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jplatts
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Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 2:47 am

There were two articles recently published online that stated that Southwest is considering ordering additional Boeing 737 MAX airplanes if the federal tax bill that provides for massive tax cuts to corporations is passed. One of the articles, titled "Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes" and published by Forbes, can be found at https://www.forbes.com/sites/grantmartin/2017/12/16/southwest-airlines-hints-at-fleet-upgrades-if-the-tax-bill-passes/. The other article, titled "Southwest Airlines Is Considering Using Tax Windfall to Order New Planes" and published by Bloomberg, can be found at https://www.bloomberg.com/news/articles/2017-12-14/southwest-airlines-mulls-using-tax-windfall-to-order-new-planes.

Southwest currently has 510 Boeing 737-700 planes, and the oldest 737-700 plane in the SWA fleet (N700GS) is over 20 years old and is still in operation with Southwest Airlines today. Even without the tax cuts being provided under the proposed federal tax bill, Southwest will still need to order additional Boeing 737 MAX planes in order to replace 510 Boeing 737-700 planes, especially with the oldest 737-700 in the SWA fleet being over 20 years old.
 
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neomax
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 3:01 am

Nice to see that at least WN will use this bill like its supposed to and reinvest in the company rather than pocket the profits. Kudos to WN!
 
kcrwflyer
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 3:07 am

neomax wrote:
Nice to see that at least WN will use this bill like its supposed to and reinvest in the company rather than pocket the profits. Kudos to WN!


Yeah.. they kind of have to start planning on renewing their fleet regardless. As the OP said, some of those 73G's are already 20. They'll be able to buy alcohol soon.
 
ADrum23
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 3:11 am

Do the 737-700's need replacement, and what would they replace them with? The MAX 7, MAX 10? Or wait for the 797?
 
cledaybuck
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 3:15 am

WN will be ordering more 737's at some point no matter what happens with the tax bill.
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SFOtoORD
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 3:35 am

The tax bill savings will go to the company bottom line and shareholders. It’s not like WN has some cash flow issue that is solved by the tax bill. They’re a highly profitable airline that has no issues at all with fleet renewal.
 
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TWA772LR
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 4:44 am

I'd love to see some 797s in the mix, but it's not going to happen anytime soon without a massive change in business plan/corporate coup. I'd also like to see some -10MAXs, but that won't be without another battle with the unions similar to the entry of the 800.

The best we can hope for now are some more 7/8MAXs as top offs.
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DfwRevolution
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 4:48 am

SFOtoORD wrote:
The tax bill savings will go to the company bottom line and shareholders. It’s not like WN has some cash flow issue that is solved by the tax bill. They’re a highly profitable airline that has no issues at all with fleet renewal.


Well actually, changes to depreciation of capital equipment will directly impact and improve cash flow. Faster depreciation brings cash forward in time and causes the NPV of an investment to go up.

Hypothetical example: let's say WN could justify buying 100 additional 737. Under the new tax laws, maybe they can justify buying 105.
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SFOtoORD
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 4:57 am

DfwRevolution wrote:
SFOtoORD wrote:
The tax bill savings will go to the company bottom line and shareholders. It’s not like WN has some cash flow issue that is solved by the tax bill. They’re a highly profitable airline that has no issues at all with fleet renewal.


Well actually, changes to depreciation of capital equipment will directly impact and improve cash flow. Faster depreciation brings cash forward in time and causes the NPV of an investment to go up.

Hypothetical example: let's say WN could justify buying 100 additional 737. Under the new tax laws, maybe they can justify buying 105.


5 planes isn’t meaningful. Shareholders will demand the majority of this tax cut in the form of higher profits, more buy backs and dividends. The stock market has already priced most of this in. Any public company that plows the bulk of their tax savings into capital investment will be punished severely by investors.
 
DfwRevolution
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 5:24 am

TWA772LR wrote:
I'd love to see some 797s in the mix


I'd love to see some 797 specifications.

