American and Southwest are Bonusing All Employees $1000 Because of Tax Reform

Southwest is giving every employee $1000, giving an additional $5 million to charity and exercising options for 40 Boeing 737 MAX 8 (“15 firm orders in 2019 and 25 firm orders in 2020”). They’re crediting the tax reform bill for the moves.

They “deferred 23 Boeing 737 MAX 7 firm orders from 2019 through 2021 to 12 firm orders in 2023 and 11 firm orders in 2024.”

American Airlines is also giving each employee $1000. It’ll cost American Airlines about $130 million or almost twice what it will cost Southwest because of American’s size. American also credits the tax reform bill.

American Airlines is not a cash taxpayer. They earn billions of dollars and do not pay income tax because they have been drawing on net operating losses that survived their bankruptcy. The tax package, while placing modest limits on the net operating losses that can be claimed each year, should make those losses last longer — pushing off into the future when American begins paying most of the tax it would otherwise owe.

Nonetheless $130 million is a lot even to an airline that earlier this year unilaterally handed out raises to employees worth a billion dollars over three years.

I’m thrilled for the employees will are benefiting from this. It also underscores how American is on a mission to get employees to like management. Their theory is that happy employees will provide better service and help the airline to earn a revenue premium. It’s not going well so far, so they’re doubling down it seems.

We’ll see what investors think of another $130 million in one shot during the airline’s earnings call later this month.

Customers shouldn’t expect that this will do much, American’s issues have little to do with employee pay. Employees need to be paid fairly, but that alone doesn’t make for a happy motivated workforce. Employees need to feel like they’re on a mission of some kind, and they need to like and respect their colleagues. One-off bonuses contribute to neither.

Here’s the letter to American’s employees about the bonus:

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. How is this possible? Progressives assured us that if Trump won the stock market would immediately plunge and never recover.

  2. ‘Doug’ and ‘Robert’, as they sign off their letter, are clearly Trump cheerleaders, out there waving the pom-poms and gyrating madly!

    “the world at large” does not share their enthusiasm of an ‘amazing” 2017 (not in a positive sense anyway) as we have seen Trump lurch around the world stage creating mayhem and alienating the US from those nations who once held it in high regard. The US is now a laughing stock of the entire world. Sad, as he might say.

  3. This seems more like an attempt to gain a tremendous amount of good will with the current administration. They chose to make this overtly political when they could have just credited years of solid growth.

  4. Because the employees will need this money when they file their OWN taxes! The little guys are the ones getting screwed with this plan…they have structured it, however, to appear to give the lower income and middle class an initial tax break so that they don’t lose during the next election cycle but as soon as it is over, WHAM! BEND OVER MIDDLE AMERICA! Don’t take my word for it, read it for yourself….I’ve read no less than a dozen articles on it and it makes sense for businesses but truly it is at the expense of the working class. The statistics have proven time and time again that MOST BUSINESSES do not bring jobs back, pay higher wages or do anything to benefit the U.S. economy when they are given tax gifts like this…..but I’m sure things will be different this time.

  5. AT&T made a big public hoopla over the exact same thing. The next week they announced thousands of layoffs. So, while they were technically bonuses, they were severance pay to many.

  6. Why would anyone who is not in the richest 10%-20% believe that the Donald would do anything to reduce their taxes? I have not noticed anything he has done yet to make my life either easier or. better. As far as I can tell, he suffers from an annoying need of praise from his minions and I am not one of them.

    Following is a definition of reform: I am still trying to figure out where the improvement is for the majority of the citizens of the United States. Trump, talking to his rich friends told them they all got a lot richer.

    “make changes in (something, typically a social, political, or economic institution or practice) in order to improve it.
    “an opportunity to reform and restructure an antiquated schooling model”
    synonyms: improve, better, make better, ameliorate, refine”

  7. I work for a large privately held firm that did this exact same thing three years ago under the last administration and credited it to “immense growth.” I gotta go with @Dan on this one – it feels a little like pandering to Washington.

  8. As an actual business owner I am often amazed at the lack of understanding of taxes and their effect on the economy by employees. Previous comments illustrate this disconnect. Nothing I say here will dissuade the negative comments. It’s my responsibility to understand how the economy actually works to steer my business toward profitability. I’m ecstatic about the future. I’ve only been here for 35 years so what do I know?

