American Express buoyant on travel recovery by url15344


									October 2004 TRAVEL-RELATED COMMERCIAL REVENUES • American Express

American Express                                                                      By Martin Moodie

buoyant on travel recovery
Brendan Walsh is Senior Vice President & General Manager of Consumer Travel
International & Foreign Exchange Services for American Express, the world’s most
famous provider of currency and travel services. Those services include an extensive
foreign exchange retail business at many of the world’s biggest airports. Walsh has
an acute insight into the global travel market and its related commercial activities,
which he shared with Martin Moodie when they met in London recently.

                                                              “We have
                                                              increased our
                                                              presence at the
                                                              major gateway
                                                              airports,” says
                                                              Brendan Walsh

Organisational overview                                        well as lifestyle services in all the main capital cities.
The Moodie Report: Let’s begin by talking about the
broad dimensions of the business that you head.                How closely are the two arms – foreign exchange
What exactly does it embrace?                                  outlets and consumer travel services – related?

Brendan Walsh: Across the business we call Consumer            There’s obviously a degree of dependency. Foreign
Travel International & Foreign Exchange Services, we           exchange volume will depend somewhat on the number
employ around 3,500 people. A vast part of that number         of people travelling. But there’s also a great deal of inde-
is what we call the ‘face’ of the brand – whether they work    pendence.
in travel offices, foreign exchange offices or foreign
exchange locations at airports. They represent the cus-        Let’s look in particular at your foreign exchange
tomer experience when the customer walks into the office       business, which is closest to the heart of our airport
to cash a cheque, get money, replace a card and so on.         authority readers. How is that structured?

Importantly, out of that number are currently about            We have three arms to the foreign
1,100 to 1,200 telephone-based people in the major cap-        exchange business. We have a retail arm
itals around the world providing travel and lifestyle serv-    – retail I would define as high street, like
icing to our premium card base (Centurion, Platinum and        Wilton Road or The Strand in London or
Gold card travellers). They provide travel services as         Park Avenue in New York, as well as an

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                                                                                               would see as a result of the
 “When it comes to
                                                                                               Euro coming in. We’re
 bidding on airport
                                                                                               very happy to see that it’s
 locations, it's
 becoming more                                                                                 done more than that.
 competitive than
 it has been                                                                                   How big was the impact
 historically,” says                                                                           of the Euro – one would
 Walsh                                                                                         imagine a business like
                                                                                               yours must have taken a
                                                                                               terrible hit?

