American Airlines 2004 Annual Report Download - page 6

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3
The Company’s ability to become profitable and its ability to continue to fund its obligations on an ongoing basis
will depend on a number of factors, some of which are largely beyond the Company’s control. Some of the risk
factors that affect the Company’s business and financial results are discussed in the Risk Factors listed in Item 7.
As the Company seeks to improve its financial condition, it must continue to take steps to generate additional
revenues and significantly reduce its costs. Although the Company has a number of initiatives underway to
address the cost and revenue challenges, the ultimate success of these initiatives is not known at this time and
cannot be assured. It will be very difficult, absent continued restructuring of its operations, for the Company to
continue to fund its obligations on an ongoing basis or to become profitable if the overall industry revenue
environment does not improve and fuel prices remain at historically high levels for an extended period.
B. Competition
Major Competitors The domestic airline industry is fiercely competitive. Currently, any U.S. air carrier deemed
fit by the U.S. Department of Transportation (DOT) is free to operate scheduled passenger service between any
two points within the U.S. and its possessions. Most major air carriers have developed hub-and-spoke systems
and schedule patterns in an effort to maximize the revenue potential of their service. American operates five hubs:
Dallas/Fort Worth (DFW), Chicago O'Hare, Miami, St. Louis and San Juan, Puerto Rico. United Air Lines (United)
also has a hub operation at Chicago O'Hare. Delta Air Lines (Delta) previously operated a hub at DFW. In
January 2005, however, Delta ceased hub operations at DFW. The American Eagle carriers increase the number
of markets the Company serves by providing connections at American’s hubs and certain other major airports --
Boston, Los Angeles, Raleigh/Durham and New York’s LaGuardia and John F. Kennedy International Airports.
The American Connection carriers provide connecting service to American through St. Louis. American's
competitors also own or have marketing agreements with regional carriers which provide similar services at their
major hubs and other locations.
On most of its domestic non-stop routes, the Company faces competing service from at least one, and sometimes
more than one, domestic airline including: AirTran Airways, Alaska Airlines, America West Airlines, ATA Airlines,
Continental Airlines (Continental), Delta, Frontier Airlines, JetBlue Airways, Northwest Airlines (Northwest),
Southwest Airlines, United and US Airways, and their affiliated regional carriers. Competition is even greater
between cities that require a connection, where the major airlines compete via their respective hubs. In addition,
the Company faces competition on some of its routes from carriers operating point-to-point service on such routes.
The Company also competes with all-cargo and charter carriers and, particularly on shorter segments, ground and
rail transportation. On all of its routes, pricing decisions are affected, in large part, by the need to meet competition
from other airlines.
The Company must compete with carriers that have recently reorganized or are reorganizing, including under the
protection of Chapter 11 of the Bankruptcy Code. It is possible that one or more other competitors may seek to
reorganize in or out of Chapter 11. Successful completion of such out-of-court or Chapter 11 reorganizations could
present the Company with competitors with lower operating costs derived from renegotiated labor, supply and
financing contracts.
International Air Transportation In addition to its extensive domestic service, the Company provides
international service to the Caribbean, Canada, Latin America, Europe and the Pacific. The Company's operating
revenues from foreign operations were approximately 35 percent of the Company’s total operating revenues in
2004 and 27 and 28 percent of the Company’s total operating revenues in 2003 and 2002, respectively. Additional
information about the Company's foreign operations is included in Note 14 to the consolidated financial statements.