SFOtoORD wrote:
5 planes isn’t meaningful. Shareholders will demand the majority of this tax cut in the form of higher profits, more buy backs and dividends. The stock market has already priced most of this in. Any public company that plows the bulk of their tax savings into capital investment will be punished severely by investors.


a.) It was a hypothetical example. I literally pulled the number five from the air and said so in advance.
2.) Who says five planes isn't meaningful?
d.) You are apparently just considering the tax savings from the new statutory rates. The other tax windfall is the new treatment for capital investment. If you don't make capital investments, then you get no tax benefit. WN is a growing airline in a capital-intense industry. The new tax laws will make capital-investment more lucrative, which will allow faster growth, which investors will cheer.
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Cubsrule
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 5:32 am

DfwRevolution wrote:
SFOtoORD wrote:
5 planes isn’t meaningful. Shareholders will demand the majority of this tax cut in the form of higher profits, more buy backs and dividends. The stock market has already priced most of this in. Any public company that plows the bulk of their tax savings into capital investment will be punished severely by investors.


a.) It was a hypothetical example. I literally pulled the number five from the air and said so in advance.
2.) Who says five planes isn't meaningful?
d.) You are apparently just considering the tax savings from the new statutory rates. The other tax windfall is the new treatment for capital investment. If you don't make capital investments, then you get no tax benefit. WN is a growing airline in a capital-intense industry. The new tax laws will make capital-investment more lucrative, which will allow faster growth, which investors will cheer.


I’m not very conversant with WN’s tax situation but given the general form of the tax bill it’s probably true that companies in capital-intensive industries who don’t have the opportunity to book profits overseas (airlines, railroads, etc.) will see significantly more tax savings from the CapEx changes than from the rate changes.
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neomax
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 6:06 am

SFOtoORD wrote:
Any public company that plows the bulk of their tax savings into capital investment will be punished severely by investors.


I love capitalism, but this really does suck if you run one of the few companies that actually cares about their customers.
 
SFOtoORD
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 6:35 am

DfwRevolution wrote:
TWA772LR wrote:
I'd love to see some 797s in the mix


I'd love to see some 797 specifications.

SFOtoORD wrote:
5 planes isn’t meaningful. Shareholders will demand the majority of this tax cut in the form of higher profits, more buy backs and dividends. The stock market has already priced most of this in. Any public company that plows the bulk of their tax savings into capital investment will be punished severely by investors.


a.) It was a hypothetical example. I literally pulled the number five from the air and said so in advance.
2.) Who says five planes isn't meaningful?
d.) You are apparently just considering the tax savings from the new statutory rates. The other tax windfall is the new treatment for capital investment. If you don't make capital investments, then you get no tax benefit. WN is a growing airline in a capital-intense industry. The new tax laws will make capital-investment more lucrative, which will allow faster growth, which investors will cheer.


My understanding is that the capital investment changes only shorten the period over which the company takes the tax benefit from 8 years to 5 years. There will be some one time benefits up front, but it’s not clear that long term capital investments change. And again, shareholders will get what they want. It’s still an airline and still has 15-20 year long fleet renewal cycles.
 
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 6:42 am

SFOtoORD wrote:
DfwRevolution wrote:
TWA772LR wrote:
I'd love to see some 797s in the mix


I'd love to see some 797 specifications.

SFOtoORD wrote:
5 planes isn’t meaningful. Shareholders will demand the majority of this tax cut in the form of higher profits, more buy backs and dividends. The stock market has already priced most of this in. Any public company that plows the bulk of their tax savings into capital investment will be punished severely by investors.


a.) It was a hypothetical example. I literally pulled the number five from the air and said so in advance.
2.) Who says five planes isn't meaningful?
d.) You are apparently just considering the tax savings from the new statutory rates. The other tax windfall is the new treatment for capital investment. If you don't make capital investments, then you get no tax benefit. WN is a growing airline in a capital-intense industry. The new tax laws will make capital-investment more lucrative, which will allow faster growth, which investors will cheer.


