Southwest Airlines is facing an activist challenge from Elliott

Activist hedge fund Elliott Management has amassed a $1.9 billion stake Southwest Airlines and plans to make leadership changes at the airline that has lagged behind major rivals.

Elliott is seeking to replace Southwest CEO Bob Jordan and Chairman Gary Kelly with outside candidates, the activist said in a letter and presentation Monday. Elliott believes Southwest has fallen from a best-in-class airline to one of the biggest laggards, according to the presentation detailing its case for change.

The size of Elliott's stake makes the activist one of Southwest's largest shareholders, according to FactSet. Elliott said it plans to “pursue all available avenues to effect the leadership changes” the activist says Southwest needs.

It wants the airline to announce a CEO and chairman transition with “immediate” effect, Elliott said in his presentation. Jordan and Kelly have experienced “a period of stunning underperformance at” Southwest, Elliott said.

Shares of Southwest rose 6% in early trading Monday. The company had a market capitalization of $16.6 billion as of Friday's close.

Elliott said it spoke to numerous former Southwest employees during an 18-month investigation period, according to a presentation. The activist also said he spoke to shareholders and surveyed more than 2,000 flyers to understand why consumers chose Southwest over other airlines, according to the same presentation.

Southwest has suffered delays Boeing of new 737 Max aircraft, the latest models of the aircraft the airline flies exclusively, and changing travel demand patterns post-pandemic.

The airline's leaders are now looking for new ways to increase revenue to better compete with rivals that offer travelers more benefits and products.

Jordan, who replaced Kelly as CEO in February 2022 after decades at the airline, told CNBC in April that the airline is considering eliminating its single class of airline seats and the old boarding method.

The airline also faced the fallout from a holiday crisis in late 2022 that cost it more than $1 billion and forced the airline, long known for its customer service, to win over the flying public and make quick fixes its internal employee scheduling software.

Southwest shares are down more than 50% from three years ago as travel demand, especially domestic travel, began to return. Unlike, Delta Airlines Shares are up about 10% in that period United Airlines have fallen by about 7%.

Elliott's campaigns at other companies also focused on a change in leadership. Elliott's second campaign at Crown Castle in 2022 and settlement agreement with car parts supplier Sensata earlier this year are just two examples.

In recent months, the activist has taken a $2.5 billion stake in a semiconductor company Texas Instrumentsa $2 billion stake in a Japanese conglomerate Soft Sofa and a $1 billion stake in mining group Anglo-American.

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