American Airlines 2006 Annual Report Download - page 20

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We could be adversely affected by an outbreak of a disease that affects travel behavior.
In 2003, there was an outbreak of Severe Acute Respiratory Syndrome (SARS), which primarily had an adverse
impact on our Asia operations. More recently, there have been concerns about a potential outbreak of avian flu.
If there were another outbreak of a disease (such as SARS or avian flu) that affects travel behavior, it could have
a material adverse impact on us.
Our labor costs are higher than our competitors.
Wages, salaries and benefits constitute a significant percentage of our total operating expenses. In 2006, they
constituted approximately 32 percent of our total operating expenses. All of the major hub-and-spoke carriers
with whom American competes have achieved significant labor cost savings through or outside of bankruptcy
proceedings. We believe American’s labor costs are higher than those of its primary competitors, and it is
unclear how long this labor cost disadvantage may persist.
We could be adversely affected if we are unable to maintain satisfactory relations with any unionized or
other employee work group.
Our operations could be adversely affected if we fail to maintain satisfactory relations with any labor union
representing our employees. In addition, any significant dispute we have with, or any disruption by, an employee
work group could adversely impact us. Moreover, one of the fundamental tenets of our strategic Turnaround Plan
is increased union and employee involvement in our operations. To the extent that we are unable to maintain
satisfactory relations with any unionized or other employee work group, our ability to execute our strategic plans
could be adversely affected.
Our insurance costs have increased substantially and further increases in insurance costs or reductions
in coverage could have an adverse impact on us.
We carry insurance for public liability, passenger liability, property damage and all-risk coverage for damage to
our aircraft. As a result of 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.
The U.S. government has agreed to provide commercial war-risk insurance for U.S. based airlines until August
31, 2007, covering losses to employees, passengers, third parties and aircraft. If the U.S. government does not
extend the policy beyond August 31, 2007, or if the U.S. government at anytime thereafter ceases to provide such
insurance, or reduces the coverage provided by such insurance, we will attempt to purchase similar coverage with
narrower scope from commercial insurers at an additional cost. To the extent this coverage is not available at
commercially reasonable rates, we would be adversely affected.
While the price of commercial insurance has declined since the period immediately after the Terrorist Attacks, in
the event commercial insurance carriers further reduce the amount of insurance coverage available to us, or
significantly increase its cost, we would be adversely affected.
We may be unable to retain key management personnel.
Since the Terrorist Attacks, a number of our key management employees have elected to retire early or leave for
more financially favorable opportunities at other companies, both within and outside of the airline industry. There
can be no assurance that we will be able to retain our key management employees. Any inability to retain our key
management employees, or attract and retain additional qualified management employees, could have a negative
impact on us.