In a bold corporate maneuver unfolding in the Lone Star State, activist shareholder Elliott Investment Management has snapped up a $1.9 billion stake in Southwest Airlines. This unexpected move is no mere investment strategy, but a bold play to unseat the CEO of the beleaguered airline that has been wrestling with a series of operational and financial hurdles.
Despite these challenges, Southwest’s shares surged by 7% on Monday, charting their second-strongest performance since the disruptive year of 2020.
Elliott, in a formal correspondence addressed to the board of Southwest, voiced dissatisfaction concerning a worrying trend in the airline’s financial performance. Over the last three years, Southwest’s stock price has plunged distressingly, shedding more than half its previous value.
The investment titan targeted Southwest’s seeming aversion to change and evolution as the chief reason for this precipitous fall. This stubbornness to innovate, according to Elliott, has compromised the Dallas-based carrier’s competitiveness against rival airlines. Elliott squarely pointed to the massive wave of flight cancellations swelling in December 2022 as a glaring symptom of the airline’s antiquated software and operational processes.
In a scathing critique, the investor declared, “Poor execution and leadership’s stubborn unwillingness to evolve the company’s strategy have led to deeply disappointing results for shareholders, employees, and customers alike.”
Current Southwest CEO Robert Jordan came under intense fire, with Elliott accompanying this critique with a call for swift replacement of Jordan. The investor castigated Jordan, along with former CEO Gary Kelly, who now serves as executive chairman, for their lackluster approach towards modernizing the carrier.
Elliott sought an influx of fresh executive talent from outside Southwest’s current roster, insisting that Jordan and Kelly be replaced. Further demands included a significant shakeup in the board, proposing independent directors possessing experience in other airlines.
In response, Southwest confirmed that Elliott’s initial contact was made on Sunday, expressing an eagerness to comprehend Elliott’s perspectives on the company’s circumstances.
A representative of Southwest maintained an optimistic outlook and reiterated its faith in the board and CEO. They voiced their belief in the company’s strategic plan for long-term growth and commitment to all stakeholders.
This turmoil arrives as Southwest grapples with market pressure. Traditionally favored by budget-conscious flyers, rivals’ pandemic-era policy changes have ruffled Southwest’s feathers. Even a potential policy overhaul hinted by Jordan could not stem the rising tide of challenges. Despite seeing a record revenue of $26.1 billion last year, its profit margins were a fraction of those of Delta’s, hinting at the depth of Southwest’s predicament.
Delta and United’s resurgence as the most profitable American airlines mirrors ironically in their stock performance relative to Southwest. As of the close of trading on Friday, Southwest shares had plummeted by 52% compared to three years ago, contrasted sharply by Delta’s 9% increase and United’s minor 7% dip in the same period.
Elliott’s stake in Southwest was initially brought to light by the Wall Street Journal. It remains to be seen how the rivalries, shakeups, and potential oustings will chart the turbulent skies of Southwest Airlines’ future.
