Activist hedge fund Elliott Management Southwest Airlines And he plans to push for a change in management at the airline, which has fallen behind its bigger rivals.
Elliott is calling for Southwest Airlines to replace CEO Bob Jordan and Chairman Gary Kelly with outside candidates, the activists said in a letter and presentation Monday. Elliott believes Southwest has fallen from being a “best in class” airline to being one of the airlines that lagged behind, according to the presentation detailing the need for reform.
Elliott’s shareholding makes him one of Southwest’s largest shareholders, according to FactSet. Elliott said he intends to “take all necessary steps to effect the management change” he believes is necessary at Southwest.
Mr. Elliott said in his presentation that the company wants the airline to announce CEO and chairman changes “immediately.” Mr. Jordan and Mr. Kelly “have led Southwest through a period of remarkable underperformance,” Mr. Elliott said. Both executives began their careers at Southwest in the 1980s. The aviation industry typically promotes leaders from within for the technical expertise needed to run a highly regulated and complex business.
During his presentation, Elliott emphasized that only Chief Operating Officer Andrew Watterson is part of Southwest’s executive team with experience working for another airline.
In a statement, Southwest said its board of directors is “confident in our CEO and management team’s ability to execute our strategic plan to create long-term value for all shareholders, serve our customers safely and reliably and deliver on our commitments to all shareholders.”
The company said Elliott first contacted it on Sunday and that it “maintains an open dialogue with shareholders and values ​​their views on enhancing shareholder value.”
Southwest Airlines shares were down more than 50% as of Friday’s closing price compared to three years ago, when travel demand, especially for domestic travel, was beginning to recover. in contrast, Delta Airlines The stock price has risen about 10% in that period. United Airlines The stock price fell about 7%.
Southwest Airlines shares rose 7% on Monday. The company’s market capitalization was $16.6 billion as of Friday’s close.
Southwest Airlines has grown from a tiny Texas carrier more than 50 years ago into a behemoth that carries more travelers in the country than any other airline. But the airline has long stuck to a conservative business model: it uses one type of aircraft, offers one class of service, and doesn’t charge for checked bags. Meanwhile, competitors have continued to raise prices, attracting more customers who seem willing to pay more for more expensive, roomier seats.
Elliott dismissed Southwest’s upgrades, such as larger overhead bins, better Wi-Fi and in-seat power outlets, as a sign that the airline’s management is “focused on incrementalism rather than equitably evaluating all the opportunities available.”
Southwest executives say they are looking for new ways to boost revenue as they compete with rivals that offer more perks and products to travelers.
Jordan, who succeeded Kelly as CEO in February 2022, told CNBC in April that the airline was considering doing away with single-class cabin seating and its long-standing boarding procedures.
“The airlines missed an opportunity to give customers the option to spend more money with them,” said Henry Harteveldt, a former airline executive and founder of the Atmosphere Research Group. “A good retailer will always find a way to sell customers more.”
Elliott said in his presentation that he spoke with numerous former Southwest employees during his 18-month investigation, and that he also spoke with shareholders and surveyed more than 2,000 passengers to understand why consumers choose Southwest over other airlines.
Southwest has been plagued by manufacturing and certification delays. Boeing The airline scrapped the plans, citing the introduction of new 737 MAX aircraft – the latest model of the jet it operates exclusively – as well as changing travel demand patterns in the wake of the pandemic.
The airline also faces more than $1 billion in losses from disruptions to the 2022 holiday season, forcing the airline, long known for its excellent customer service, to quickly revise its internal staff scheduling software to win over passengers’ trust.
Southwest Airlines isn’t the only airline facing activist pressure: Carl Icahn has won two board seats. JetBlue The deal comes after the company acquired about a 10% stake in the New York-based airline in February.
Elliott’s other campaigns have similarly focused on leadership changes. Elliott’s second campaign Crown Castle Settlement agreement reached with auto parts supplier in 2023 Sensata There were two cases earlier this year.
Over the past few months, the activist has acquired $2.5 billion in shares in semiconductor companies. Texas Instrumentsholds $2 billion stake in Japanese conglomerate SoftBank $1 billion stake in mining company Anglo-American.
