AMR Corporation (NYSE:AMR)

AMR - The AMR Ticket Distribution Fights Continue

MARKET OUTPERFORM
Airline January 6, 2011
Bob McAdoo, Senior Research Analyst bmcadoo@avondalepartnersllc.com 913-766-9884
Price ($) 8.57 FYE - Dec 2009A 2010E 2011E
52 Wk Range ($) 5.86-10.50 1Q (1.30)A (1.36)A (1.19)
Price Target ($) 12.00 2Q (1.14)A (0.03)A 0.51
Market Cap ($mil) 2,860.0 3Q (0.93)A 0.39A 0.50
Enterprise Value ($mil) 9,590 4Q (1.25)A (0.19) (0.04)
Avg. Daily Vol. (000s) 9,937 FY EPS ($) (4.63)A (1.15) (0.09)
Price / Book (0.8x) y/y % chg NA NA NA
Cash Per Share ($) 13.67 FY EPS Consensus ($) (4.63)A (1.23) 0.38
Insider Ownership 0% FY EBITDA ($mil) 100.0A 1,451.0 1,866.0
Shares Out (mil) 333.3 FY EBITDAR ($) 605.0A 2,006.0 2,426.0
Shares Short (mil) 28.7 FY REV ($mil) 19,917.0A 22,163.0 23,874.0
Float (mil) 328.0 y/y % chg -16% 11% 8%
Short % of Float 8.8%
Div($)/Yield(%) NM/NM CY EPS ($) (4.63)A (1.15) (0.09)
CY P/E NM NM NM

Action
Recent press accounts regarding AMR's dispute with Expedia and Orbitz, the Online Travel Agents or OTAs,
confuse the relationships of the players and miss the underlying economics driving the dispute.
The underlying issue is not about limiting consumers' choices. It's about potentially eliminating up to $9 per
ticket fees for no longer needed services.
We believe the dispute likely continues and spreads. Sabre jumped in yesterday. AMR eventually prevails.
As the situation evolves, AMR will likely lose some OTA customers to competitors. AMR's lost traffic will
bump some low fare business from the other airlines. But AMR should pick up the spilled traffic, given
current loads.
A new equilibrium? AMR with unchanged traffic and lower net costs.
Other airlines silently watch. They'll surely follow suit. OTA shares should continue to suffer from the press,
their results not meaningfully weaker. Travelport and Sabre, both private, have the most to lose.
Key Details and Summary Perspectives
At first, the dispute was publicly with Orbitz and Expedia... – Although Orbitz and Expedia have been the
names in the forefront in the fights over fees and travel agent displays, two private companies, Travelport and
Sabre (the GDSs, see below), are behind the issues AMR is really fighting.
These disputes are fundamentally between the airlines (for now, only AMR has surfaced) and entities known
as Global Distribution Systems (GDSs). The OTAs provide a service that the airlines use and value. As
explained below, the GDSs are in the background and much of what they were designed to do is no longer
needed. Much of the original functionality and need for the GDSs has been made obsolete by the internet.
However, quite a number of independent systems and websites, including the OTAs, still flow data through
the current GDS systems rather than use modified systems that could avoid the GDSs and thus the GDS fees.
The GDS fees, set years ago when there were few alternatives to the GDSs, are largely and indirectly driving
how the OTAs operate. GDS fees are much of the impetus for the current disputes.