My understanding is that the capital investment changes only shorten the period over which the company takes the tax benefit from 8 years to 5 years. There will be some one time benefits up front, but it’s not clear that long term capital investments change. And again, shareholders will get what they want. It’s still an airline and still has 15-20 year long fleet renewal cycles.


Which would accelerate the recognition of those benefits and they would then have the opportunity to invest more dollars, sooner. I think the same things are being said, the semantics could obviously be debated for eternity, just look how many thousands of pages the tax bill is. On top of the tax bill are interest rates, they are trending upwards, paired with the tax bill, now might be the time for WN to order more 737s.

Down the road I am with others saying in one way or another, WN will dip their toe in the 797/MoM water.
 
ninspeed
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 7:20 am

I am sure that Southwest has been watching WestJet expand into the 767/787 water... i am sure there are some routes that they could fill a twin.. I don’t know how well it would go with out assigned seating though...
 
jetero
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 7:24 am

I wonder if Southwest will start a flight from DAL to MHT with these new planes. Both of these airports have runways and gates. Southwest flies from DAL to BOS, but BOS is not MHT. Also, AA does not serve MHT from DFW.

Will WN start service from DAL to MHT due to Trump’s Christmas Tax blessings? Make DAL-MHT Great For The First Time!
 
DfwRevolution
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 6:03 pm

SFOtoORD wrote:
My understanding is that the capital investment changes only shorten the period over which the company takes the tax benefit from 8 years to 5 years. There will be some one time benefits up front, but it’s not clear that long term capital investments change. And again, shareholders will get what they want. It’s still an airline and still has 15-20 year long fleet renewal cycles.


The tax bill will allow full expensing of capital equipment for 2018-2023 and then a phase-out until 2028. That means businesses can depreciate 100% of an asset's value in Year 1. Presently, commercial airplanes are depreciated over seven year schedule. Here's why that matters...

ASSUMPTIONS
Values = Millions
CapEx = (737-8Max List Price)*(50%) = ($100*0.5) = $50
Operating Cash Flow = (2016 OI / 2016 Fleet Size) = ($3,760 / 723 planes) = $5.2
Tax Rate = Statutory Rate = 20%
Discount Rate = WN WACC = 10%

OLD TAX LAW
Year: 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | Terminal Value
CapEx: (-50) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
Operating Cash Flow: 0 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 52
Depreciation Shield: 0 | 1.43 | 1.43 | 1.43 | 1.43 | 1.43 | 1.43 | 1.43 | 0
Free Cash Flow: -50 | 6.63 | 6.63 | 6.63 | 6.63 | 6.63 | 6.63 | 6.63 | 52
Discounted Cash Flow: -50 | 6.0 | 5.5 | 5.0 | 4.5 | 4.1 | 3.7 | 3.4 | 26.7
Net Present Value: $8.95

NEW TAX LAW
Year: 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | Terminal Value
CapEx: (-50) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
Operating Cash Flow: 0 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 52
Depreciation Shield: 0 | 10 | 0 | 0 | 0 | 0 | 0 | 0 | 0
Free Cash Flow: -50 | 15.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 5.2 | 52
Discounted Cash Flow: -50 | 13.8 | 4.2 | 3.9 | 3.5 | 3.2 | 2.9 | 2.6 | 26.6
Net Present Value: $11.09

As you can see, fully depreciating the asset in Year 1 increases the NPV by nearly 25 percent when all else remains equal! The time-value of money greatly favors taking the depreciation benefit now rather than over time.

The other consequence is that certain opportunities that might have been NPV negative will now become NPV positive. Generally speaking, management should pursue any investment where the NPV is greater than 0. For kicks, we can goal-seek for the Operating CF where NPV = 0. We find that WN needs a minimum operating cash flow of $4.3 million per year under the old tax laws versus $4.0 million under the new tax laws. So any opportunities that fell between the $4.0 and $4.3 million range are now viable investments. That's the marginal growth opportunity (hypothetically 105 planes vs 100).

I grant these are simplified numbers, but they illustrate the overall point.
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SFOtoORD
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 6:18 pm

But how is that more than a one time impact?
 
