Elliott Investment Management has acquired a $1.9 billion stake in Southwest Airlines and is pushing for the removal of the airline’s CEO due to operational and financial difficulties. The investment firm blames Southwest’s outdated software and operational processes for massive flight cancellations in December 2022, leading to a drop of over 50% in the company’s stock price over the last three years. Elliott believes that Southwest’s leadership has failed to evolve the company’s strategy, resulting in disappointing results for shareholders, employees, and customers.
The firm’s letter to Southwest’s board criticizes CEO Robert Jordan for consistently delivering poor financial and operational performance, along with former CEO Gary Kelly. Elliott is calling for new executives from outside the company to replace current leadership and for significant changes on the board, including the addition of new independent directors with experience at other airlines. Southwest responded by expressing confidence in its current CEO and management, stating that they are committed to executing the company’s strategic plan to drive long-term value for shareholders and stakeholders.
Southwest, known for its cost-conscious approach, faces increasing competition from rivals who have adapted their policies during the pandemic to attract more upscale travelers. Analysts suggest that Elliott’s interest in Southwest stems from the airline’s strong brand, market position, and balance sheet. However, changes such as scaling back growth and addressing rising costs may be necessary for Southwest to remain competitive in the current market environment, especially with production cutbacks affecting its ability to acquire all the jets it has ordered.
While Southwest remains the largest carrier in the U.S. by number of passengers, it lags behind Delta, United, and American in terms of revenue due to their more extensive international routes. Southwest’s profitability has been impacted by the pandemic, with a significant drop in profit compared to previous years. Delta and United have emerged as the most profitable U.S. airlines post-pandemic, reflecting in their stock performance, which has outperformed Southwest. The news of Elliott’s stake in Southwest was first reported by The Wall Street Journal, signaling potential changes ahead for the airline as it navigates through these challenges and pressures from shareholders.
