There's never been any doubt U.S. businesses would benefit from tax reforms. But will consumers and workers? Time will tell.
Southwest and American airlines like tax reform so much they’re each giving $1,000 bonuses to most workers, and promising to invest in their operations, fleet and product.
Southwest said Tuesday it’s budgeting $70 million for full-time and part-time employee bonuses, and adding an extra $5 million for a charitable contribution. American said its largesse will cost about $130 million, and American plans to distribute bonuses this quarter both to its own employees and workers at regional airlines it owns, including Envoy Air. American’s highest-ranking executives will not receive extra pay.
Most U.S. travel providers are bullish on tax reform, Steve Johnson, executive vice president for corporate affairs at American Airlines, told Skift last month, adding that changes in corporate tax rates would help the airline invest more in its product.
But few carriers have been as vocal as Southwest, with its CEO, Gary Kelly, repeatedly lobbying for the bill before it became law.
This might have been because Southwest will benefit from lower corporate rates sooner than its three largest competitors. American, United Airlines and Delta Air Lines lost so much money between 2001 and 2012 that they’re still not paying cash taxes, though executives from the three have said they expect to within a few years.
Southwest was profitable during most quarters over that period, so it has paid substantial taxes in recent years.
Within a few years, American expects its tax benefits will be significant and wanted to share some of that with workers, CEO Doug Parker and President Robert Isom said Tuesday in a note to employees.
“While the company does not yet pay cash taxes due to our enormous losses in the past, there is no doubt that our country’s new tax structure will have positive long-term benefits for American,” they wrote. “We will be able to invest even more in aircraft and facilities, and we will be able to do so with even greater confidence about the future.”
Southwest Fleet Changes
While American didn’t share details on its investment plans, Southwest told investors Tuesday it changed some future aircraft orders to take advantage of what it called “favorable economics.” The airline is deferring 23 Boeing 737 Max 7s that had been due to arrive between 2019 and 2021, and is instead opting for larger aircraft.
In a filing, Southwest said it exercised options for 40 Boeing 737 Max 8s that will come in 2019 and 2020. It also said it will accelerate delivery of 23 Max 8s that had been slated for delivery in 2023 and 2024. They’ll now arrive in 2021 and 2022.
In Southwest’s configuration, the Max 8 has 175 seats, about 30 more than the smaller 737 model. Airlines generally prefer to fly larger jets because the operating economics are more favorable — as long as the carrier can sell most of the extra seats.
Southwest is still planning to take the smaller Max 7s it ordered, but will take them in 2023 and 2024.
Also, in a regulatory filing, Southwest said it expects it will record a reduction of its income tax expense between $1 billion and $1.5 billion for the fourth quarter of 2017, “as a result of the difference between rates in effect when income tax expense was accrued, and the rates expected to be in effect when the income taxes will in fact be paid.”
Photo credit: Southwest Airlines employees (pictured here) will receive bonuses. The airline said tax reform is the reason. Southwest Airlines