Important Disclosures on Page 6

AMR Corporation - January 6, 2011 Avondale Partners, LLC

Details
...and now Sabre fires a shot across the bow. – Press accounts now indicate that Sabre, whose GDS has the
largest subscriber base and which owns OTA Travelocity, will be raising fees on AMR and adjusting how
American's flights are displayed. Which fees will be increased and the exact amounts have not been
announced. We view this as a weak shot across the bow, as Sabre, although announcing today, apparently is
not moving on this immediately, but rather waiting until August. This August date is one month before the
end of the current agreement and before a new agreement is to be renegotiated.
By announcing now with a quiet August effective date, Sabre gets the press and puts informal pressure on
AMR. However, by not pulling all American listings, Sabre keeps Travelocity as the largest OTA that still
offers full schedules for all airlines, including American's schedules.
An Interesting Observation: In reviewing the various press accounts of these disputes, one European service
provider sums up the situation quite well: "So here we are in a world where technology is ready to be
implemented but progress and innovation are slowed down by political forces. It is as we have this brand-new
airplane that produces 50% less atmospheric pollution, but you are not allowed to use it as the revenue stream
of the oil lobby would be cut in half as well."
We couldn't have said it better ourselves.
Beyond the fees, the changing marketplace is fueling AMR's push for change. A second aspect to the
dispute is AMR's desire to display its product in various unique ways to the consumer. The OTAs strive to
compare all the airlines on a single screen. With that, the fares, flights, etc. all need to be comparable. Thus,
you see only the lowest fare for a coach seat.
AMR wants flexibility in how it sells and prices seats with ancillary services. As Southwest Airlines sells
Business Select fares, combining the seat with early boarding, free drinks and extra frequent flyer credit,
AMR would like the ability to package its fares with these or other services. Such bundling is not possible
through the OTAs or any other distribution outlets that flow transactions through the GDSs. AMR can offer
the bundled product on AA.com. However, less than 30% of AMR's customers buy through AA.com
AMR's very vocal push to move OTAs to the AA.com Direct Connect, thereby bypassing the GDSs and the
GDS fees, would give AMR the ability to create special packages and deals that could be displayed to the
wide population of customers using the OTAs.
Some background, definitions and explanations. What's a GDS? GDS systems, companies and contracts
have evolved over the years from a time when:
1. Every passenger had to have a paper ticket to board a plane.
2. There was no internet to enable consumers' viewing of flight schedules, availability, or fares.
3. The only way to provide access to fares, schedules, and availability to every travel agent office,
corporate travel department, or other major user of the airlines was to connect special purpose terminals
which travel agents leased from the GDSs. They could not use a PC, as the dedicated special purpose
airline networks did not talk to PCs. This required huge investments in dedicated networks, and
dedicated repair and support personnel, as these networks had thousands of terminals all over the world.
American, United and TWA each created one of the current three GDS networks within their own IT
departments. These operations, together with the related central main-frame systems housing the airlines' own
reservation and passenger service systems were separated from the airlines in a series of varying transactions.
The Sabre GDS, once part of American Airlines, is now owned by Sabre Corp. Travelport owns the other two
and still operates them as two separate networks. Sabre, now private, is owned by Silver Lake and TPG.
Travelport is owned by a group led by Blackstone.
Who still uses a travel agent? – Travel agents once printed tickets and collected funds in every town,
neighborhood and office building around the world. They did more of this than did the airlines themselves.
Travel agents also assisted the travel management departments of major companies in accumulating
information supporting travel budgeting and cost control. Travel agents were paid commissions from 7% to
10% of the ticket value for printing the ticket and serving the public.
Those commissions were eliminated several years ago and most local mom-and-pop travel agents ceased to

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exist.
Large corporate travel agents and travel organizers still handle a substantial portion of business travel, much
of it through the GDSs.
OTAs were developed in the 1990s as the internet opened the airlines' databases to the general public. OTAs
earlier received commissions. At one point, the major OTAs were owned by the airlines themselves and
created to sell the lowest priced tickets direct to the public as a lower cost outlet. In turn, OTAs collected
commissions from other airlines when those airlines were selected by the consumer.
Once commissions disappeared, and OTAs lost their direct commissions, GDSs shared their fees with the
OTAs to keep the business flowing.
Separately, airline consolidation impacts the GDS companies. Travelport to take a hit. – The GDS
companies still operate the main-frame computers that keep passenger reservation records and drive the
airport passenger processing systems. Mergers and consolidation reduce the number of systems that are
required. The Delta/Northwest merger eliminated the Northwest systems from Travelport's book of business.
The recent Continental/United merger is going to further reduce Travelport's business. Continental never
owned a GDS. Its in-house reservations have been handled by SHARES which has been part of EDS and was
recently purchased by Hewlett-Packard. The combined management of Continental and United has selected
the prior Continental system to be the new standard for passenger processing and reservations. Thus,
Travelport will soon lose that business to Hewlett-Packard as the United data is transferred to the Continental
computers.

