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Tuesday was a good day to be an employee of the US’ largest and third-largest airlines (by passengers carried). Both American Airlines and Southwest Airlines announced $1,000 bonuses to all employees.
Southwest was the first to announce the good news. Airline CEO Gary Kelly “applaud[s] Congress and the President for taking this action to pass legislation,” and announced three ways of reinvesting the anticipated tax savings. The most immediate initiative will be that:
All Fulltime and Parttime Southwest Employees employed with Southwest on Dec. 31, 2017, will receive a $1,000 cash bonus on Jan. 8, 2018.
In addition to these cash bonuses, Southwest announced an additional $5 million in charitable giving “as a result of tax reform.” The airline will “put this money to work in the communities we serve and where our Employees work and live” throughout 2018. Also, Southwest expects to make “further investment in its Boeing fleet.” While citing previously announced 737 MAX orders in its press release, the airline noted its 2018 growth plans remains unchanged.
Thanking “our country’s new tax structure,” American Airlines also announced a $1,000 bonus “to each team member (excluding Officers) at [AA’s] mainline and wholly owned regional carriers,” on Tuesday afternoon. Per the press release, AA’s bonuses will cost the company $130 million and will be paid out it in the first quarter of 2018.
Southwest will reap immediate benefits from the lower corporate tax rate. The airline provisioned $1.3 billion in taxes on $3.5 billion of pre-tax income in 2016. With the federal corporate income tax rate dropping from 35% in 2017 to 21% in 2018, the tax cut will save Southwest approximately $490 million each year at its current $3.5 billion in pre-tax profits.
Comparatively, American Airlines’ tax situation is even more generous. Thanks to accumulated tax losses for previous years, American Airlines hasn’t paid any federal corporate income tax in years. However, the airline is still celebrating this tax rate change as it expects “positive long-term benefits for American” from the 14% drop in corporate tax rates. However, in the short-term, AA’s $538 million in deferred tax assets will be substantially less valuable.
Featured image by FG/Bauer-Griffin / Getty Images
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