An Investment Firm Has Taken A $1.9 Billion Stake In Southwest Airlines And Wants To Oust The CEO

DALLAS — Elliott Investment Management, an activist shareholder, has purchased a $1.9 billion investment in Southwest Airlines and is aiming to drive out the airline’s CEO, who has suffered with operational and financial issues.

The airline’s shares climbed 7% on Monday, their second-best day since 2020.

In a letter to Southwest’s board, the investment firm expressed concern that the company’s stock price had declined by more than 50% in the previous three years.

An Investment Firm Has Taken A $1.9 Billion Stake In Southwest Airlines And Wants To Oust The CEO

Elliott claimed that Southwest had failed to modernize, limiting its capacity to compete with other carriers. The business attributed the Dallas-based carrier’s huge flight cancellations in December 2022 to what it described as obsolete software and operational methods.

“Poor execution and leadership’s stubborn refusal to evolve the Company’s strategy have resulted in deeply disappointing results for shareholders, employees, and customers alike,” the investment group wrote in a Monday letter.

Southwest CEO Robert Jordan “has delivered unacceptable financial and operational performance quarter after quarter,” according to the letter. The letter also stated that Jordan and former CEO Gary Kelly, now the airline’s executive chairman, “are not up to the task of modernizing Southwest.”

Elliott is calling for outside executives to replace Jordan and Kelly and for “significant” board changes, including new independent directors with expertise at other airlines.

Southwest said Elliott contacted it on Sunday and looks forward to “better understanding their perspectives on our company.”

“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,” said a spokesperson in a statement.

Southwest has long appealed to budget-conscious travelers by not charging fees for checked baggage or reservation changes. Its airplanes do not feature a premium cabin. During the epidemic, its nearest competitors reduced change fees, and they are winning over upscale tourists with superior seats and services.

An Investment Firm Has Taken A $1.9 Billion Stake In Southwest Airlines And Wants To Oust The CEO

When Southwest announced a $231 million first-quarter deficit in April, Jordan appeared to give in to market pressure by saying that the airline was mulling adjustments to its boarding and seating regulations. The airline even took the unusual step of removing four cities from its map.

Savanthi Syth, an airline analyst at Raymond James Financial, believes Elliott was drawn to Southwest because of its well-known brand, dominant position at several airports, and robust finance sheet, among other factors. She stated that the necessary improvements should not be difficult to implement.

Southwest expanded aggressively following the pandemic, providing service to 18 more locations. Syth stated that Southwest had understood the need to slow growth, although six or eight months too late, resulting in increased expenses.

The airline has little alternative but to reduce its growth: it won’t be able to receive all of the jets it bought due to Boeing manufacturing cuts after a door plug broke out of a 737 Max during an Alaska Airlines flight in January.

Southwest carries the most passengers within the United States, while Delta, United, and American — all of which have more extensive overseas routes — generate far more income. Southwest had been profitable for 47 consecutive years, an unrivaled record in the airline industry, until the coronavirus pandemic struck in 2020.

An Investment Firm Has Taken A $1.9 Billion Stake In Southwest Airlines And Wants To Oust The CEO

Southwest recorded a record $26.1 billion in revenue last year, but its $465 million profit was lower than the previous two years and approximately one-tenth of Delta’s profit.

Delta and United have emerged as the most profitable US airlines following the pandemic, as evidenced by their respective stock performance. Southwest shares were down 52% from three years ago at the closing of trade Friday, roughly in line with American. However, Delta shares increased by more than 9% throughout that period, while United shares decreased by only about 7%.

The Wall Street Journal was the first to expose Elliott’s interest in Southwest.

SOURCE – (AP)