American Airlines 2003 Annual Report Download - page 31

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OPERATING EXPENSES
2003 Compared to 2002 The Company’s operating expenses decreased 11.9 percent, or $2.5 billion, to $18.3
billion and American’s mainline operating expenses per ASM decreased 8.9 percent to 10.15 cents, including the
impact of special charges and the U.S. government grant. The decrease in operating expenses and operating
expenses per ASM is largely due to the Company’s cost savings initiatives coupled with security cost
reimbursements from the U.S. government and a decrease in special charges.
(in millions)
Operating Expenses
Year ended
December 31,
2003
Change
from 2002
Percentage
Change
Wages, salaries and benefits $ 7,264 $ (1,128) (13.4)% (a)
Aircraft fuel 2,772 210 8.2 (b)
Depreciation and amortization 1,377 11 0.8
Other rentals and landing fees 1,173 (25) (2.1)
Commissions, booking fees and credit
card expense 1,063 (100) (8.6) (c)
Maintenance, materials and repairs 860 (248) (22.4) (d)
Aircraft rentals 687 (153) (18.2) (e)
Food service 611 (87) (12.5) (f)
Other operating expenses 2,428 (287) (10.6) (g)
Special charges 407 (311) (43.3) (h)
U.S. government grant (358) (348) NM (i)
Total operating expenses $ 18,284 $ (2,466) (11.9)%
(a) Wages, salaries and benefits decreased due to lower wage rates and reduced headcount primarily as
a result of the Labor Agreements and Management Reductions, effective in the second quarter of
2003.
(b) Aircraft fuel expense increased due to a 15.1 percent increase in the Company’s price per gallon of
fuel (net of the impact of fuel hedging), somewhat offset by a 5.5 percent decrease in the Company’s
fuel consumption.
(c) Commissions, booking fees and credit card expense decreased due primarily to commission structure
changes implemented in March 2002.
(d) Maintenance, materials and repairs decreased due primarily to a decrease in airframe and engine
volumes at the Company's maintenance bases resulting from a variety of factors, including the
retirement and temporary grounding of aircraft and a decrease in the numbers of flights. The
Company expects maintenance, materials and repairs costs to increase as aircraft utilization
increases and the benefit from retiring aircraft subsides, and as contractual rates in certain flight hour
agreements for outsourced aircraft engine maintenance increase.
(e) Aircraft rentals decreased due primarily to the removal of leased aircraft from the fleet in prior periods
as part of the Company’s restructuring initiatives and concessionary agreements with certain lessors,
which reduced future lease payment amounts and resulted in the conversion of 30 operating leases to
capital leases.
(f) Food service decreased due primarily to a decrease in the number of departures and passengers
boarded and simplification of catering services.
(g) Other operating expenses decreased primarily due to decreases in (i) data processing expenses of
$87 million due primarily to introducing further efficiencies into data processing environments resulting
in reduced consumption, and negotiating more favorable terms with vendors; (ii) travel and incidental
costs of $61 million due primarily to decreased overnight stays for pilots and flight attendants as a
result of changes in the scheduling of flights, lower average hotel rates, work rule changes and lower
per diems; (iii) insurance costs of $44 million due primarily to lower premiums, (iv) security costs of
$31 million due primarily to the assumption of certain security services by the Transportation Security
Administration (TSA) and the suspension of security services payments to the TSA from June 1, 2003
to September 30, 2003 and (v) contract maintenance work that American performs for other airlines of
$29 million.