Company Description
AMR Corp. (AMR) is the parent company of American Airlines and American Eagle Airlines and is based in
Ft. Worth, TX. Before recent consolidation, American Airlines was once the world's largest carrier. It serves
250 cities in over 40 countries. The combined network fleet numbers more than 900 aircraft.

Investment Thesis
Structural changes and continued discipline leave airlines highly leveraged to economic recovery
Over the last 20+ months, most airlines have significantly downsized their business through capacity cuts. Just
as importantly, many of these airlines have been very successful removing capacity-related costs at the same
time. As such, the airline industry today looks much different structurally than just a few short years ago. We
believe most airlines are now managing for profitability rather than market share. If the airlines can maintain
the capacity and cost discipline shown over the last few quarters, and we have no reason to believe that they
will not, most should see greatly improved earnings with economic recovery. Over the next several months,
airline stocks will likely trade on investor perception of economic strength and how close the economy could
get to pre-recession levels. As the economy improves, investor interest in airlines will likely increase and push
shares up from current levels.

Price Target Justification

It is now clear that at the measured pace at which the economy is strengthening, and given current airfares and
fuel prices, AMR will likely still lose money in 2010, albeit much less than was lost in 2009. Most airlines are
pointing to signs of recovering business and international demand. The outlook for near-term yields and
bookings remains strong. As such, we have set our AMR price target at $12 to match the high achieved in
early-January '09 when the demand for air travel had just started to weaken on economic recession. We think
that AMR shares could trade back up to this level over the next several months.

Potential Catalysts
Stable oil prices near current levels, and capacity discipline, combined with early signs of modest economic
recovery, should significantly improve earnings power. As investors and analysts become more convinced
that this will occur, estimates should rise and sentiment will likely shift in favor of this group.
With limited numbers of new aircraft orders, it appears to us that airlines are finally chasing earnings rather
than just growth for growth's sake.

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AMR shares should continue to respond to ongoing reports of consolidation among legacy carriers.

Risks
There is significant headline risk associated with airline shares. Fluctuations in the price of fuel or concerns
that the economy may be slowing may hurt airline share prices.
A significant terrorist attack or a threat of a terrorist attack in the U.S., or elsewhere in the world, may hurt
airline share prices, both within the US and elsewhere.
Crude oil prices and jet fuel prices fluctuate with news of geopolitical events as well as with hurricanes,
floods, and other issues disrupting petroleum supplies. As jet fuel prices fluctuate, shares of airlines are likely
to fluctuate, as well.

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Bob McAdoo / Senior Research Analyst / 913.766.9884 / bmcadoo@avondalepartnersllc.com

AMR Corp. Income Statement

($ In millions, except as noted)
2009 2010E 2011E
TOTAL 1Q 2Q 3Q 4QE TOTAL 1QE 2QE 3QE 4QE TOTAL
Revenues
Passenger - Mainline $ 15,037 $ 3,831 $ 4,279 $ 4,455 $ 4,183 $ 16,748 $ 4,104 $ 4,561 $ 4,749 $ 4,502 $ 17,917
Passenger - Regional 2,012 498 600 618 604 2,320 564 679 734 685 2,662
Cargo, mail and other 2,868 739 795 769 792 3,095 794 821 854 825 3,295
Total Op. Revenues $ 19,917 $ 5,068 $ 5,674 $ 5,842 $ 5,579 $ 22,163 $ 5,462 $ 6,062 $ 6,337 $ 6,012 $ 23,874

