The private equity firm pushing to restructure Southwest Airlines is taking its message directly to shareholders, threatening to orchestrate a hostile takeover should the airline’s board fail to embrace significant change.
In a 26 August letter to holders of Southwest stock, Elliott Investment Management says it plans to meet on 9 September with Southwest “representatives” to discuss its plan for the Dallas-based carrier.
“In the absence of these leaders rising to the occasion, we are convinced the next step will be for you, Southwest’s owners, to have a direct say in your company’s future,” says the letter.
Elliott, based in West Palm Beach, Florida, owns 11% of Southwest’s stock. In June, it began calling for a Southwest overhaul, saying at the time that “poor execution and leadership’s stubborn unwillingness to evolve the company’s strategy have led to deeply disappointing results”.
In its new letter, Elliott insists that the “culture of Southwest, which has powered its success for half a century, now seems to solely depend on the continued employment of its two top executives” – chief executive Robert Jordan and board chair and former CEO Gary Kelly.
Elliott faults those executives for adhering to “antiquated business practices from decades ago”. It has cited the company’s unwillingness to fully embrace sales “premium” products.
Southwest does not respond to a request for comment. But the carrier has firmly resisted Elliott’s advances to date, saying in June, “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 had long been among the USA’s most-profitable airlines – universally known for eschewing baggage and reservation change fees and for pioneering a low-cost-carrier model that numerous airlines have since emulated.
But Southwest has stumbled of late, rattled by increased competition, including from newer “ultra-low-cost” carriers like Frontier Airlines and from “basic” economy tickets offered by major carriers. Southwest has also been hamstrung by significant delays by Boeing in delivering new 737 Max jets.
Southwest earned a $137 million profit in the first half of 2024, down 74% year on year.
Elliott is calling for Southwest to overhaul its board of directors, suggesting candidates including former Ryanair executive Michael Cawley, former Virgin America CEO David Cush, former Marriott International president David Grissen, former Air Canada CEO Robert Milton and former WestJet CEO Gregg Saretsky.
“Southwest’s board still seems unable to grasp how profound the company’s credibility deficit with investors has become. Southwest’s investors should not trust a board-refreshment process led by its incumbent leadership,” Elliott’s new letter says.
As for the planned 9 September meeting, Elliott says, “We remain hopeful that we will encounter at that meeting a willingness to put the central question of leadership on the table”.
Southwest has filed Elliott’s new letter with the US Securities and Exchange Commission.
The airline has recently made clear major changes are underway. In July, Southwest said it will abandon its open-seating policy and add more extended-legroom seats for sale at a premium.
Elliott calls any such changes “too little, too late”.
Southwest in July adopted a so-called “poison pill” aimed at fending off Elliott when it approved a shareholder rights plan that lets stockholders buy shares at a 50% discount should any entity acquire at least 12.5% of the stock.
Last week, Southwest placed advertisements calling attention to a 22 August Forbes.com article written by former United Airlines CEO Oscar Munoz. That article faults Elliott for failing to “put forth any ideas” for achieving revenue goals, and says “wholesale leadership change… could undermine Southwest in the long term”.
