American Airlines 2004 Annual Report Download - page 23

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20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information
The discussions under Business, Properties and Legal Proceedings and the following discussions under
Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and
Qualitative Disclosures about Market Risk contain various forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent the Company's expectations or beliefs concerning future events. When used in this
document and in documents incorporated herein by reference, the words "expects," "plans," "anticipates,"
“indicates,” “believes,” “forecast,” “guidance,” “outlook” and similar expressions are intended to identify forward-
looking statements. Forward-looking statements include, without limitation, the Company’s expectations
concerning operations and financial conditions, including changes in capacity, revenues, and costs, future
financing plans and needs, overall economic conditions, plans and objectives for future operations, and the impact
on the Company of its results of operations in recent years and the sufficiency of its financial resources to absorb
that impact. Other forward-looking statements include statements which do not relate solely to historical facts,
such as, without limitation, statements which discuss the possible future effects of current known trends or
uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted,
guaranteed or assured. All forward-looking statements in this report are based upon information available to the
Company on the date of this report. The Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events, or otherwise. The risk factors
listed at the end of this Item 7 (see Risk Factors), in addition to other possible risk factors not listed, could cause
the Company's actual results to differ materially from those expressed in forward-looking statements.
Overview
The Company has incurred very large operating and net losses during the past four years, as shown in the
following table:
Year ended December 31,
(in millions) 2004 2003 2002 2001
Operating loss $ (144) $ (844) $ (3,330) $ (2,470)
Net loss (761) (1,228) (3,511) (1,762)
These losses reflect, among other things, a substantial decrease in the Company's revenues in 2001 and 2002.
This revenue decrease was primarily driven by (i) a steep fall-off in the demand for air travel, particularly business
travel, primarily caused by weakness in the U.S. economy, (ii) reduced pricing power, resulting mainly from greater
cost sensitivity on the part of travelers (especially business travelers), increasing competition from LCCs and the
continuing increase in pricing transparency resulting from the use of the Internet and (iii) the aftermath of the
Terrorist Attacks, which accelerated and exacerbated the trend of decreased demand and reduced industry
revenues. The Company believes that its reduced pricing power resulting from the factors listed in clause (ii)
above will persist indefinitely and possibly permanently.
Passenger traffic rebounded in 2003 and 2004, reflecting a general improvement in the U.S. and several other
economies served by the Company, the diminishing impact of the Terrorist Attacks on demand and lower fares.
However, the Company’s pricing power remained depressed in 2003 due to a continuation of the factors listed in
clause (ii) of the preceding paragraph, and declined in 2004 due to significant increases in overall industry capacity
that exceeded the growth in demand, and more frequent and more deeply discounted fare sales initiated by
competitors, including competitors currently operating under the protection of Chapter 11 of the Bankruptcy Code.
The Company’s 2004 operating and financial results were also adversely affected by the significant increases in
the price of jet fuel. Fuel price increases during 2004 resulted in a year-over-year increase of 33.9 cents per
gallon. This price increase negatively impacted fuel expense by $1.1 billion during the year. Continuing high fuel
prices, additional increases in the price of fuel, and/or disruptions in the supply of fuel, would further adversely
affect the Company’s financial condition and its results of operations.