Sooner787
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 6:26 pm

I think WN eventually orders 737-10 Maxes, don't think they'd have any trouble filling them
 
DfwRevolution
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 6:32 pm

SFOtoORD wrote:
But how is that more than a one time impact?


Okay, it's a one-time benefit. What does that matter? WN will get the "one-time" benefit each time they take delivery of an airplane, which will happen hundreds of times over the next decade.

You seem to be stuck on the point that the tax law won't change long-term capital investment strategy. Wrong. From 2018-2028, WN will get preferred tax treatment on capital investment versus today's tax law. That's an eternity in the management world. It will absolutely change the calculus of whether an investment is viable - both growth and fleet replacement - as I demonstrated above.
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SFOtoORD
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 6:44 pm

DfwRevolution wrote:
SFOtoORD wrote:
But how is that more than a one time impact?


Okay, it's a one-time benefit. What does that matter? WN will get the "one-time" benefit each time they take delivery of an airplane, which will happen hundreds of times over the next decade.

You seem to be stuck on the point that the tax law won't change long-term capital investment strategy. Wrong. From 2018-2028, WN will get preferred tax treatment on capital investment versus today's tax law. That's an eternity in the management world. It will absolutely change the calculus of whether an investment is viable - both growth and fleet replacement - as I demonstrated above.


But that also assumes that they have unlimited opportunities to deploy this equipment or to improve their operations by retiring older aircraft. And the benefits you demonstrate (thanks for that) are just as valid on equipment they were already planning to acquire and will most benefit shareholders.
 
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 7:13 pm

jetero wrote:
I wonder if Southwest will start a flight from DAL to MHT with these new planes. Both of these airports have runways and gates. Southwest flies from DAL to BOS, but BOS is not MHT. Also, AA does not serve MHT from DFW.

Will WN start service from DAL to MHT due to Trump’s Christmas Tax blessings? Make DAL-MHT Great For The First Time!

I'd be happy seeing something added at MHT going further west than BWI, but I don't think it will be to DAL in the near future. MHT seems to be funding other routes with aircraft, so maybe if they buy a bunch or new aircraft meant for expansion rather than replacement, MHT might find something new under the tree.

Sooner787 wrote:
I think WN eventually orders 737-10 Maxes, don't think they'd have any trouble filling them

I agree that WN could probably use them on several routes, but I find that even the already in-service -800's are a bit of a drag on the passenger experience. Don't get me wrong, they are a great aircraft and a nice ride while in-flight, but there is more to the travelling experience. They take longer to board, longer to deboard, they are drawn towards bigger and more congested airports mean more time needs to be allotted for going through security and working through the crowds. Bigger cities also mean more likely delays from sitting in line on taxiways or holding for approach. The airline likes the economic numbers, so maybe an even bigger plane will happen. I guess I miss the quick in and out at the airports and high frequencies of the previous version of WN.
 
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 7:38 pm

cledaybuck wrote:
WN will be ordering more 737's at some point no matter what happens with the tax bill.

The question is planes for expansion or planes for replacement?
 
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 7:46 pm

jplatts wrote:
There were two articles recently published online that stated that Southwest is considering ordering additional Boeing 737 MAX airplanes if the federal tax bill that provides for massive tax cuts to corporations is passed. One of the articles, titled "Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes" and published by Forbes, can be found at https://www.forbes.com/sites/grantmartin/2017/12/16/southwest-airlines-hints-at-fleet-upgrades-if-the-tax-bill-passes/. The other article, titled "Southwest Airlines Is Considering Using Tax Windfall to Order New Planes" and published by Bloomberg, can be found at https://www.bloomberg.com/news/articles/2017-12-14/southwest-airlines-mulls-using-tax-windfall-to-order-new-planes.

