Tax Bill Is Good News for Domestic Airlines, According to Southwest CEO

As Congress’ sweeping tax overhaul bill passes, at least one top airline chief is already pledging to use the expected windfall to buy new planes, hire more staff, and hold the line on fare increases.

Speaking at a Wings Club luncheon in New York City last week, Southwest CEO Gary Kelly told the audience that the corporate tax cut “takes us to a position where we can think about growing faster, and of modernizing our fleet faster.” 

The legislation slashes the corporate tax rate from 35 percent to 21 percent; and while most companies did not pay the full 35 percent, most will see a significant benefit to the bottom line.

Kelly said that some of the new planes he would like to buy would be used to replace some geriatric models. The Dallas-based airline already has a sizable fleet of 750 planes, all Boeing 737 narrow-bodies; older models guzzle more fuel and have a more limited range.

The added planes will be used to boost Southwest’s expansion. The brand recently added more flights across the border, to destinations in Latin America and the Caribbean. It is also planning to launch nonstop flights from the West Coast to Hawaii late next year or in early 2019; the carrier must first win FAA certification to operate its newest 737 MAX model on long flights over the ocean. While a launch date has not been set, Kelly said he was confident that the airline could begin selling seats to Hawaii sometime in 2018.

Bags will continue to fly free
Kelly said Southwest would bring its trademark low fares to the market. He also reiterated that he would stay firm on the airline’s “bags fly free” policy, under which fliers can check up to two bags free of charge — a perk that should be particularly popular for leisure travelers to the Aloha State.

The CEO acknowledged that he is under pressure from shareholders to reverse his opposition to bag fees. “Wall Street is always arguing that we’re just ‘leaving money on the table,’” he said.  “But we convinced our investors that is not the case. The fact of the matter is that customers hate fees.”

He also promised that customers will benefit from the tax bill, since airlines will be in a stronger position to offer competitive fares.  Most U.S. corporations, including other airlines, have yet to spell out how they will invest the savings they will reap from the legislation, which could land on the President’s desk before Christmas. But Kelly left no doubt on that point: “We can share the tax savings with our employees and savings with our customers.”

A technology makeover
Kelly also referred to another move that should reap tangible benefits in 2018: the completion of the rollout of a new reservation system that Southwest has said is vital to its future growth. 

The OneRes system, developed by Amadeus IT Group for an estimated $500 million, debuted a year ago, giving the airline increased scheduling flexibility and marketing capabilities. The airline had been an industry laggard in the IT department, in part because of its “keep things simple” business model — but after a technical outage caused widespread disruption throughout its network in 2016, modernizing its creaky technology became a higher priority. Kelly said the airline is getting more tech-savvy in all aspects, especially when it comes to communicating with customers.

“We have a place we call our listening center, and it’s monitoring social media all day long,” he said, adding that “we will learn about things (happening at Southwest) in the learning center even before the station manager at that airport.”