Expenses
Salaries, wages, and benefits $ 6,807 $ 1,703 $ 1,714 $ 1,732 $ 1,720 $ 6,869 $ 1,839 $ 1,838 $ 1,918 $ 1,882 $ 7,477
Aircraft Fuel 5,553 1,476 1,655 1,613 1,608 6,352 1,603 1,663 1,735 1,683 6,684
Depreciation and Amortization 1,104 267 267 274 267 1,075 272 275 277 276 1,100
Other rentals and landing fees 1,353 352 352 355 363 1,422 363 364 388 392 1,508
Commission/booking fees/credit cards 853 234 248 256 256 994 257 237 276 278 1,047
Maintenance, materials and repairs 1,280 351 340 334 341 1,366 368 379 349 360 1,455
Aircraft rentals 505 129 145 148 133 555 135 134 153 139 561
Food service 487 115 121 129 117 482 119 111 133 122 486
Other operating 2,808 686 636 659 638 2,619 702 668 725 696 2,791
Special charges 171 53 - - - 53 - - - - -
Total Op. Expenses $ 20,921 $ 5,366 $ 5,478 $ 5,500 $ 5,443 $ 21,787 $ 5,658 $ 5,670 $ 5,952 $ 5,828 $ 23,108

Operating Income $ (1,004) $ (298) $ 196 $ 342 $ 136 $ 376 $ (196) $ 392 $ 385 $ 185 $ 766
Other Expense (Income) 748 207 207 199 199 812 199 199 199 199 796
Pretax Income $ (1,751) $ (505) $ (11) $ 143 $ (63) $ (436) $ (395) $ 193 $ 186 $ (14) $ (30)
Taxes (Credits) (284) - - - - - - - - - -
Net Income $ (1,467) $ (505) $ (11) $ 143 $ (63) $ (436) $ (395) $ 193 $ 186 $ (14) $ (30)
Special items 106 53 - - - 53 - - - - -
Net Income (ex-Special Items) $ (1,361) $ (452) $ (11) $ 143 $ (63) $ (383) $ (395) $ 193 $ 186 $ (14) $ (30)
Basic EPS $ (4.99) $ (1.52) $ (0.03) $ 0.43 $ (0.19) $ (1.31) $ (1.19) $ 0.58 $ 0.56 $ (0.04) $ (0.09)
Diluted EPS $ (4.99) $ (1.52) $ (0.03) $ 0.39 $ (0.19) $ (1.31) $ (1.19) $ 0.51 $ 0.50 $ (0.04) $ (0.09)
Reported EPS (Ex-Items) $ (4.63) $ (1.36) $ (0.03) $ 0.39 $ (0.19) $ (1.15) $ (1.19) $ 0.51 $ 0.50 $ (0.04) $ (0.09)

Shares Outsd. (millions)

Basic 294 333 333 333 333 333 333 333 333 333 333
Diluted 294 333 333 389 333 333 333 389 389 333 333

American - ASMs (millions) 151,774 36,846 38,413 39,941 38,137 153,337 38,320 39,566 41,139 39,662 158,687
Yr/Yr ASM Increase / (Decrease) (7.2%) (2.5%) (0.4%) 3.6% 3.4% 1.0% 4.0% 3.0% 3.0% 4.0% 3.5%
American - RPMs (millions) 122,417 28,700 32,215 33,546 30,855 125,316 31,003 32,010 33,284 32,089 128,386
American - Load Factor 80.66 77.89 83.86 83.99 80.91 81.73 80.91 80.91 80.91 80.91 80.91
American - Yield 12.28 13.35 13.28 13.28 13.56 13.36 13.24 14.25 14.27 14.03 13.96
American RASM 9.91 10.40 11.14 11.15 10.97 10.92 10.71 11.53 11.54 11.35 11.29
Yr/Yr RASM Increase / (Decrease) (11.1%) 6.8% 16.8% 10.7% 6.5% 10.2% 3.0% 3.5% 3.5% 3.5% 3.4%

