American Airlines 2008 Annual Report Download - page 43

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Operating Expenses
2008 Compared to 2007 The Company’s total operating expenses increased 16.8 percent, or $3.7 billion, to
$25.7 billion in 2008 compared to 2007. American’s mainline operating expenses per ASM in 2008 increased 21.9
percent compared to 2007 to 13.87 cents. The increase in operating expense was largely due to a dramatic year-
over-year increase in fuel prices from $2.13 per gallon in 2007 to $3.03 per gallon in 2008, including the impact of
fuel hedging. Fuel expense was the Company’s largest single expense category and the price increase resulted in
$2.7 billion in incremental year-over-year fuel expense in 2008 (based on the year-over-year increase in the
average price per gallon multiplied by gallons consumed, inclusive of the impact of fuel hedging). A return to the
recent historically high fuel prices and/or disruptions in the supply of fuel would further materially adversely affect
the Company’s financial condition and results of operations. The remaining increase in operating expense was
due to the second quarter 2008 impairment charge of $1.1 billion to write the McDonnell Douglas MD-80 and
Embraer RJ-135 fleets and certain related long-lived assets down to their estimated fair values and certain other
special charges and employee charges, as discussed previously in Item 7 “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”.
(in millions)
Operating Expenses
Year ended
December 31,
2008
Change
from 2007
Percentage
Change
Aircraft fuel
$ 9,014
$ 2,344
35.1%
(a)
Wages, salaries and benefits
6,655
(115)
(1.7)
Other rentals and landing fees
1,298
20
1.6
Depreciation and amortization
1,207
5
0.4
Maintenance, materials and repairs
1,237
180
17.0
(b)
Commissions, booking fees and credit
card expense
997
(31)
(3.0)
Aircraft rentals
492
(99)
(16.8)
(c)
Food service
518
(16)
(3.0)
Special charges
1,213
1,150
*
(d)
Other operating expenses
3,024
247
8.9
(e)
Total operating expenses
$ 25,655
$ 3,685
16.8%
* Not meaningful
(a) Aircraft fuel expense increased primarily due to a 42.4 percent increase in the Company’s price per
gallon of fuel (net of the impact of hedging gains of $380 million) offset by a 5.1 percent decrease in
the Company’s fuel consumption, primarily due to reductions in available seat miles.
(b) Maintenance, materials and repairs expense increased due to a heavier workscope of scheduled and
unscheduled airframe maintenance overhauls, dependability initiatives, repair costs and volume, and
contractual engine repair rates, which are driven by aircraft age.
(c) Aircraft rental expense decreased principally due to lease expirations of Boeing 757 and McDonnell
Douglas MD-80 aircraft.
(d) Special charges are related to an impairment charge in the second quarter of 2008 of $1.1 billion to
write down the Company’s McDonnell Douglas MD-80 and Embraer RJ-135 fleets and certain related
long-lived assets to their estimated fair values. This impairment charge was triggered by the record
increase in fuel prices over the preceding twelve months. In addition, the Company accrued $71
million for severance costs and $33 million related to the grounding of leased Airbus A300 aircraft
prior to lease expiration, both related to the capacity reductions.
(e) Other operating expenses increased due in part to an increase in foreign exchange losses of $70
million.