Activist hedge fund Elliott Management has acquired a $1.9 billion stake in Southwest Airlines and is advocating for leadership changes within the company. In a letter and presentation, Elliott expressed its intention to replace Southwest CEO Bob Jordan and chair Gary Kelly with external candidates. The fund believes that Southwest, once considered a “best-in-class” airline, has now become one of the industry’s underperformers.
Elliott’s substantial stake in Southwest makes it one of the airline’s largest shareholders. The fund plans to explore all available options to bring about the necessary leadership changes it deems essential for Southwest’s success. Elliott is urging the airline to immediately announce a transition in CEO and chair positions, citing Jordan and Kelly’s oversight of a period marked by significant underperformance.
Following Elliott’s announcement, Southwest’s shares rose by approximately 7% in premarket trading. As of Friday’s close, the company had a market capitalization of $16.6 billion.
To support its case for change, Elliott conducted an 18-month research period during which it consulted numerous former Southwest employees. The fund also engaged with shareholders and surveyed over 2,000 flyers to gain insights into why consumers prefer Southwest over other airlines.
Southwest has faced challenges such as delays in receiving new 737 Max planes from Boeing, which are exclusively used by the carrier. Additionally, the airline has had to adapt to shifting travel demand patterns in the aftermath of the pandemic. In response, Southwest’s leadership is exploring new strategies to generate revenue and better compete with rivals that offer more perks and products to travelers.
Jordan, who took over as CEO from Kelly in February 2022 after a long tenure with the airline, revealed in an interview with CNBC that Southwest is considering abandoning its single class of airplane seating and its traditional boarding method. The airline also experienced significant disruptions during the holiday season in 2022, resulting in over $1 billion in losses. Southwest had to swiftly address the issues and make improvements to its internal staff scheduling software in order to regain the trust of customers.
Over the past three years, Southwest’s shares have declined by over 50%, coinciding with a resurgence in travel demand, particularly for domestic trips. In contrast, Delta Air Lines’ shares have risen by approximately 10% during the same period, while United Airlines’ shares have experienced a decline of around 7%.
Elliott Management has a track record of advocating for leadership changes in various companies. For example, the fund successfully campaigned for leadership changes at Crown Castle in 2022 and reached a settlement agreement with automotive parts supplier Sensata earlier this year. More recently, Elliott acquired a $2.5 billion stake in semiconductor firm Texas Instruments, a $2 billion stake in Japanese conglomerate SoftBank, and a $1 billion stake in mining concern Anglo American.
In conclusion, Elliott Management’s acquisition of a significant stake in Southwest Airlines signifies its commitment to effecting leadership changes within the company. With Southwest experiencing underperformance compared to its competitors, Elliott believes that new leadership is necessary to steer the airline back on track. As Southwest faces challenges in the form of delayed plane deliveries and changing travel demand patterns, it is crucial for the company to adapt and find innovative ways to generate revenue and improve its competitiveness.
