DALLAS– Activist shareholder Elliott Investment Management has bought a $1.9 billion stake in Southwest Airlines and is trying to oust the airline's CEO, who is facing operational and financial problems.
Shares in the airline rose 9% in afternoon trading on Monday, on pace for the biggest single-day increase in four years.
In a letter to Southwest's board, the investment firm complained that Southwest's stock price has fallen more than 50% over the past three years.
The company said Southwest failed to develop, hurting its ability to compete with other airlines. Elliot blamed the Dallas-based airline massive flight cancellations in December 2022 over what she described as the airline's outdated software and operational processes.
“Poor execution and leadership's stubborn unwillingness to evolve the company's strategy have led to very disappointing results for shareholders, employees and customers alike,” the investment firm said in the letter, dated Monday.
Southwest CEO Robert Jordan “has delivered unacceptable financial and operating performance quarter after quarter,” the letter said. 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 executives from outside the company to replace Jordan and Kelly, and for “significant” changes to the board, including new independent directors with experience at other airlines.
Southwest said Elliott had reached out on Sunday and looked forward to “better understanding their views on our company.”
“Southwest's board of directors is confident in the ability of our CEO and management to execute the company's strategic plan to generate long-term value for all shareholders, serve our customers safely and reliably and fulfill our obligations to to all our stakeholders,” a Southwest spokesperson said. a spokesperson said in a statement.
Savanthi Syth, an aviation analyst for Raymond James Financial, said Elliott was likely attracted to Southwest famous brand, including a leading position at many airports and a strong balance sheet. She suggested that necessary changes should not be so difficult to achieve.
Southwest grew quickly after the pandemic, adding service to an additional 18 cities. Syth said Southwest has recognized the need to scale back those growth ambitions, even if it is six or eight months late, resulting in higher costs.
Southwest carries the most passengers within the United States, although Delta United and American – all of which have more extensive international routes – are much larger in terms of revenue. Southwest earned profits for 47 years in a row — an unprecedented record in the airline industry — until the coronavirus pandemic hit in 2020.
Southwest reported record revenue of $26.1 billion last year, but its profit of $465 million was lower than the previous two years and was about a tenth of Delta's profit.
The Wall Street Journal first reported Elliott's stake in Southwest.