  9. Stock market at record highs, companies expanding and hiring, declining numbers of people on food stamps, ISIS devastated under Trump ( think their laughing at us ? ) We are going to save millions by not throwing our tax dollars to a inept and cowardly UN. Construction companies in my area can find enough employees to fill $20/hr plus jobs. Yet everyday I laugh at liberals who whine and proclaim the world is coming to a end under Trump!

  10. This was how they bought off the middle class the last time when they gave away a huge part of their wealth to the top 2%, under Bush. They sent everyone a check and even lied about to saying that everyone got the same cut when the rich were pocketing $50-150,000 cuts just like they are again now. And as always with these transfers to the rich, the spending dried up as soon as the checks were spent and we plunged into a recession only recovered from when Obama gave some of the wealth stolen from the middle back and poor back to them.

    So this is the latest con where the Most Hated Man on Earth and his Treasury Secretary the former Foreclosure King talked the corporations being handed over wealth from the middle class into giving checks to their workers to try to buy them off. Won’t work almost as soon as those checks get spent we go into another GOP recession, right on schedle. Only Reagan recovered by rescinding his similar cuts. But they’re able to replay this over and over to pay off their donors because of their 1/3 low-information redneck voters deemed worldwide to be the stupidest people on the planet, suckers every time for Voodoo Economics as long as it’s slathered with enough racial hate and now Nazi’s marching in the streets.

  11. The comments to this article illustrate all that is wrong with the current political climate. We cannot discuss issues rationally with each other; rather, we yell and rant at each other and do not think that anything can be correct in the opposing position. We cannot concede that the other side can be correct on any point. I am tired of the one-sided raving.

    When I worked in corporate law, a colleague remarked that, “When things are good, everyone believes that the good times will not end — but they do. And when things are bad, everyone believes that the bad times will not end — but they do. Everything moves in cycles.”

    Whichever party you belong to — the other party is not composed of demons. The world will not end because a piece of legislation (of any kind) is enacted. But, ifwe start listening to the other side to find points on which we can agree, the resulting middle position may be the best possible for our country and the world.

  12. Is this a real letter? “We are proud and humble [sic] to work with all of you”?

    (for the stylistically challenged: “humbled”)

  13. Wait but isn’t southwest a chase sapphire preferred transfer partner?

    Wheres the link to the card referral?

  14. I’m an AA shareholder and certainly don’t resent this move (or the previous increases) given by management. I don’t agree with the tax changes but recognize much of corporate America has been doing extremely well in recent years (and particularly airlines who are finally after decades showing profits instead of sending money off to oil producers) and by mid-2018 will be embarrassed by even greater profits once the new tax rates are factored into quarterly results. These one time bonuses will blunt — or smooth out — the upturn as will share buybacks and increased dividends. As noted, in AA’s case, it already pays no tax given many decades of tax losses, though it certainly pays state and federal taxes higher than most businesses through those levied on fuel it consumes. I suppose my dividend will rise this year as a percentage of earnings, and as it did today the stock price will continue to rise (I bought in at about $22 and think it’s somewhere near $50) so I can’t begrudge employees some of the spoils….even as I drop down next month from an ExecPlat to a humbled Gold. I applaud the executive committee and board and hope they didn’t just do this to curry favour with the man in the White House.

  15. @retired lawyer
    I’d make a pretty strong case that the correct viewpoint is not the middle ground between the current ‘some nazis are good people!’ administration and the opposition.

  16. I hate to burst the bubble. According to Forbes under President Clinton and President Obama the stock market recorded annual average gains of 17.5% and 16.25%, respectively. Of course Clinton and Obama had it easy because they both followed Republican presidents whose “pro-growth” policies ended up trashing our economy. Moreover, job growth under Obama from January to October 2016 (before the election) was higher than job growth under Trump for the same period in 2017. Most Trump supporters have no clue since they don’t hear anything about these stats on the Republican Channel.

