Activist hedge fund Elliott Management has disclosed a $1.9 billion stake in Southwest Airlines and is pushing for leadership changes at the airline due to what it considers a decline in performance. Elliott seeks to replace CEO Bob Jordan and Chairman Gary Kelly with outside candidates, citing Southwest’s transformation from a “best-in-class” airline to a laggard. The firm, one of Southwest’s largest shareholders, intends to take action to deliver the leadership changes it believes are necessary, urging an immediate CEO and chair transition.
Southwest has defended its CEO and management, expressing confidence in their ability to execute the company’s strategic plan. The airline indicated that Elliott had only recently contacted them and that it values the perspectives of its shareholders in enhancing shareholder value. Despite a more than 50% drop in Southwest’s shares over the past three years, the carrier remains focused on driving long-term value for its shareholders, maintaining reliable customer service, and fulfilling commitments to stakeholders.
Elliott’s criticism of Southwest includes the management’s emphasis on incremental improvements rather than pursuing broader strategic evaluations. The activist has voiced concerns over missed opportunities by Southwest, such as not offering additional products and services to generate more revenue and better compete with rivals. Southwest’s management has acknowledged the need for change, considering altering its business model in response to evolving customer preferences and increasing competition.
Southwest has faced challenges such as Boeing 737 Max manufacturing delays, shifting travel demand post-pandemic, and operational disruptions that impacted its financial performance. The airline’s reputation for good customer service was tested during a holiday season meltdown in 2022, prompting quick fixes to internal scheduling software and efforts to regain customer confidence. Elliott’s focus on leadership changes aligns with its approach in other campaigns at companies like Crown Castle and Sensata, reflecting a consistent strategy across various industries and regions.
In recent months, Elliott has made significant investments in companies like Texas Instruments, SoftBank, and Anglo American, indicating a more active approach to influencing corporate governance and performance. Despite Southwest’s historical success as a major domestic carrier, Elliott’s push for leadership changes highlights the need for strategic adaptation and innovation to address evolving market dynamics and customer preferences. The outcome of Elliott’s campaign at Southwest will likely have broader implications for the airline industry and activist investing trends.
