A Southwest Airlines jet is available in for a landing at Laguardia Airport in Recent York City, Recent York, U.S., January 11, 2023.
Mike Segar | Reuters
Activist hedge fund Elliott Management has amassed a $1.9 billion stake in Southwest Airlines and plans to push for leadership changes on the airline that has lagged big rivals.
Elliott is searching for to interchange Southwest CEO Bob Jordan and chairman Gary Kelly with outside candidates, the activist said in a letter and presentation Monday. Elliott believes that Southwest has fallen from a “best-in-class” airline to one in all the largest laggards, in response to the presentation detailing its case for change.
The dimensions of Elliott’s stake makes the activist one in all Southwest’s largest shareholders, in response to FactSet. Elliott said it intends to “pursue all available pathways to deliver the leadership changes” the activist believes Southwest needs.
The firm wants the airline to announce a CEO and chair transition with “immediate” effect, Elliott said in its presentation. Jordan and Kelly have “presided over a period of stunning underperformance at” Southwest, Elliott said. Each executives began their Southwest careers within the Eighties. The airline industry normally promotes leaders from inside, searching for the technical expertise needed to run the highly regulated and complicated business.
Southwest said in an announcement that its board “is confident in our CEO and management’s ability to execute against the corporate’s strategic plan to drive long-term value for all shareholders, safely and reliably serve our customers and deliver on our commitments to all of our stakeholders.”
The carrier said Elliott first contacted it on Sunday, and it’s keeping an “open dialogue with our shareholders and value their perspectives related to enhancing shareholder value.”
Southwest shares are down by greater than 50% as of Friday’s close from three years ago, when travel demand, led by domestic trips, was starting to return back. In contrast, Delta Air Lines shares are up around 10% over that period and United Airlines shares are down about 7%.
Shares of Southwest were up 6% in early trading Monday. The corporate had a market capitalization of $16.6 billion as of Friday’s close.
Southwest grew from a small Texas carrier greater than 50 years ago into a large domestic airline that carries more travelers inside the country than another. However the carrier has long stuck to a conservative business model, using one type of plane, offering one class of service and never charging for checked bags, while rivals continued to hike their fees and more customers appear willing to pay for costlier and spacious seats.
Elliott dismissed Southwest’s upgrades like larger overhead bins, higher Wi-Fi and in-seat power as signs the airline’s leadership is “focused on incrementalism slightly than an unbiased evaluation of all available opportunities.”
Southwest’s leaders have said they’re in search of latest ways to drum up revenue to raised compete with rivals that supply travelers more perks and products.
Jordan, who replaced Kelly as CEO in February 2022, told CNBC in April that the carrier is considering ditching its single class of airplane seating and longtime boarding method.
“They missed those opportunities to offer customers the choice to spend extra money with the airline,” said Henry Harteveldt, a former airline executive and founding father of Atmosphere Research Group. ” retailer…is at all times going to seek out ways to sell its customers more products.”
Elliott said it spoke with quite a few former Southwest employees during an 18-month research period, in response to a presentation. The activist also said it spoke with shareholders and surveyed greater than 2,000 flyers to know why consumers selected Southwest over other airlines, in response to its presentation.
Southwest has struggled with manufacturing and certification delays at Boeing of latest 737 Max planes, the latest models of the plane which the carrier exclusively flies, in addition to shifting travel demand patterns after the pandemic.
The airline also faced a reckoning from a vacation meltdown at the top of 2022 that cost it greater than $1 billion and compelled the airline long known for good customer support to win over the flying public and make quick fixes to its internal staff scheduling software.
Elliott’s campaigns at other firms have likewise centered on a change in leadership. Elliott’s second campaign at Crown Castle in 2022 and settlement agreement with automotive parts supplier Sensata earlier this yr are only two instances.
In only the previous couple of months, the activist has taken a $2.5 billion stake in semiconductor firm Texas Instruments, a $2 billion stake in Japanese conglomerate SoftBank and a $1 billion stake in mining concern Anglo American.