                                                                                            In preparation we under-
                                                                                            took extensive studies
airport presence. In the past few years we have signif-       about what would happen with the Euro. We did analy-
icantly increased our presence at the major gateway           sis country by country on what currencies were being
airports: Heathrow, Charles de Gaulle, Orly, Athens,          spent. We were within half of a percent in terms of the
Madrid, Geneva, Munich and so on. And the reason for          ultimate revenue impact. So we were very happy.
that is partly that the American Express brand – the
familiar blue box – is a global brand. So being where cus-    The impact that we took was significantly less than other
tomers need us, where they want us, makes a lot of sense.     organisations. No-one really knows why but I have a
                                                              hypothesis: it’s because it’s American Express. Our busi-
And therefore, from an airport perspective, we have a very    ness has always been heavily US Dollar-based, so unlike
targeted, clearly-defined strategy of looking at the high     other organisations, we didn’t have that emphasis on
concentration airports. We’re interested in the airports      intra-European exchange.
where our 60 million card customers want us to be.
                                                              The airport foreign exchange business
We then have a significant wholesale arm. That’s really       If you look at the airport sector in recent years, one
the bulk supply of wholesale currencies to corporates         of the key dynamics is the heavy downwards pressure
such as large travel multiples, banks and financial insti-    on traditional airport revenues and a resultant push
tutions. Our wholesale business has grown significantly       to grow non-aeronautical revenues. How is this trend
over the past years; we are one of six banks globally that    affecting your sector?
have an extended custodial inventory licence. That means
we’re allowed to hold dollars on behalf of the Federal        We see a very clear decline in the traditional aeronauti-
Reserve Bank in New York. That’s hugely important             cal revenues, and therefore lots of pressure on the non-
because it gives us the ability to prise many advantages in   aeronautical side. So when it comes to bidding on airport
a highly-competitive market.                                  locations, it’s becoming more competitive than it has
                                                              been historically. However, American Express is very
The third dimension is a relatively new product called        clear that we’re not interested in being in airports if it’s
international payment, a wire transfer business that tar-     going to cost us money to be there.
gets small and mid-sized corporates. So far we have
launched this in the US, Australia, the UK and Singapore.     Yes, we see this as a very strong way of being where our
And its growth has been tremendous, because we have           customers want us to be, so we focus on the key gateway
targeted our small business customer card base. For these     airports. It’s very appealing from a brand visibility per-
guys our value and service proposition is very appealing.     spective, but we’re not prepared to be there and lose
Why? Because for the average small business guy, if           money – that’s not even up for debate.
something has gone wrong with an international transfer,
they call their bank and they’re basically at the bottom of   We believe as an organisation that the profile of our typ-
the pile – after all, they’re not sending a hundred million   ical customers means they will spend more than those
dollars, they’re talking about US$30,000 or US$40,000.        belonging to other card organisations. There’s value in
                                                              that, and value in the customers we bring, but we’re not
We’ve seen tremendous success in this area. Strategically,    interested in running loss-making operations.
when we introduced this about four to five years ago, we
saw it as a way of offsetting any volume declines that we     So you’re not unlike many of the luxury brand com-

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panies in the travel retail channel, which see a real           eign exchange contracts? Are
benefit from the visibility aspect but experience a real        the guarantees mainly fixed or
tension in terms of the cost of entry. How do you               pax-related?
weigh that up?
                                                                It varies a lot. Traditionally it had
The way we look at visibility is that we have 1,700 or          been fixed minimums, but I see a
more service outlets globally that we can use to showcase       definite movement towards the
the brand. Obviously, from the concentration perspective,       per-pax model. They have their
airports are attractive. But they have to be attractive in      disadvantages and advantages.
commercial terms, so we will not endeavour to set up an         When a disaster hits and volumes
airport operation that loses money just to showcase the         drop by -40%, a fixed model is not
brand – because we have 1,700 other outlets around the          a good one to have. The move to a
world that do that.                                             per-pax model is a response to
                                                                things like 9/11. That’s fine, but
So if there’s a tender at, say, Heathrow terminal five,         what you’ve seen is a drop in spend
you will bid – but very much under your own rules of            with many different retailers. It can
engagement?                                                     be driven by many things – by the
                                                                economy, by people’s concerns, by
I hesitate to say our own rules of engagement, as that          the low-cost carrier development.
sounds almost arrogant. But we have very clear guidelines
about what we will do and what we will not do. We like          What’s the best model for you?
to be as flexible as we can with our partner; we like to see
ourselves as a very strong business partner. For example,       It depends on the environment. But I believe a per-passen-
in Singapore Changi we have a great partnership with the        ger model is more suitable for us because I believe our fran-
airport authority. We’ve just renewed a five-year contract      chise attracts a higher-calibre, higher-spending passenger.
there, and they have asked us to be one of just three air-
port concessionaries to act as advisors on a board to dic-      So when there is a fall-away in travel and/or spend,
tate or mandate training standards. As you know, Changi         do you find that your core customer holds up better
is hugely prestigious from its service quality perspective.     in comparison?

