American Airlines 1997 Annual Report Download - page 40

AMR CORPORATION
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OPERATING EXPENSES
1997 Compared to 1996 Airline Group operating
expenses of $15.3 billion in 1997 were up $565 million,
or 3.8 percent, versus 1996. American’s Jet Operations
cost per ASM increased 4.0 percent to 9.27 cents.
Wages, salaries and benefits increased $289 million,
or 5.6 percent, due primarily to an increase in the average
number of equivalent employees, contractual wage rate
and seniority increases that are built into the Company’s
labor contracts, including a three percent rate increase
granted to pilots effective August 31, 1997, and an
increase in the provision for profit sharing.
Fuel expense decreased $13 million, or 0.7 percent,
due to a 1.6 percent decrease in American’s average price
per gallon, including taxes, partially offset by a 1.4 per-
cent increase in American’s fuel consumption.
Commissions to agents increased 2.1 percent, or $26
million, due primarily to increased passenger revenues.
This increase was offset by changes in the Company’s
travel agency commission payment structure implement-
ed in September 1997 which lowered the base commis-
sion paid to travel agents from 10 percent to eight percent
on all tickets purchased in the U.S. and Canada for both
domestic and international travel.
Maintenance materials and repairs expense increased
25.5 percent, or $175 million, due to an increase in
airframe and engine maintenance check volumes at
American’s maintenance bases as a result of the matur-
ing of its fleet.
Other operating expenses increased $68 million, or
1.5 percent, due primarily to an increase in outsourced
services, additional airport security requirements, and
higher costs, such as credit card fees, resulting from high-
er passenger revenues. Other operating expenses in 1996
included a $26 million charge to write down the value of
aircraft interiors.
1996 Compared to 1995 Airline Group operating
expenses in 1995 included restructuring costs of $533
million, related to the cost of future pension and other
postretirement benefits for voluntary early retirement pro-
grams offered in conjunction with renegotiated labor con-
tracts covering members of the TWU and the APFA, as
well as provisions for the write-down of certain DC-10 air-
craft and the planned retirement of certain turboprop air-
craft, and other restructuring activities. Excluding the
restructuring costs, the Airline Group’s operating expenses
increased 2.5 percent, or $365 million. American’s capac-
ity decreased 1.6 percent to 152.9 billion ASMs. As a
result, American’s Jet Operations cost per ASM, excluding
restructuring costs in 1995 and the write-down of aircraft
interiors in 1996, increased 4.0 percent to 8.91 cents.
Despite a 0.6 percent decrease in the average number
of equivalent employees, wages, salaries and benefits
expense rose 2.1 percent, or $109 million. The increase
was due primarily to contractual wage rate and seniority
increases that are built into the Company’s labor contracts
and an increase in the provision for profit sharing.
Fuel expense increased 19.3 percent, or $313 million,
due to a 19.9 percent increase in American’s average price
per gallon, including the 4.3 cents per gallon domestic fuel
tax imposed on the airline industry since October 1995.
Commissions to agents decreased 3.2 percent, or $41
million, due principally to a reduction in average rates
paid to agents attributable primarily to the change in com-
mission structure implemented in February 1995, partial-
ly offset by commissions on increased passenger revenues.
Maintenance materials and repairs expense increased
8.5 percent, or $54 million, primarily due to five addition-
al aircraft check lines added at American’s maintenance
bases in 1996 as a result of the maturing of its fleet.
Other operating expenses, consisting of aircraft rentals,
other rentals and landing fees, food service costs and mis-
cellaneous operating expenses, decreased 0.4 percent, or
$18 million. Aircraft rentals decreased 8.2 percent, or $55
million, primarily as a result of American’s decision to pre-
pay the cancelable operating leases it had on 12 of its Boe-
ing 767-300 aircraft during June and July 1996. Follow-
ing the prepayments, these aircraft have been accounted
for as capital leases and the related costs included in amor-
tization expense. Miscellaneous operating expenses
(including outsourced services, data processing services,
booking fees, credit card fees, crew travel expenses, adver-
tising and communications costs) increased by 1.3 per-
cent, or $33 million, including a $26 million charge in
1996 to write down the value of aircraft interiors Ameri-
can planned to refurbish.