Southwest currently has 510 Boeing 737-700 planes, and the oldest 737-700 plane in the SWA fleet (N700GS) is over 20 years old and is still in operation with Southwest Airlines today. Even without the tax cuts being provided under the proposed federal tax bill, Southwest will still need to order additional Boeing 737 MAX planes in order to replace 510 Boeing 737-700 planes, especially with the oldest 737-700 in the SWA fleet being over 20 years old.


Not to nitpick here, but the oldest 700 is actually ship 707 which is the first 700 prototype and the oldest NG in existence. She will be 23 years old in 2018.
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 8:13 pm

SFOtoORD wrote:
DfwRevolution wrote:
SFOtoORD wrote:
But how is that more than a one time impact?


Okay, it's a one-time benefit. What does that matter? WN will get the "one-time" benefit each time they take delivery of an airplane, which will happen hundreds of times over the next decade.

You seem to be stuck on the point that the tax law won't change long-term capital investment strategy. Wrong. From 2018-2028, WN will get preferred tax treatment on capital investment versus today's tax law. That's an eternity in the management world. It will absolutely change the calculus of whether an investment is viable - both growth and fleet replacement - as I demonstrated above.


But that also assumes that they have unlimited opportunities to deploy this equipment or to improve their operations by retiring older aircraft. And the benefits you demonstrate (thanks for that) are just as valid on equipment they were already planning to acquire and will most benefit shareholders.


That's a good point. Southwest, or any company, won't just automatically up their capital investment as much as possible. The analysis of impact on value is good. But one question is how will they use the benefits, some of which will be on planes already ordered...expansion, replacement, upgrades, stock repurchases? But there's only so much demand out there. As another post pointed out, Wall Street is expecting to see repurchases from companies. Plenty of companies currently are using excess cash flow to repurchase stock, some even are borrowing for repurchases, one reason being there are only so many opportunities for spending. That will continue, along with growth in capital investment and other uses. It'll be a mix of uses of cash just as it is now.
 
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 8:45 pm

DfwRevolution wrote:
TWA772LR wrote:
I'd love to see some 797s in the mix


I'd love to see some 797 specifications.

SFOtoORD wrote:
5 planes isn’t meaningful. Shareholders will demand the majority of this tax cut in the form of higher profits, more buy backs and dividends. The stock market has already priced most of this in. Any public company that plows the bulk of their tax savings into capital investment will be punished severely by investors.


a.) It was a hypothetical example. I literally pulled the number five from the air and said so in advance.
2.) Who says five planes isn't meaningful?
d.) You are apparently just considering the tax savings from the new statutory rates. The other tax windfall is the new treatment for capital investment. If you don't make capital investments, then you get no tax benefit. WN is a growing airline in a capital-intense industry. The new tax laws will make capital-investment more lucrative, which will allow faster growth, which investors will cheer.

The tax benefit for investment will change the US airline industry. Every capital intensive industry will change.

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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 9:34 pm

Southwest is still acquiring 737-700s used. One from Air China and one from Aeromexico. Southwest will most likely continue flying the 737-700 until they time out and need heavy checks. They then will use them for feed stock. :old:
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 9:40 pm

swacle wrote:
jplatts wrote:
There were two articles recently published online that stated that Southwest is considering ordering additional Boeing 737 MAX airplanes if the federal tax bill that provides for massive tax cuts to corporations is passed. One of the articles, titled "Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes" and published by Forbes, can be found at https://www.forbes.com/sites/grantmartin/2017/12/16/southwest-airlines-hints-at-fleet-upgrades-if-the-tax-bill-passes/. The other article, titled "Southwest Airlines Is Considering Using Tax Windfall to Order New Planes" and published by Bloomberg, can be found at https://www.bloomberg.com/news/articles/2017-12-14/southwest-airlines-mulls-using-tax-windfall-to-order-new-planes.

Southwest currently has 510 Boeing 737-700 planes, and the oldest 737-700 plane in the SWA fleet (N700GS) is over 20 years old and is still in operation with Southwest Airlines today. Even without the tax cuts being provided under the proposed federal tax bill, Southwest will still need to order additional Boeing 737 MAX planes in order to replace 510 Boeing 737-700 planes, especially with the oldest 737-700 in the SWA fleet being over 20 years old.