That sort of thing is very important. It shows that we          Our corporate base will still travel quite extensively. On
want to deepen the partnership; that we’re not just there       the consumer side, again given the profile of the individ-
as another tenant.                                              uals that we have, they are more insulated from the
                                                                volatility of recession. We feel the impacts of the econo-
You’re not alone as a concessionaire in saying you’ll           my, war, disease and so on slightly less.
only bid on sustainable terms. One of the dilemmas
that travel retailers face is that if they bid on an entire-    Is your own business model for airport retail cen-
ly sound and logical basis then they don’t win. There’s         tralised or managed regionally?
always a joker in the pack who will bid what seems
excessive money. Is that the case in your sector?               Much more of the latter. For example, the operation in
                                                                Singapore is managed by our Asia group. It’s managed by
Yes, I believe it is. We’ve submitted numerous bids where       the same individual who is responsible for the franchise
some other entity has won strictly on financials. We’re         business, the retail consumer business and so on. We
relaxed about that because, unlike others that compete in       look at the airport as one of several different channels for
this arena, airport foreign exchange is just one of the many    touching customers.
different channels that we have. We have airports, we have
high streets, we have our wholesale business and our inter-     That’s a nice phrase, but how do you touch cus-
national payments business. And that’s just on the foreign      tomers at the airport? How do you differentiate your-
exchange side of things. Then we have retail travel, fran-      self from competitors, in what must be something of
chise travel. So if I don’t win a bid it doesn’t mean I’m out   a commodity business?
of business. I can be more holistic in my perspective.
                                                                That’s a good question because a commodity business is
What’s the traditional model for on-airport for-                what it is. The fact is that we’re a global brand, globally-

206                                                                                                     The Moodie Report

                                                                times of the year, if we know they are travelling to
                                         Global brand:
                                                                Heathrow or Paris or Geneva or wherever, we will put on
                                                                their itinerary, ‘Use the American Express foreign exchange
                                         Express works
                                         closely with           facility etc.’ It’s not an expensive campaign but it’s effective.
                                         airlines to drive
                                         passengers to its      We also do targeted inflight advertising. We did a lot of
                                         airport foreign        that in Greece for the Olympics. We do targeted cam-
                                         exchange               paigns not just in the US but also in other regions to
                                         bureaux                attract people into the bureau.

                                                                Another way of driving volume is by working with some
                                                                of the airlines. Given the size and volume that we have
                                                                from a travel agent perspective, we have excellent rela-
                                                                tionships with a lot of the airlines. So we can work with
                                                                them to drive their passengers to us.

                                                                With regard to average transaction, we do a lot of work
                                                                with our staff. We give them extensive training in cross-
                                                                selling products. So it’s a case of “Good morning, Mr
                                                                Moodie, how long are you going to be in London? Do
                                                                you need a phone card or a mobile phone? How many
recognised. So someone from Australia going to Paris            days are you going to be here – £50 is probably not going
knows American Express from home and sees it again              to be enough, can I change more for you?” – and so on.
when they arrive. The values we represent in terms of
consistency, fairness and reliability should be the same in     So we do a lot of cross-selling, switch selling and up-sell-
Paris as what they were used to in Sydney.                      ing. We’re very customer-focused. We’re not there just to
                                                                generate more business; it’s more focused on the cus-
And that, from a consumer perspective, is quite reassur-        tomer’s needs. That helps the average transaction value.
ing. We also like to try to differentiate ourselves from a      And of course the average profile of the American Express
servicing perspective, i.e. having the best and fastest serv-   customer means that they spend more – that in itself
ice. That’s reflected in the way we invest in training – not    drives up the spend.
just in customer service training, but also the whole area
of regulatory compliance training. This is something            Are you in many competitive situations in airports?
that’s taken a whole new dimension in the past two years.       And if so, what are the factors that give you an edge
We have always been very strong on that as a brand.             over a rival operator?

