American Airlines 2010 Annual Report Download - page 15

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We may be adversely affected by increases in fuel prices, and we would be adversely affected by
disruptions in the supply of fuel.
Our results are very significantly affected by the cost, price volatility and the availability of jet fuel, which are in
turn affected by a number of factors beyond our control. Due to the competitive nature of the airline industry, we
may not be able to pass on increased fuel prices to customers by increasing fares. Although we had some
success in raising fares and imposing fuel surcharges in reaction to high fuel prices, these fare increases and
surcharges did not keep pace with the extraordinary increases in the price of fuel that occurred in 2007 and 2008.
Although fuel prices have abated considerably from the record high prices recorded in July 2008, they have
steadily increased since the first quarter of 2009 and remain high and extremely volatile by historical standards.
Furthermore, reduced demand or increased fare competition, or both, and resulting lower revenues may offset
any potential benefit of any reductions in fuel prices.
While we do not currently anticipate a significant reduction in fuel availability, dependence on foreign imports of
crude oil, limited refining capacity and the possibility of changes in government policy on jet fuel production,
transportation and marketing make it impossible to predict the future availability of jet fuel. If there are additional
outbreaks of hostilities or other conflicts in oil producing areas or elsewhere, or a reduction in refining capacity
(due to natural disasters or weather events, for example), or governmental limits on the production or sale of jet
fuel (including as a consequence of increased environmental regulation), there could be a reduction in the supply
of jet fuel and significant increases in the cost of jet fuel. Major reductions in the availability of jet fuel or significant
increases in its cost would have a material adverse impact on us.
We have a large number of older aircraft in our fleet, and these aircraft are not as fuel efficient as more recent
models of aircraft. We believe it is imperative that we continue to execute our fleet renewal plans. However, there
will be significant delays in the deliveries of the Boeing 787-9 aircraft we currently have on order.
Our aviation fuel purchase contracts generally do not provide meaningful price protection. While we seek to
manage the risk of fuel price increases by using derivative contracts, there can be no assurance that, at any given
time, we will have derivatives in place to provide any particular level of protection against increased fuel costs. In
addition, a deterioration of our financial position could negatively affect our ability to enter into derivative contracts
in the future. Moreover, declines in fuel prices below the levels established in derivative contracts may require us
to post material amounts of cash collateral to secure the loss positions on such contracts, and if such contracts
close when fuel prices are below the applicable levels, we would be required to make payments to close such
contracts; these payments would be treated as additional fuel expense.
We could be materially adversely affected if we are unable to resolve favorably our pending litigation with
certain Global Distribution Systems (GDSs) and business discussions with certain on-line travel agents.
We are currently involved in litigation with certain GDSs and in business discussions with certain on-line travel
agents. An adverse outcome in any of these matters could have a material adverse effect on our level of
bookings, business and results of operations. See “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” — GDS Discussion.” In addition, our contracts with the GDSs operated by Sabre,
Travelport and Amadeus expire in 2011. We could be adversely affected if we are unable to renegotiate contract
renewals on acceptable terms.
Our indebtedness and other obligations are substantial and could adversely affect our business and
liquidity.
We have and will continue to have significant amounts of indebtedness, obligations to make future payments on
aircraft equipment and property leases, and obligations under aircraft purchase agreements, as well as a high
proportion of debt to equity capital. We expect to incur substantial additional debt (including secured debt) and
lease obligations in the future. We also have substantial pension funding obligations. Our substantial
indebtedness and other obligations have important consequences. For example, they:
•
limit our ability to obtain additional funding for working capital, capital expenditures, acquisitions,
investments
and general corporate purposes, and adversely affect the terms on which such funding can be
obtained;
•
require us to dedicate a substantial portion of our cash flow from operations to payments on our
indebtedness and other obligations, thereby reducing the funds available for other purposes;
•
make us more vulnerable to economic downturns and catastrophic external events; and