Southwest Airlines

Activist Investor Pushes for Leadership Overhaul at Southwest Airlines with $1.9 Billion Stake

Elliott Investment Management has acquired a $1.9 billion stake in Southwest Airlines, urging significant leadership changes at the Dallas-based carrier. Announcing their position on Monday, Elliott criticized Southwest’s current leadership for poor execution and an outdated strategy that has resulted in disappointing outcomes for shareholders, employees, and customers.

“Southwest’s 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,” Elliott stated. The investment firm emphasized that Southwest’s adherence to an outdated business model has hindered its competitive edge in today’s airline industry.

Southwest’s share price has plummeted more than 50% since early 2021, now trading below its pre-pandemic levels. Following Elliott’s announcement, Southwest (LUV) stock rose over 6% in Monday’s trading.

A key issue highlighted by Elliott is Southwest’s exclusive use of the Boeing 737. Delays in the delivery of these jets, due to safety and production problems, have led the airline to freeze pilot hiring, receiving only 20 out of the 79 promised jets. Elliott did not propose changing Southwest’s all-737 fleet, which would entail higher costs for pilot training and spare parts.

Southwest has faced numerous challenges, including a significant operational meltdown during the 2022 holiday season. The airline canceled 16,700 flights between December 21 and 29, nearly half of its schedule, due to outdated staff scheduling software compounded by bad weather. This disruption cost the airline over $1 billion in passenger compensation, staff pay increases, and lost revenue, along with a $140 million Department of Transportation fine.

Elliott’s letter calls for leadership changes but lacks specific details on the desired reforms. It advocates for increased customer choice, improved cost management, and modernization of outdated IT systems.

Southwest responded, noting they were only contacted by Elliott on Sunday. “The Southwest board of directors is confident in our CEO and management’s ability to execute against the company’s strategic plan to drive long-term value for all shareholders, safely and reliably serve our customers and deliver on our commitments to all of our stakeholders,” the airline stated.

Elliott Investment Management, managing about $65.5 billion in assets, has made similar moves recently, including a $2.5 billion stake in Texas Instruments and investments in Softbank and Johnson Controls. Southwest Airlines remains unique in not offering seat reservations, a policy the CEO Bob Jordan mentioned last month might be reconsidered.

As the situation develops, stakeholders await to see how Elliott’s involvement will shape the future of Southwest Airlines.

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