What are the key drivers of your market?                        Yes, we are. Heathrow is one example. Geneva, Paris and
                                                                Madrid are others. One of the key drivers at the airports is
A key driver is volume. You can take a P&L on the num-          where you are physically situated – that is hugely important.
ber of international travelling passengers, times the pen-
etration you have, times their average spend. Look at any       And the queue must be the death of your business?
commercial outlet in any airport: they don’t have much
control over the number of passengers coming in to the          Sure; the last thing we want is the appearance of a queue.
airport. But they do have control over the numbers they         But we make sure that we manage the staffing levels to
can attract to themselves. And they do have control over        really match the peaks in passenger volume. If you have
the amount that individual passengers will spend.               to queue for duty free or foreign exchange, it’s a case of
                                                                forget it, it’s just too much hassle.
We focus on penetration levels – the number of people we
can get to use our facility – as well as the spend. And there   Improving the speed of transaction can’t be as easy
are numerous programmes we have under way for that. We          as it sounds when you’re dealing frequently with sig-
are the largest travel agency in the world. From a US per-      nificant amounts of money?
spective, we provide travel arrangements for the largest
number of business travellers. And in doing that, at certain    The way we handle that is to segregate the windows. We train

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                                                                    model that is flexible enough to withstand significant
                                                                    volume downturns. And that’s what we’re looking at.

                                                                    Travel, of course, finds itself in the front line of any
                                                                    impact from all these external events.

                                                                    Definitely. But from a consumer perspective, we have
                                                                    seen a rebound to pre-9/11 volumes, which is very reas-
                                                                    suring. We have also seen some parts of our business
                                                                    doing hugely well and outpacing our expectations. We
                                                                    have seen a change in consumer behaviour both in terms
                                                                    of the actual lead time to booking travel – which has
                                                                    shortened, say, in the UK from a typical pre-booking sea-
                                                                    son of three to four months and virtually disappeared in
 "The average profile of the American Express                       some cases – and in the length of stay.
 customer drives up the spend”
                                                                    We see a move towards more short break type holidays
our staff so that they immediately ascertain the type and           and closer-to-home breaks as opposed to the longer haul,
nature of the transaction. They are trained well enough to          longer term. What impact does that have? We’re doing
identify that if this is a significant amount of money – over a     more transactions, but they have a lower tag [value].
couple of thousand dollars, say – then for compliance reasons
we have to ask a series of questions. If it’s a mobile phone type   And the driver of the shorter stays is not just con-
transaction or anything that’s of a lengthy nature, like trav-      sumer concerns but also changes in the travel market?
ellers’ cheques refunds where we need to do a lot of positive
identification, those transactions would be segregated.             There are two dynamics going on. There are the envi-
                                                                    ronmental issues, the geo-political situation that drives
That leaves the rest of the cashiers open to do reasonably          people to conclude that they do not want to go on that
routine transactions in the most efficient and expedi-              long-haul two-week vacation. Instead they want to stay
tious manner. That’s what helps keep what we call the               closer to home and have a series of short breaks.
average handle time reasonably quick, without being
offensive to the customer experience.                               But at the same time there’s a whole lot more availabili-
                                                                    ty, at hugely attractive prices to the consumer. So this is
Analysing the health of the travel market                           the big win-win. Thanks to the low-cost airlines, the
What’s the state of the aviation and travel markets?                consumer can fly anywhere for hugely attractive prices.
                                                                    The whole low-cost issue is really driving demand. It’s
The entire travel industry is going through tumultuous              very important from our perspective. It’s driving demand
times. That’s driven by the events of the past several              for travel. And we’re about providing consumer travel and
years. Even pre-9/11 there were economy woes. Then we               foreign exchange services.
had 9/11, followed by pre-war, then war, then SARS.
                                                                    Market opportunities
Now we live in an environment where people are con-                 How are other key regions and markets performing?
tinually concerned and anxious about what’s going to                Japan seems to be suddenly coming back strongly?
happen next. We believe that’s how the environment will
be for the foreseeable future – it’s not going to change.           Suddenly, as in the past six months or so. We provide
That’s how we start to plan.                                        travel and lifestyle services to our premium card base in
                                                                    Japan – Centurion, Platinum and Gold. We’ve seen a very
So you factor in potential crises?                                  healthy recovery in numbers coming from Japan; it’s very
                                                                    encouraging and we’re looking to invest more there to
That’s difficult – I said exactly the same thing to my peo-         capitalise on that recovery.
ple the other day: “How do you factor in crisis?” You can’t
take a multiple and discount! But seriously we know, based          In North America we’re seeing growth in the number of
on our previous experience, the extent of the impact on our         Europeans taking advantage of the US Dollar, notably
business. What we need to do in turn is to have an economic         the strength of the Pound versus the Dollar, especially in