Eagle - ASMs (millions) 11,566 2,773 2,994 3,197 3,255 12,219 3,050 3,293 3,517 3,580 13,441
Yr/Yr ASM Increase / (Decrease) (8.2%) (1.6%) 2.5% 8.5% 13.0% 5.6% 10.0% 10.0% 10.0% 10.0% 10.0%
Eagle - RPMs (millions) 8,255 1,863 2,230 2,352 2,376 8,821 2,074 2,470 2,602 2,613 9,760
Eagle - Load Factor 71.37 67.18 74.48 73.57 73.00 72.19 68.00 75.00 74.00 73.00 72.62
Eagle - Yield 24.37 26.73 26.91 26.28 25.44 26.31 27.21 27.51 28.19 26.20 27.28
Eagle RASM 17.40 17.96 20.04 19.33 18.57 18.99 18.51 20.63 20.86 19.13 19.81
Yr/Yr RASM Increase / (Decrease) (11.8%) 10.7% 14.1% 8.9% 3.0% 9.2% 3.0% 2.9% 7.9% 3.0% 4.3%

Consolidated ASMs 163,340 39,619 41,407 43,138 41,392 165,556 41,370 42,859 44,656 43,242 172,128
Yr/Yr ASM Increase / (Decrease) (7.3%) (2.4%) (0.2%) 4.0% 4.1% 1.4% 4.4% 3.5% 3.5% 4.5% 4.0%
Consolidated RPMs 130,672 30,563 34,445 35,898 33,231 134,137 33,077 34,481 35,886 34,702 138,146
Consolidated Load Factor 80.00 77.14 83.19 83.22 80.28 81.02 79.95 80.45 80.36 80.25 80.26
Consolidated Yield 13.05 14.16 14.16 14.13 14.41 14.22 14.11 15.20 15.28 14.95 14.90
Consolidated RASM 10.44 10.93 11.78 11.76 11.57 11.52 11.28 12.23 12.28 12.00 11.96
Yr/Yr RASM Increase / (Decrease) (11.3%) 7.2% 16.7% 10.8% 6.5% 10.3% 3.3% 3.8% 4.4% 3.7% 3.8%
Gallons (Millions) 2,767 662 698 720 682 2,762 680 705 736 714 2,835
Cents/Gallon 200.7 223.0 237.0 224.0 235.8 230.0 235.7 235.8 235.8 235.8 235.8
Gallons/ASM 0.0169 0.0167 0.0169 0.0167 0.0165 0.0167 0.0164 0.0165 0.0165 0.0165 0.0165
Operating Expenses/ASM
Wages 4.17 4.30 4.14 4.02 4.16 4.15 4.45 4.29 4.29 4.35 4.34
Aircraft Fuel 3.40 3.73 4.00 3.74 3.88 3.84 3.87 3.88 3.88 3.89 3.88
Depreciation and Amortization 0.68 0.67 0.64 0.64 0.64 0.65 0.66 0.64 0.62 0.64 0.64
Other rentals and landing fees 0.83 0.89 0.85 0.82 0.88 0.86 0.88 0.85 0.87 0.91 0.88
Commission/booking fees/credit cards 0.52 0.59 0.60 0.59 0.62 0.60 0.62 0.55 0.62 0.64 0.61
Maintenance, materials and repairs 0.78 0.89 0.82 0.77 0.82 0.83 0.89 0.88 0.78 0.83 0.85
Aircraft rentals 0.31 0.33 0.35 0.34 0.32 0.34 0.33 0.31 0.34 0.32 0.33
Food service 0.30 0.29 0.29 0.30 0.28 0.29 0.29 0.26 0.30 0.28 0.28
Other Expenses 1.72 1.73 1.54 1.53 1.54 1.58 1.70 1.56 1.62 1.61 1.62
Special charges 0.10 0.13 - - - 0.03 - - - - -
Consolidated CASM 12.81 13.54 13.23 12.75 13.15 13.16 13.68 13.23 13.33 13.48 13.42
Consolidated CASM (ex-Fuel) 9.41 9.82 9.23 9.01 9.27 9.32 9.80 9.35 9.44 9.59 9.54
Consolidated CASM (ex-Fuel/Items) 9.19 9.68 9.23 9.01 9.27 9.29 9.80 9.35 9.44 9.59 9.54
Yr/Yr CASM Increase / (Decrease) 5.6% 5.6% 3.2% (0.9%) (3.2%) 1.1% 1.2% 1.2% 4.8% 3.4% 2.7%
Operating Margin (5.0%) (5.9%) 3.5% 5.9% 2.4% 1.7% (3.6%) 6.5% 6.1% 3.1% 3.2%
Net Margin (6.8%) (8.9%) (0.2%) 2.4% (1.1%) (1.7%) (7.2%) 3.2% 2.9% (0.2%) (0.1%)
Source: Company data; Avondale Partners, LLC estimates

