American Airlines 2007 Annual Report Download - page 6

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Competition
Domestic Air Transportation 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.
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 (LaGuardia) and John F. Kennedy International (JFK) 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 (Air Tran), Alaska Airlines (Alaska), ATA Airlines,
Continental Airlines (Continental), Delta Air Lines (Delta), Frontier Airlines, JetBlue Airways (JetBlue), Northwest
Airlines (Northwest), Southwest Airlines (Southwest), United, US Airways, Virgin America Airlines 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 connecting
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 also compete with carriers that have recently reorganized under the protection of Chapter 11
of the U.S. Bankruptcy Code (Chapter 11). It is possible that one or more other competitors may seek to
reorganize in or out of Chapter 11. Successful reorganizations present the Company with competitors with
significantly 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 Asia. The Company's operating
revenues from foreign operations were approximately 37 percent of the Company’s total operating revenues in
2007, and 37 and 36 percent of the Company’s total operating revenues in 2006 and 2005, respectively.
Additional information about the Company's foreign operations is included in Note 14 to the consolidated financial
statements.
In providing international air transportation, the Company competes with foreign investor-owned carriers, foreign
state-owned carriers and U.S. airlines that have been granted authority to provide scheduled passenger and
cargo service between the U.S. and various overseas locations. In general, carriers that have the greatest ability
to seamlessly connect passengers to and from markets beyond the nonstop city pair have a competitive
advantage. In some cases, however, foreign governments limit U.S. air carriers' rights to carry passengers
beyond designated gateway cities in foreign countries. To improve access to each other's markets, various U.S.
and foreign air carriers - including American - have established marketing relationships with other airlines and rail
companies. American currently has marketing relationships with Aer Lingus, Air Pacific, Air Tahiti Nui, Alaska
Airlines, British Airways, Brussels Airlines, Cathay Pacific, China Eastern Airlines, Dragonair, Deutsche Bahn
German Rail, EL AL, EVA Air, Finnair, Gulf Air, Hawaiian Airlines, Iberia, Japan Airlines, LAN (includes LAN
Airlines, LAN Argentina, LAN Ecuador and LAN Peru), Malév Hungarian Airlines, Mexicana, Qantas Airways,
Royal Jordanian, SNCF French Rail, and Turkish Airlines.
American is also a founding member of the oneworld alliance, which includes British Airways, Cathay Pacific,
Finnair, Lan Airlines, Iberia, Qantas, Japan Airlines, Malev Hungarian, Dragonair, and Royal Jordanian. The
oneworld alliance links the networks of the member carriers to enhance customer service and smooth
connections to the destinations served by the alliance, including linking the carriers' frequent flyer programs and
access to the carriers' airport lounge facilities. Several of American's major competitors are members of
marketing/operational alliances that enjoy antitrust immunity. American and British Airways, the largest members
of the oneworld alliance, are restricted in their relationship because they lack antitrust immunity. They are,
therefore, at a competitive disadvantage vis-à-vis other alliances that have antitrust immunity.