Amex to Sell Off 50% of Biz Travel Unit

This article has been updated.

Just two weeks after announcing it was closing its U.S. storefront travel agencies and nine months after slashing 5,400 jobs across its businesses, American Express said it plans to sell off 50% of its Global Business Travel (GBT) division.

The sale, whose terms are still being discussed, would create a joint venture in partnership with an investor group led by Certares, a firm whose senior management team has significant experience in the travel industry.

The investor group would invest between $700 million and $1 billion in the joint venture, which, according to American Express, is designed to “grow the GBT business.”  

The deal with New York-based Certares, whose CEO is also co-chair of Travel Leaders Group, is scheduled to close in the second quarter of 2014.

Plans to maintain a strong presence
Despite recent moves by American Express to shed travel assets, “maintaining a strong presence in the business travel industry is of strategic value to the company,” the firm said in announcing the joint venture.

American Express positioned the move as “designed to accelerate the transformation of its Global Business Travel division.”

Stephen Squeri, group president, Global Corporate Services for American Express, explained that the first phase of the transformation involved reducing GBT’s cost structure through “technology and infrastructure advances.”

Squeri said the planned joint venture with Certares represents the next phase – whose goal is to accelerate the growth of the business “through additional investments that would be used to develop new products, services and capabilities” in order to “meet the evolving needs of our current customers, attract new ones, and continue to build our international business.”

Reaction: ‘We are not surprised’
While the move by American Express took some by surprise, others were far from shocked.

“American Express recently divested their publishing corporation to Time Inc., as well as divesting their tour operator business including Travel Impressions,” noted Michael Steiner, executive vice president of Ovation Travel group.

“It was reported recently that the holding company might be facing regulatory issues by engaging in non-financial activities, so we are not surprised with the recent news,” he added.

A spokesman for American Express responded that regulations allow for financial services companies to own travel agencies. “[R]egulatory considerations weren’t a driver behind the joint venture,” the spokesman told Travel Market Report.

As for what’s in store for American Express, Steiner said that the scope of the change could create “some instability” with current customers. But, he added, “longer term this could be a good move for American Express. It is all about the execution.”

The Travel Leaders connection
“It will be interesting to see what, if any, business relationship will occur between American Express and Travel Leaders, given the ownership structure of Certares and Travel Leaders,” added Steiner, referring to Certares chairman and CEO Greg O’Hara, who is also co-chairman of Travel Leaders Group.

A spokesman for Travel Leaders said there is no connection between the Amex announcement and Travel Leaders.

Characterizing the announcement by American Express as “big news,” Peter Klebanow, president of Ultramar Travel Management in New York, said he sees the company re-focusing on its more profitable financial services operations.

“This is a play for their stock and earnings. The credit card business is their high-margin business, so I think it’s fair to assume this will help them concentrate on high-margin business.”

An opening for competitors?
Some travel management executives, Klebanow among them, said they see opportunities arising out of the move by American Express.

“It’s clearly going to create opportunities for competing agencies like ours because of the uncertainty,” Klebanow told Travel Market Report. “It forces clients to take stock of what they have now and what they would do in the future.

“So many contracts roll over, and it takes moments like this for people to really take a look at what they’re getting now against what they could be getting going forward. I think this will force people to take stock of what they’re really getting,” Klebanow said.

The announcement will create uncertainty for both American Express customers and employees, and some may well jump ship before the deal is complete, Klebanow suggested.

“Half the people will wait and half will take the initiative. This goes for employees and customers alike.”

Changing economics
As for why American Express is divesting part of its business travel division, Klebanow said, “I think in the past Amex has been successful in cross-selling credit cards and travel. Maybe there are more challenges with that recently.”

Bill Sarcona, assistant general manager for KIE/Kintetsu International, commented that “the economics of corporate travel business is changing, as reflected by the recent announcement of the restructuring  within Amex. I am sure this move will enable the company to trim costs and reinvest in more profitable areas.”  

Sarcona commented that all players in corporate travel, his own firm included, must change in order to stay competitive. “As corporate travel continues to move online, traditional travel agencies must be able stay ahead of the curve to survive. To this extent KIE has had to reinvent products and services to adapt to this new reality.”

Big player in Canada
In Canada, where two years ago American Express severed ties with its independent travel agency network, one longtime retail travel seller was taken aback by the latest news out of New York.

“We’re kind of surprised. They are a big player and were handling most of the largest accounts,” said Tony Fragapane, general manager of Voyages Concierge Deluxe Travel in Montreal.

Like his U.S. colleagues, Fragapane said he sees potential opportunities in the development. “It’s going to really help the retail community because Amex is a big player in Canada. There’s going to be a lot of business dispersed to competitors for sure. Amex was very aggressive for corporate accounts.”

What’s next for GBT employees
Fragapane also noted the impact on American Express staffers. “I heard that headhunters are getting calls,” he said.

In its announcement, American Express said it anticipates that employees of its Global Business Travel division will “transition to the new structure.”

Once the deal is complete, that entity will be managed by a board of directors that includes “representatives appointed by American Express and the investor group, as well as selected independent directors,” it said.

The GBT management team will remain in place “as the parties work toward completion of the transaction,” according to American Express.

Andrew Sheivachman contributed to this report.

Editor’s note: An earlier version of this story incorrectly indicated that American Express divested its publishing arm to Time Warner Inc. It should have stated that the intended buyer is Time Inc.