American and Southwest Airlines Paying Bonuses

Airlines have decided to share some of their windfall from the new tax law with their employees.

On Tuesday, American and Southwest said they would pay bonuses to employees of $1,000 apiece, which American said would cost them $130 million.

At the same time, Southwest said that it had exercised options to purchase more jets from Boeing and delayed orders for others.

Unlike the majority of other airlines in the U.S., Southwest, based in Dallas, has been profitable for quite some time and pays cash income taxes.

Over the first nine months of last year, it earned more than $1.6 billion and will immediately benefit from the lower corporate tax rate for income that was signed in late December by President Donald Trump.

Southwest announced that it expects a non-cash credit of $1 billion to $1.5 billion in its fourth quarter to reflect a difference between the rates from the time tax expenses had been accrued and paid.

Because of previous years’ huge losses, the other major carriers in the U.S. do not pay cash taxes even though they are now highly profitable. American earned more than $1.7 billion during the first three quarters of 2017.

All airlines should benefit nonetheless, from a provision in the new tax law that allows businesses to depreciate more quickly the cost of its investments, in this case aircraft.

CEO at American Doug Parker and President Robert Isom both said the law will benefit American over the long run, which is likely when it no longer is able to avoid cash income taxes by taking into count past losses.

The two said the changes in taxes will give the airline additional confidence to invest in aircraft and facilities as well as pay employee bonuses.

American has said that employees at its main airline and regional affiliates would receive bonuses during the first three months of 2018. Southwest said it is making its bonus payments on Monday January 8.

Southwest announced as well that it was exercising options for 40 new Boeing 737 jets that are valued at $4.5 billion and will delay 23 of its previous orders that total $2.1 billion for as long as five years.

Southwest said as well that it would donate an additional $5 million in 2018 to charity. A spokesperson for the airline said the company paid out over $25 million that included cash and free tickets as well as other donations to charity during 2016, which is the last year it has up to date figures.

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