208                                                                                                        The Moodie Report

the short break market. But we’re also seeing growth in         We do a lot of franchising on the travel side of our busi-
family-style holidays to Orlando or wherever. So that’s         ness. On the consumer travel side we started our eco-
very encouraging.                                               nomic model 150 years ago owning and running foreign
                                                                exchange outlets. But over the past five to ten years we
We obviously watch very closely where our customers             have embarked on a franchise strategy of really trans-
want to travel to. New York is still very much up there as      forming some retail travel outlets, from being franchised
a favoured destination for long weekend breaks, shopping        and at the same time looking to significantly grow our
and so on.                                                      franchise business.

In Asia we’re seeing huge growth in business, but you           So now we have some 1,700 or so franchise locations
need to understand that it’s coming off last year which was     across the world, and we are looking to significantly
like a rollercoaster. 2003 started strongly, then tanked, but   increase that. We’re again responding to being where our
it came back much more quickly than I anticipated. Our          customers want us to be. And we can do it with more
foreign exchange operation in, say, Changi came back            attractive economics, because we don’t have to own the
[after the end of SARS] within 45 days. We had expect-          property, or have lease or staff liabilities – we can get suit-
ed a very slow recovery. Since then it has really taken off.    able franchises to do these things. We stick to what we’re
Intra-Asian traffic is very, very strong right now.             good at in terms of brand management, marketing, prod-
                                                                uct development, supplier management and so on.
What’s your position in China, a market of profound
importance to the travel retail business?                       So the franchise side of things on the travel side of the
                                                                business has been hugely successful. For example, last year
We have a joint venture on the business travel side with        in Australia we went overnight from having 100 outlets to
China International Travel Services (CITS) [recently            having 600 by signing a very attractive deal with a major
merged with fellow state enterprise China Duty Free             franchisee. So we’re looking to do more of those deals.
Group – Ed]. We have five locations in key cities. It has
been very successful.                                           Would you franchise your airport retail outlets?

Initially it was set up to service our multinational clients    No, we won’t replicate in foreign exchange. Foreign
in China and now we’re looking to service some of the           exchange has a high degree of compliance requirements.
larger Chinese companies’ travel needs. That’s the busi-        It has to be done absolutely to the letter of the law. So we
ness side. On the consumer side we have a franchise             don’t see a big opportunity in franchising. The travel sec-
agreement with CITS and we have some 60 opera-                  tor makes more sense.
tions in the major high-traffic areas. Those branches
are co-branded as all our franchises are. We have retail        Looking forward, how are prospects?
branches as well. At this point in time we have very
good coverage in China and we want to take this to the          I would say cautiously optimistic. That’s an amalgam of
next step.                                                      how I look at the international marketplace from the con-
                                                                sumer travel perspective. We’re having a very good year.
Corporate identity and franchising                              Some markets are growing hugely well, some are softish.
As such an American icon, are you affected by Amer-             But on the whole we’re significantly up from last year. I say
ica’s contentious position in the world today?                  we’re cautiously optimistic, because given the environ-
                                                                ment we live in these days, one never knows what could
I think we are seen very much as an international brand.        happen; and more importantly, the impact it could have.
It comes back to my earlier point about American Express        But we’re well positioned, with a good platform. �
providing a premium service. Of course American
Express is American; but when people in markets such as                                                  “Very much an
Hong Kong or Japan or Mexico think of Amex, they                                                         international
think more about the service rather than about us being                                                  brand – more
American.                                                                                                about service
                                                                                                         than being
Franchising has been a key element of your growth.                                                       American”
Do you foresee it happening in your travel retail for-
eign exchange business?

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