Elliott Investment Management, an activist fund, has acquired a nearly $2 billion stake in Southwest Airlines, making it one of the airline’s largest investors. The firm plans to engage with Southwest’s management team and push for changes to reverse the carrier’s recent underperformance. However, it is unclear what specific changes Elliott will advocate for at Southwest. Elliott has a history of investing in large companies and has seen CEOs resign at some of these companies, such as telecommunications giant Crown Castle and energy company NRG.
Southwest Airlines, known for its unique business model featuring open seating and all-economy cabins, has faced challenges this year, including delivery delays with the Boeing 737 Max 7 and sustained demand for premium travel. As a result, the airline reported a first-quarter loss of $231 million, which was worse than its competitors’ performances. In response, Southwest executives have been considering major changes to the airline’s business model, including potentially implementing assigned seating and adding premium cabins to its fleet. CEO Bob Jordan has ruled out baggage fees, a move taken by other carriers citing rising operating costs and inflation.
In contrast to other airlines raising baggage fees, Southwest continues to allow customers to check in two bags with no additional charges. The airline has also been implementing changes, such as partnering with Google Flights, to increase its online presence and customer loyalty. Southwest has a history of adapting to market changes by introducing features like Wi-Fi, larger bins, and in-seat power. Jordan emphasized the importance of continued adaptation during Southwest’s first-quarter earnings call.
The airline industry as a whole has been facing challenges due to the COVID-19 pandemic and other economic factors. The Skift Travel 200 index tracks the financial performance of nearly 200 travel companies, including airlines, across global markets. Southwest’s recent underperformance has led to discussions about potential changes to its business model in order to improve profitability. Elliott’s investment in the airline is expected to bring further scrutiny and potential changes to Southwest’s operations.
Overall, Elliott Investment Management’s stake in Southwest Airlines has raised questions about the future direction of the carrier. As Southwest grapples with recent underperformance and considers changes to its business model, investors and industry analysts will be closely watching for developments. The airline’s ability to adapt to market conditions and maintain its unique brand identity will be crucial in determining its success in the highly competitive airline industry.