Not to nitpick here, but the oldest 700 is actually ship 707 which is the first 700 prototype and the oldest NG in existence. She will be 23 years old in 2018.


Yes but 707 has fewer hours on it than 700 (by about 2000 hours). N700GS looks to close out the year with nearly 70,000 hours on the clock and 42-43,000 cycles. Incidentally, N700GS was delivered to WN exactly 20 years ago today (Dec 17, 1997). I'd fully expect another 5 or so years before any NGs head to the scrapper.
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INFINITI329
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 9:46 pm

TWA772LR wrote:
I'd love to see some 797s in the mix, but it's not going to happen anytime soon without a massive change in business plan/corporate coup. I'd also like to see some -10MAXs, but that won't be without another battle with the unions similar to the entry of the 800.

The best we can hope for now are some more 7/8MAXs as top offs.


As long as the MAX 10 doesn't have shitty performance out of MDW I expect to see WN convert some orders to the 10. I do agree it some work rules and/or pay adjustments would be necessary for the affected workgroups. At the top of the list, I'm almost certain pilots will require a pay premium to fly the 10. The ramp would require work rule updates. I am not unsure what the flight attendants would require if any.
 
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 10:04 pm

INFINITI329 wrote:
TWA772LR wrote:
I'd love to see some 797s in the mix, but it's not going to happen anytime soon without a massive change in business plan/corporate coup. I'd also like to see some -10MAXs, but that won't be without another battle with the unions similar to the entry of the 800.

The best we can hope for now are some more 7/8MAXs as top offs.


As long as the MAX 10 doesn't have shitty performance out of MDW I expect to see WN convert some orders to the 10. I do agree it some work rules and/or pay adjustments would be necessary for the affected workgroups. At the top of the list, I'm almost certain pilots will require a pay premium to fly the 10. The ramp would require work rule updates. I am not unsure what the flight attendants would require if any.

The -10 will definately require another FA for a total of 5. It was quite the undertaking to get 4 just for the 800s.
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superjeff
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 10:19 pm

SFOtoORD wrote:
DfwRevolution wrote:
SFOtoORD wrote:
The tax bill savings will go to the company bottom line and shareholders. It’s not like WN has some cash flow issue that is solved by the tax bill. They’re a highly profitable airline that has no issues at all with fleet renewal.


Well actually, changes to depreciation of capital equipment will directly impact and improve cash flow. Faster depreciation brings cash forward in time and causes the NPV of an investment to go up.

Hypothetical example: let's say WN could justify buying 100 additional 737. Under the new tax laws, maybe they can justify buying 105.


5 planes isn't meaningful. Shareholders will demand the majority of this tax cut in the form of higher profits, more buy backs and dividends. The stock market has already priced most of this in. Any public company that plows the bulk of their tax savings into capital investment will be punished severely by investors.



I agree, but with one caveat: The same is true on the labor side. If there are profits, labor wants their share, and there is always a give and take in this area. it is more than investors wanting a meaningful return on their investment, which is not, of itself, anything evil.
 
n471wn
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 10:24 pm

NWAROOSTER wrote:
Southwest is still acquiring 737-700s used. One from Air China and one from Aeromexico. Southwest will most likely continue flying the 737-700 until they time out and need heavy checks. They then will use them for feed stock. :old:


Sadly they have slowed down acquiring used 700’s and there are about 30 available. The outfit at PAE that refurbishes these used birds completes one every two weeks and WN is down to 8 waiting to go through the process
 
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RayChuang
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 10:30 pm

I wouldn't be surprised with the new tax law, WN may start retiring their oldest 73G's and replace them with more 737 MAX 7's.
 
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einsteinboricua
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 10:32 pm

neomax wrote:
Nice to see that at least WN will use this bill like its supposed to and reinvest in the company rather than pocket the profits. Kudos to WN!

