American Airlines 2010 Annual Report Download - page 32

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In July 2010, American obtained clearance from the European Commission (EC) and approval by the Department
of Transportation (DOT) for antitrust immunity (ATI) for its planned cooperation with British Airways, Iberia, Finnair
and Royal Jordanian. Regulatory conditions for ATI approval for the British Airways, Iberia, Finnair and Royal
Jordanian cooperative agreement include a collective obligation of the Company, British Airways, and Iberia to
lease to other carriers up to seven takeoff and landing slot pairs at London Heathrow airport and up to three John
F. Kennedy airport operational authorities, depending on market conditions. American began implementation of
the JBA with British Airways and Iberia and expanded cooperation with Finnair and Royal Jordanian in October
2010. No assurances can be given as to any arrangements that may ultimately be implemented or any benefits
that we may derive from such arrangements.
In February 2010, American and JAL announced the decision to strengthen their relationship. The carriers,
entered into a JBA which will enhance their scope of cooperation on routes between North America and Asia
through adjustments to their respective networks, flight schedules, and other business activities. This, in turn, will
allow both carriers to better complement each other’s operations and to develop and offer competitive products
and quality service to their customers.
As a part of these commercial benefits, American determined that with ATI and by participating in a joint business
agreement with American, JAL could realize approximately $100 million in annual incremental revenue. American
has given JAL a guarantee to that effect covering the first three years following implementation of the joint
business agreement, subject to certain terms and conditions. At this time, the amount (if any) that AMR may
ultimately owe under the agreement is unclear. The Company and other oneworld members have also discussed
various possible financing arrangements with JAL. The Company has agreed to negotiate in good faith towards a
capital investment in JAL by American, oneworld and a private investment firm in the future if invited by JAL and
the Government of Japan. To date, the Government of Japan has declined any such investment, and the
Company does not expect that any such investment will be made in the near term. Any such investment would
be on and subject to terms and conditions customary to such an arrangement. The Company also expects that
the amount of such a capital investment, if any, by American and other oneworld carriers, would not exceed $300
million, with additional investment from private partners.
In the fourth quarter of 2010, American and JAL received approval for ATI on certain routes between North
America and Asia from the DOT and MLIT. Implementation of the JBA is subject to successful negotiation of
certain detailed financial and commercial arrangements and other approvals. American expects to begin
implementing the JBA with JAL in 2011. No assurances can be given as to any arrangements that may ultimately
be implemented or any benefits that the Company may derive from such arrangements.
In 2010, American also commenced commercial collaboration in New York and Boston with JetBlue. American’s
agreement with JetBlue provides customers with interline service in non-overlapping markets, letting customers
connect between 15 of American’s international destinations from New York and Boston and 26 domestic cities
flown by JetBlue. Further, American expanded its relationship with JetBlue so that AAdvantage members and
members of JetBlue’s customer loyalty program will be able to earn AAdvantage miles or JetBlue points,
respectively, when they fly on American and JetBlue cooperative interline routes. Under the terms of the
agreements for commercial collaboration, American transferred eight slot pairs at Ronald Reagan National Airport
in Washington, D.C. (which were owned by American) and one slot pair at White Plains, New York (which were
owned by AMR Eagle) to JetBlue, and JetBlue transferred twelve slot pairs at JFK to American. The reciprocal
frequent flyer earning benefits and slot transfers became effective in the fourth quarter of 2010.
Further in 2010, the Company announced that it plans to extend its network through new commercial
collaboration agreements with several airlines, including Air Berlin, Europe’s fifth largest airline, GOL Airlines of
Brazil, Jetstar Airways, which is an affiliate airline of Qantas Airways (a oneworld alliance member), and
Canada’s WestJet. These agreements include both interline and codeshare arrangements that allow customers
of the Company and the respective airline to book and travel on the other’s network. Selected agreements are
subject to regulatory approval and no assurances can be given as to any arrangements that may ultimately be
implemented or any benefits that the Company may derive from such arrangements.
The Company currently estimates that the implementation of its cornerstone strategy, the implementation of the
Company’s JBA with British Airways/Iberia and proposed cooperation with JAL, and various other alliance and
network activities will result in incremental revenues and cost savings of over $500 million per year. The
Company expects that it will realize the majority of these incremental revenues and cost savings in 2011, and the
remainder by year end 2012. This estimate is based on a number of assumptions that are inherently uncertain,
and the Company’s ability to realize these benefits depends on various factors, some of which are beyond the
Company’s control, such as factors referred to above in “Forward-Looking Information.” No assurances can be
given as to any benefits the Company may derive from such arrangements.