American Airlines 2010 Annual Report Download - page 5

2
American commenced commercial collaboration in New York and Boston with JetBlue during 2010. 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.
Most of the Company’s largest domestic competitors and several smaller carriers have reorganized under the
protection of Chapter 11 of the U.S. Bankruptcy Code (Chapter 11) in recent years. It is possible that in the future
one or more of the Company’s 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 (flights serving international destinations) were approximately 40 percent of the
Company’s total operating revenues in each of the three years 2010, 2009, and 2008. 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 Air Berlin, Air Pacific, Air Tahiti Nui, Alaska
Airlines, British Airways, Cape Air, Cathay Pacific, China Eastern Airlines, Dragonair, Deutsche Bahn German
Rail, EL AL, Etihad Airways, EVA Air, Finnair, GOL, Gulf Air, Hawaiian Airlines, Iberia, Japan Airlines (JAL), Jet
Airways, JetStar Airways, LAN (includes LAN Airlines, LAN Argentina, LAN Ecuador and LAN Peru), Malév
Hungarian Airlines, Niki Airlines, Qantas Airways, Royal Jordanian, S7 Airlines, and Vietnam Airlines.
American is also a founding member of the oneworld alliance, which includes British Airways, Cathay Pacific,
Finnair, LAN Airlines, Iberia, Qantas, JAL, Malév Hungarian, Mexicana, Royal Jordanian and S7 Airlines. S7
Airlines, which is Russia’s largest domestic airline, joined the oneworld alliance in November 2010. Kingfisher,
India’s leading domestic airline, is scheduled to join the alliance in 2011 and Air Berlin, the 5th largest airline in
Europe, is scheduled to join in 2012. 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.
In July 2010, American obtained clearance from the European Commission (EC) and approval by the DOT for
antitrust immunity (ATI) for its cooperation with British Airways, Iberia, Finnair and Royal Jordanian. This
approval enables American, British Airways and Iberia, through a joint business agreement (JBA), to cooperate
on flights between North America and most countries in Europe, and allows pooling and sharing of certain
revenues and costs, expanded codesharing, enhanced frequent flyer program reciprocity, and cooperation in
other areas. American began implementation of the JBA with British Airways and Iberia and expanded
cooperation with Finnair and Royal Jordanian in October 2010.
In February 2010, American and JAL 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. 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 the Ministry of Land Infrastructure, Transport and Tourism of Japan (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.
Price Competition The airline industry is characterized by substantial and intense price competition. Fare
discounting by competitors has historically had a negative effect on the Company’s financial results because the
Company is generally required to match competitors' fares, as failing to match would provide even less revenue
due to customers’ price sensitivity.