I don't mean to bring politics here (and this is unfortunately unavoidable), but this tax bill is all about consumers. The airline will invest in its fleet which means better interiors and perhaps more fuel efficiency. However, the tagline and raison d'être of the bill is to benefit employees and consumers: employees will get better working conditions and higher wages and because the company is swimming in profits, the consumer should see prices stabilize.

The articles don't hint at any of the above. While better interiors make for a more pleasant experience for the passengers, it doesn't necessarily translate to a better experience for the FAs who still have to put up with the occasional entitled passenger.

Now, granted, WN doesn't have bag fees so it already has a leg up compared to the legacy carriers, but I don't think anyone would be surprised if I said that WN is not always the cheapest option to fly a certain route. If the profits don't translate into lower costs for me or higher wages for employees then the tax bill is NOT working as publicized (remember, it's all about the consumer and the employees, never about the company or its executives and shareholders).
"You haven't seen a tree until you've seen its shadow from the sky."
 
dfdubflyer
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 10:35 pm

superjeff wrote:
SFOtoORD wrote:
DfwRevolution wrote:

Well actually, changes to depreciation of capital equipment will directly impact and improve cash flow. Faster depreciation brings cash forward in time and causes the NPV of an investment to go up.

Hypothetical example: let's say WN could justify buying 100 additional 737. Under the new tax laws, maybe they can justify buying 105.


5 planes isn't meaningful. Shareholders will demand the majority of this tax cut in the form of higher profits, more buy backs and dividends. The stock market has already priced most of this in. Any public company that plows the bulk of their tax savings into capital investment will be punished severely by investors.



I agree, but with one caveat: The same is true on the labor side. If there are profits, labor wants their share, and there is always a give and take in this area. it is more than investors wanting a meaningful return on their investment, which is not, of itself, anything evil.


The unions at Southwest have certainly gotten their share the last couple years with their massive new contracts. Southwest has done an accelerated share repurchase almost every quarter for the last three years, so it's hard to imagine the pace would increase that substantially. Dividends, massive capex in aircraft and IT, and terminal construction would be my guess.
 
INFINITI329
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 10:36 pm

n471wn wrote:
NWAROOSTER wrote:
Southwest is still acquiring 737-700s used. One from Air China and one from Aeromexico. Southwest will most likely continue flying the 737-700 until they time out and need heavy checks. They then will use them for feed stock. :old:


Sadly they have slowed down acquiring used 700’s and there are about 30 available. The outfit at PAE that refurbishes these used birds completes one every two weeks and WN is down to 8 waiting to go through the process


With the MAX 7 not entering service till 2019, i definitely can see WN acquiring a few more used 73G's maybe not in staggering numbers but several.
 
737max8
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 10:38 pm

I doubt they order any more MAX 7 at all. They will replace 737-700s with 737 MAX 8's.

The MAX 7 is for a specific mission. It's nowhere near as cost effective as the MAX 8.

And yes, I could see WN ordering the MAX 10 to replace popular 737-800/MAX8 routes and then use those to continue to replace -700s and grow the fleet.
The thoughts and opinions expressed in my comments do not represent that of any airline or affiliate.
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rbavfan
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 10:45 pm

jplatts wrote:
There were two articles recently published online that stated that Southwest is considering ordering additional Boeing 737 MAX airplanes if the federal tax bill that provides for massive tax cuts to corporations is passed. One of the articles, titled "Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes" and published by Forbes, can be found at https://www.forbes.com/sites/grantmartin/2017/12/16/southwest-airlines-hints-at-fleet-upgrades-if-the-tax-bill-passes/. The other article, titled "Southwest Airlines Is Considering Using Tax Windfall to Order New Planes" and published by Bloomberg, can be found at https://www.bloomberg.com/news/articles/2017-12-14/southwest-airlines-mulls-using-tax-windfall-to-order-new-planes.

Southwest currently has 510 Boeing 737-700 planes, and the oldest 737-700 plane in the SWA fleet (N700GS) is over 20 years old and is still in operation with Southwest Airlines today. Even without the tax cuts being provided under the proposed federal tax bill, Southwest will still need to order additional Boeing 737 MAX planes in order to replace 510 Boeing 737-700 planes, especially with the oldest 737-700 in the SWA fleet being over 20 years old.


