Rich American Express customers continue to spend freely, with one exception

American Express reported Q2 total spending up 7%, but travel spending, specifically airline transactions, remained flat year-over-year due to stalled domestic economy airfare, which saw prices decline 3.5% in June. Despite beating Q2 profit and revenue expectations and reaffirming 2025 guidance, Amex shares fell 2.7% midday and have trailed financial peers year-to-date. This market reaction reflects investor concerns over the weakness in airline spending, increased costs associated with its rewards programs like the refreshed Platinum card, and intensifying competition in the premium card segment, signaling potential challenges to Amex's growth strategy.

Analysis

American Express demonstrated resilient top-line performance in the second quarter, with total card spending growing 7% year-over-year, beating expectations, and reaffirming its 2025 guidance. However, this strength was overshadowed by a critical deceleration in travel spending, where airline transactions stalled to a flat year-over-year growth rate. Management attributed this weakness specifically to domestic economy airfare, a trend exacerbated by a 3.5% annual decline in overall airfare prices as of June. Despite the earnings beat, the market reacted negatively, sending shares down 2.7%, reflecting concerns that this slowdown in a core Amex vertical could undermine its airline partnerships and lounge network investments. The stock's year-to-date underperformance of less than 4% against peers like JPMorgan and Citigroup is further fueled by a bear thesis centered on rising costs for rewards programs and intensifying competition in the premium card market, suggesting investors are worried Amex must spend progressively more to achieve growth.

Key Decisions for Investors

• Investors should weigh the company's stable headline growth and reaffirmed guidance against the concerning stagnation in the high-value airline spending category, which could signal future margin pressure.
• Monitor Amex's marketing and rewards-related expenses in upcoming quarters, as the market's negative reaction suggests a strong focus on whether the cost of growth is becoming unsustainable amid heightened competition.
• Given the stock's underperformance relative to financial peers, assess whether the current valuation adequately prices in the risks associated with stalled travel spending and competitive pressures.
• Focus on forward-looking commentary from management on travel and entertainment trends, as a rebound in airline transaction volumes will be a key catalyst to counter the prevailing negative investor sentiment.