American Airlines 2006 Annual Report Download - page 13

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9
The impact of fuel price changes on the Company and its competitors depends on various factors, including
hedging strategies. The Company has a fuel hedging program in which it enters into jet fuel, heating oil and crude
oil hedging contracts to dampen the impact of the volatility of jet fuel prices. During 2006, 2005 and 2004, the
Company’s fuel hedging program reduced the Company’s fuel expense by approximately $97 million, $64 million
and $99 million, respectively. As of December 31, 2006, the Company had hedged, with option contracts,
including collars, approximately 14 percent of its estimated 2007 fuel requirements. The consumption hedged for
2007 is capped at an average price of approximately $68 per barrel of crude oil. A deterioration of the Company’s
financial position could negatively affect the Company’s ability to hedge fuel in the future. See the Risk Factors
under Item 1A for additional information regarding fuel.
Additional information regarding the Company’s fuel program is also included in Item 7(A) – Quantitative and
Qualitative Disclosures about Market Risk and in Note 7 to the consolidated financial statements.
Frequent Flyer Program
American established the AAdvantage frequent flyer program (AAdvantage) to develop passenger loyalty by
offering awards to travelers for their continued patronage. The Company believes that the AAdvantage program is
one of its competitive strengths. AAdvantage members earn mileage credits by flying on American or American
Eagle, or by using services of other program participants, including bank credit card issuers, hotels, car rental
companies and other retail companies. American sells mileage credits and related services to the other
companies participating in the program. American reserves the right to change the AAdvantage program at any
time without notice and may end the program with six months notice.
Mileage credits can be redeemed for free, discounted or upgraded travel on American, American Eagle or other
participating airlines, or for other awards. Once a member accrues sufficient mileage for an award, the member
may book award travel. Most travel awards are subject to capacity controlled seating. Mileage credit does not
expire, provided a customer has any type of qualifying activity at least once every 36 months. See Critical
Accounting Policies and Estimates under Item 7 for more information on AAdvantage.
Other Matters
Seasonality and Other Factors The Company’s results of operations for any interim period are not necessarily
indicative of those for the entire year, since the air transportation business is subject to seasonal fluctuations.
Higher demand for air travel has traditionally resulted in more favorable operating and financial results for the
second and third quarters of the year than for the first and fourth quarters. Fears of terrorism or war, fare
initiatives, fluctuations in fuel prices, labor actions, weather and other factors could impact this seasonal pattern.
Unaudited quarterly financial data for the two-year period ended December 31, 2006 is included in Note 15 to the
consolidated financial statements. In addition, the results of operations in the air transportation business have
also significantly fluctuated in the past in response to general economic conditions.
No material part of the business of AMR and its subsidiaries is dependent upon a single customer or very few
customers. Consequently, the loss of the Company's largest few customers would not have a materially adverse
effect upon the Company.
Insurance The Company carries insurance for public liability, passenger liability, property damage and all-risk
coverage for damage to its aircraft.
As a result of the terrorist attacks of September 11, 2001 (the Terrorist Attacks), aviation insurers significantly
reduced the amount of insurance coverage available to commercial air carriers for liability to persons other than
employees or passengers for claims resulting from acts of terrorism, war or similar events (war-risk coverage). At
the same time, these insurers significantly increased the premiums for aviation insurance in general.