Southwest Airlines disagrees with the grim prognosis recently offered by Elliott Investment Management, a firm that now holds a roughly 11% stake in the Dallas-based carrier.
”We are confident that Southwest Airlines has the right strategy, the right plan and the right team in place to drive long-term value for our shareholders,” Southwest says in response to Elliott’s critique.
Elliott wrote a scalding letter to Southwest’s board of directors on 10 June, calling for a C-suite overhaul and blasting the carrier’s “stubborn unwillingness to evolve” in the hyper-competitive US airline sector.
While noting that Southwest represents a significant turnaround opportunity – hence Elliott’s recent $1.9 billion investment – it argues that Southwest refuses to let go of “a rigid commitment to an approach developed decades ago”.
Specifically, the firm calls for Southwest to “enhance” its board with “truly independent directors from outside of Southwest”, replace chief executive Bob Jordan and undertake a comprehensive review of its business to “rapidly restore the company’s performance to best-in-class standards”.
The carrier defends its board of directors and Jordan specifically, maintaining that no leadership changes are necessary for Southwest to chart a successful path forward.
”Based on the company’s ability to overcome strong headwinds in the past, [the board] is confident in our CEO and leadership team’s ability to fulfil our strategy to drive long-term value for all shareholders, safely and reliably serve our customers, create new and exciting career opportunities for our employees and serve the interests of all stakeholders,” it says.
Southwest is currently rolling out a ”mutl-faceted Tactical Action Plan” that it introduced in the aftermath of the December 2022 operational meltdown that disrupted air travel for millions of passengers during the year-end travel period.
Southwest touts completing 99% of scheduled flights during the first quarter of 2024 as a sign of its operational improvements.
Like several other US airlines searching for sustained profitability, Southwest is retooling its network to shifting customer preferences. It recently announced its “largest summer flight schedule ever”, including several new routes to the Caribbean and Latin America from Orlando.
“Our ongoing effort to optimise our network is addressing underperforming markets to better align capacity with observed passenger demand,” Southwest says.
”We recently implemented a new revenue management system which, combined with our ongoing review of transformational initiatives – such as enhancing the customer onboard experience – represent tangible steps toward achieving improvements in our financial and operational performance and positioning us for sustainable success in an evolving marketplace,” it adds.
Regarding Elliott’s criticism of Southwest’s ”insular culture”, the carrier touts the “skills and experience” of its board members, ”introducing fresh perspectives while balancing continuity”.
Big changes may be forthcoming, however. Jordan suggested in April that the carrier could move away from its signature single-class seating system, which would represent a major departure from its decades-old model.
Southwest says it will share more details about its plan during an investor day in September.
