Activist hedge fund Elliott Management has acquired a $1.9 billion stake in Southwest Airlines and plans to advocate for leadership changes at the airline, which has lagged behind its major competitors. Elliott aims to replace CEO Bob Jordan and Chairman Gary Kelly with external candidates, according to a letter and presentation released on Monday. The activist fund believes Southwest has deteriorated from a “best-in-class” airline to one of the industry’s biggest underperformers.
Elliott’s significant stake makes it one of Southwest’s largest shareholders, as per FactSet data. The firm intends to “pursue all available pathways to deliver the leadership changes” it deems necessary for Southwest’s improvement. Elliott has called for an immediate transition in CEO and chair positions, arguing that Jordan and Kelly have overseen a period of significant underperformance. Both executives have long tenures at Southwest, having started their careers with the airline in the 1980s. The airline industry traditionally promotes leaders from within due to the technical expertise required to manage the complex business.
In its presentation, Elliott highlighted COO Andrew Watterson as the only member of Southwest’s executive team with experience at another airline. In response, Southwest stated that its board remains confident in the current leadership’s ability to execute the company’s strategic plan and deliver long-term value to shareholders.
Southwest shares have declined by over 50% from three years ago, a stark contrast to Delta Air Lines’ shares, which have increased by around 10%, and United Airlines’ shares, which are down about 7% over the same period. However, following Elliott’s announcement, Southwest’s shares rose by 7%, with the company’s market capitalization standing at $16.6 billion as of Friday.
Southwest, which has grown from a small Texas carrier to the largest domestic airline in the U.S., has maintained a conservative business model. It uses a single type of aircraft, offers one class of service, and does not charge for checked bags, while rivals have increased fees and provided more premium options. Elliott criticized Southwest’s recent upgrades, such as larger overhead bins, better Wi-Fi, and in-seat power, as indicative of incremental thinking rather than exploring all available opportunities.
CEO Bob Jordan has mentioned that the airline is considering changes to its longstanding boarding method and single-class seating to better compete with rivals offering more perks. Elliott’s extensive research included speaking with former employees and surveying over 2,000 flyers to understand consumer preferences.
Southwest has faced challenges, including delays with Boeing’s new 737 Max planes and shifting travel demand post-pandemic. The airline also dealt with significant disruptions during the 2022 holiday season, which cost over $1 billion and damaged its reputation for customer service.
Elliott’s push for leadership changes at Southwest follows similar activist campaigns at other companies, emphasizing the need for new leadership to drive performance and shareholder value.
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