Yeah WN is going to order because of the tax bill. They have a constant order line to Boeing already. This bill passing will not change anything, except the executive packages. Bloomberg must spend to much time with Wall street execs.
 
rbavfan
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 10:59 pm

jetero wrote:
I wonder if Southwest will start a flight from DAL to MHT with these new planes. Both of these airports have runways and gates. Southwest flies from DAL to BOS, but BOS is not MHT. Also, AA does not serve MHT from DFW.

Will WN start service from DAL to MHT due to Trump’s Christmas Tax blessings? Make DAL-MHT Great For The First Time!


DAL does not have "gates" to spare. To add the flights would mean to delete other flights. Good luck with that!
 
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Avaitor
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 11:04 pm

Having just recently flown on N711HK (19.7 year old 737-700 retro scheme), WN really needs to either upgrade the interiors of these aircraft or replace them. They are nowhere as nice as their competition from Virgin America or JetBlue.
 
SFOtoORD
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 11:13 pm

einsteinboricua wrote:
However, the tagline and raison d'être of the bill is to benefit employees and consumers: employees will get better working conditions and higher wages and because the company is swimming in profits


Wish this was true, but these newfound funds are not going to employees. They already have market rate or better contracts and the airline has no reason to pay them more. S&P 500 profit margins remain near all-time highs and will only go higher now. Investors will not tolerate employees getting these funds.
 
rbavfan
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Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 11:21 pm

Sooner787 wrote:
I think WN eventually orders 737-10 Maxes, don't think they'd have any trouble filling them


Southwest already left the -800 series with the old seat pitch. They have noted the added cost due to time at the gate loading & unloading the airframe. Otherwise they would put more seats in the -800. I have always wondered why southwest did not swap the fwd door with a service size door and add a full size entry door fwd of the wing on the port side. They could get about 182 seats in the -800 at the 31" pitch of the -700 vs the current 175. With 26 of those seats at or fwd of the new door and 7 more seats total. With passengers entering fwd & rear from the new door they would reduce times to that of around 160 seat plane. If they did the same on the Max-10 they could do 212 with 2 rows added fwd of the new door & 3 aft vs the -800. Putting 174 seats aft of the new door allowing the -10 to have about the same load time as the current -800. Otherwise they would loose about 1 flight per gate for the -10. They already loose about 1 flight a day/gate going from the -700 to the -800.

It would be with the cost in the long run to add the door.
 
INFINITI329
Posts: 2545
Joined: Mon Jul 02, 2012 12:53 am

Re: Southwest Airlines Hints At Fleet Upgrades If The Tax Bill Passes

Sun Dec 17, 2017 11:44 pm

rbavfan wrote:
Sooner787 wrote:
I think WN eventually orders 737-10 Maxes, don't think they'd have any trouble filling them


Southwest already left the -800 series with the old seat pitch. They have noted the added cost due to time at the gate loading & unloading the airframe. Otherwise they would put more seats in the -800. I have always wondered why southwest did not swap the fwd door with a service size door and add a full size entry door fwd of the wing on the port side. They could get about 182 seats in the -800 at the 31" pitch of the -700 vs the current 175. With 26 of those seats at or fwd of the new door and 7 more seats total. With passengers entering fwd & rear from the new door they would reduce times to that of around 160 seat plane. If they did the same on the Max-10 they could do 212 with 2 rows added fwd of the new door & 3 aft vs the -800. Putting 174 seats aft of the new door allowing the -10 to have about the same load time as the current -800. Otherwise they would loose about 1 flight per gate for the -10. They already loose about 1 flight a day/gate going from the -700 to the -800.

It would be with the cost in the long run to add the door.


The key gap in your thoery is airport infrastructure. The majority of airports that WN flies into will not be able to support boarding from the rear. Pax would not be happy to rear board in cities like MDW or BWI during the winter.

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