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Important Disclosures
Avondale Partners, LLC makes a market in the securities and/or ADRs of AMR Corporation (AMR).
Avondale Partners, LLC and/or its affiliates, their individual officers, directors, members or employees (excluding the analyst
primarily responsible for this report) and/or members of their families, may make purchases and/or sales as principal or agent in the
subject securities. The analysts responsible for the preparation of this report may receive compensation which is derived, in part, from
the overall investment banking revenues received by Avondale Partners. Such analysts are not permitted to receive compensation
directly from investment banking fees paid by the subject company.
Each Avondale Partners research analyst named on the front page of this research report, hereby certifies that (i) the recommendations
and opinions expressed herein accurately reflect the analyst's personal views about the company and the securities that are the subject
of this report and (ii) no part of the analyst's compensation was, or will be, directly or indirectly, related to the specific
recommendations or view expressed by the analyst in this report.
Price Target Valuation Method and Risk Factors: The 12 month price target is based on the analyst's assessment of future earnings and
cash flow, comparable company valuations, and growth prospects. Risks to the target include broader market and macroeconomic
fluctuations, as well as unforeseen changes in the company's fundamentals, business trends, competition, and/or unexpected
management changes. Additional disclosures are available at www.avondalepartnersllc.com/about or by calling 866-699-3531.
Rating Definitions
MO: Expected price gains of at least 5-10% greater than the market over the next 6-18 mos.
MP: Expected price gains similar to the market over the next 6-18 mos.
MU: Expected price gains of at least 5% less than the market over the next 6-18 mos.

Rating and Price Target History for: AMR Corporation (AMR) as of 01-04-2011

11/23/09
MO:$12

20

16

12

0
Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1
2008 2009 2010 2011

Created by BlueMatrix

Investment Banking Serv./Past 12 Mos.

Rating Count Percent Count Percent
BUY [MO] 101 57.10 2 1.98
HOLD [MP] 73 41.20 2 2.74
SELL [MU] 3 1.70 0 0.00

Other Disclosures
The material herein is based on sources that we consider reliable, but it is not guaranteed to be accurate or complete. It is published for
informational purposes only and should not be construed as an offer, or the solicitation of an offer to buy or sell any security. Prices
and opinions expressed herein are subject to change without notice, and Avondale Partners is under no obligation to update or keep the
information current. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors.

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AMR Corporation - January 6, 2011 Avondale Partners, LLC

BANKING 866.699.3530 *** SALES 866.386.7474 *** TRADING 866.386.7475 *** RESEARCH 866.699.3531
Nashville Main 615.467.3500 3102 West End Avenue, Ste 1100, Nashville, TN 37203
Investment Banking 866.699.3530 3100 West End Avenue, Ste 750, Nashville, TN 37203
Baltimore 866-401-5741 111 S. Calvert Street, Ste 2350, Baltimore, MD 21202
Boston 866.326.9365 184 High St, Suite 702, Boston, MA 02110
Philadelphia 610.727.3878 1055 Westlakes Dr., Suite 300, Berwyn, PA 19312
St. Louis 866.699.3531 3 City Place Drive, Suite 1060, Creve Coeur, MO 63141
San Diego 858.793.8000 512 Via de la Valle, Suite 209, Solana Beach, CA 92130
San Francisco 615.467.3500 631 Bridgeway Ave, Sausalito, CA 94965