    I agree that the economy is strong and unemployment has remained at full-employment levels since Trump took office. With a fully employed workforce and companies unable to fill $20/hr jobs, that begs the question of how economic growth can be maintained much less increased when companies cannot find qualified workers and the administration wants to cut legal and illegal immigration.

  17. This is a PR move.

    “Here’s a few coins, out our enormous truckload of cash!”

    RAISES across the board, that would be meaningful.

    -pththththbbbht.

  18. Although it is nice to award employees with raises and/or bonuses, I am baffled by the timing of this bonus to employees.

    AA is not currently paying any tax (cash) to the IRS because of carryover loss provisions of the prior tax law. Therefore, currently, AA is not affected by the new “tax” law.

    Why, then, did AA decide to use the tax law as a motivator for the employees bonus?

    I realize that Trump needs frequent validation (crowd size et cetera) but this bonus and the timing of it are so obvious that someone (s) at AA wants to make Trump happy and give him something additional to crow about.

    Shame on AA and its Board of Directors and/or Officers that authorized the timing and excuse for this bonus. Good for an employee bonus –

  19. So instead of rewarding workers by passing along some of their profits in the form of bonus/wage increases, they are using this excuse. Watch them not give them anything else.

  20. Fun watching idiot liberals come here and try to spin it. Sorry guys – Trumpmismworking incredibly damn well. And the only reason the individual tax cuts expire in ten years is because not enough democrats voted for the plan – you need 60 votes to pass the individual cuts without the expiration, and democrats rather screw over Americans than vote in their best interests.

  21. Love the common sense Retired Lawyer! Miss the days we could respectfully disagree with others and life went on.

  22. The tax cut for businesses is permanent. How about make those bonuses permanent in the form of RAISES?

  23. Since the corporate tax rate dropped under Trumps tax cuts, essentially saving large corporations billions, bonuses for regular income employees have been announced, expansions and new orders.
    Imagine what could be done if liberals stopped fighting the truth and Trump. A house divided cannot stand, let us all work together.
    Imagine what could be done, improved airports, bring back supersonic flight and even have affordable space travel in short order.
    Then next, turn from evil, turn to God and save your souls eternally as this life is short and nothing is worth throwing that away.

  24. @DavidB — I’m glad you’re OK with the bonuses, because AA’s stock is down today because of it. The same thing happened when Parker unilaterally increased employee pay last year. The stock has obviously recovered (and more) from that move.

    The issue for shareholders is a somewhat tricky one. There is no question that massive pay increases for employees have hurt AA’s short-term profits. The stock market is skittish about this because there is a long history of USA airlines giving generous pay increases to employees during “good times” that they later could not afford. Parker is playing a longer game however. He believes the USA airline industry has been fundamentally restructured, and can afford to pay its employees good wages. He thinks these higher wages will motivate his employees to provide better service. Not everyone agrees. That said, betting against Parker has generally been a bad bet. I hope he is correct on this. I’d put the odds at around 80% that he is.

  25. I for one am happy that these employees will see some extra money in their paychecks. Seriously if you are angry about this in anyway you should quickly set a New Years resolution to not be the miserable person you likely were all of 2017.

    Try it, you’ll be happier I promise.

  26. I thought this was supposed to raise wages and not just a one time spurt? This is a flash in the pan and a PR cost.

    Hopefully AA and SWA don’t have mergers that they’re looking to get approved.

  27. Sorry trumpanzees, the orange fuhrer has been outed by his own former top political advisor and National Security advisor and it’s going down for treason in their words.

    Who would have thought it when the National Security advisor had to register as a foreign agent.

    This is who ignorant rednecks elect President. So much for your phony patriotism, traitors.! Sorry but your replay of the Civil War is not going to win this time like it does during your weekend reenactments. You were traitors then, and your t r a i t o r s now! Now go March in the streets with your Nazi Brothers.

  28. It Greg gets this triggered when reading a travel blog I can only imagine how crazy he is in real life. Someone better make sure he doesn’t have an arsenal in his basement ready for a massacre. Unhinged people are scary.

  29. You do understand that to have a NOL, the company had a loss and had to use previously taxed income to pay current year’s expenses that exceeded income? What does it matter if they’re stretched out or taken immediately? It’s the same dollar amount.

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