they are working on restructuring for the digital market with a shift to online interactions. Are they looking to transform themselves into becoming a mobile and online booking TMC, directly taking on big players like Concur? It would make sense to find ways to incorporate changing trends into the GBT product list with the mobile landscape changing, consumers are already browsing more on their mobile devices than on their desktops and the usage of Apps is already soaring.

I am of the opinion that it makes sense to invest in technology but when you compare e.g. the leading travel companies they seem to have a very diverse take on this. Carlson Wagonlit relies solely on GDSs whereas HRG remains independent by using their own technology. BCD Travel is somewhat in the middle, trusting others’ tech as well as in investing in their own technology in order to stay competitive. Now to American Express, is this huge invest comprehensible in any way at all?

It makes me think about recent acquisitions in the industry where a lot of money exchanged hands. In 2010, there was an outcry when Google acquired ITA for a sum of $700 Million which are now peanuts compared to the most noteworthy acquisition of WhatsApp for $19 Billion.

So what is American Express’ game plan?

Let’s recap: They are receiving a lot of money, getting rid of employees, have a strong technology focus and the market is shifting from labor to online to mobile. Do they want to create their own corporate booking engine and shift usage away from their agents, without losing control of the client? In other words rather cannibalize themselves than losing control to Corporate Online Booking Tool providers such as Concur? But then why reinvent the wheel – maybe just acquire a corporate booking tool provider. Concur with a market cap of around $5.5 billion might be out of reach for a full takeover even with all that financial injections but maybe just a minority stake would help.

But there are other options as well. A significant stake in Sabre – according to a just released IPO the GDS/CRS is valued at around $4.66 billion – would be achievable. However, that way American Express would control almost the complete value chain in some cases and this would probably not be approved. The stage is set for speculations but with newest technology we can confirm first hand that the creation of an individual corporate booking engine is possible at transactions costs similar or even lower than the going rate. I’m curious to witness American Express’s next move.

Image by Kaspars Grinvalds

Leave a reply

Your mail address will not be published. Required fields are marked with *.