Activist hedge fund Elliott Management, known for pushing for leadership changes in companies it invests in, has taken a $1.9 billion stake in Southwest Airlines and plans to seek new leadership at the airline.
Southwest Airlines, which grew into a massive domestic airline but has stuck to a conservative business model with one kind of plane, one class of service, and no checked bag fees while rivals offer more perks, has faced challenges in recent years. The company had a market capitalization of $16.6 billion as of Friday's close.
The airline has struggled with delays at Boeing for new 737 Max planes and shifting travel demand patterns after the pandemic. Southwest CEO Bob Jordan, who took the helm in February 2022 after decades with the airline, told CNBC in April that the carrier is considering ditching its single class of airplane seating and longtime boarding method.
Southwest shares are down by more than 50% from three years ago when travel demand was starting to come back. In contrast, Delta Air Lines shares are up around 10% over that period and United Airlines are down about 7%. Elliott's campaigns at other companies have likewise centered on a change in leadership.
Elliott Management sent letters to the Board of Directors criticizing Southwest's outdated strategies and poor execution. The hedge fund believes that Southwest has fallen from a 'best-in-class' airline to one of the biggest laggards and is seeking new leadership and a comprehensive business review as part of its 'Stronger Southwest' plan.
The activist investor is calling for new, truly independent directors to join Southwest's board. Elliott believes these changes can restore Southwest to industry leadership and achieve a 77% stock return within 12 months.
