Activist investor Elliott Investment Management has bought a $1.9 billion stake in Southwest Airlines and wants the CEO ousted.
DALLAS — Activist investor Elliott Investment Management is buying a $1.9 billion stake in Southwest Airlines in an effort to oust the airline’s CEO as it struggles with management and financial problems.
The airline’s shares were up 8% in afternoon trading on Monday, on track to be its biggest one-day gain in four years.
In a letter to Southwest’s board of directors, the investment firms complained that the airline’s stock price has fallen more than 50 percent over the past three years.
The company said Southwest’s failure to evolve is hurting its ability to compete with other airlines. Elliott blamed the Dallas-based airline’s massive cancellation of flights in December 2022 on the company’s outdated software and business processes.
“Poor execution and management’s stubborn refusal to evolve the strategy have resulted in extremely disappointing results for all of our shareholders, employees and customers,” the investment firm said in a letter dated Monday.
Southwest CEO Robert Jordan “has demonstrated unacceptable financial and operational performance quarter after quarter,” the letter said, adding that Jordan and former CEO Gary Kelly, who is now the airline’s board chairman, “are incapable of carrying out the mandate to modernize Southwest.”
Elliott is calling for “substantial” changes to the board, including bringing in outside executives to replace Jordan and Kelly and adding new independent directors with experience at other airlines.
Southwest said it had heard from Elliott on Sunday and wanted to “gain a better understanding of their views of our company.”
“Southwest’s board of directors is confident in the CEO and management team’s ability to execute on our strategic plan to create long-term value for all shareholders, serve our customers safely and reliably, and deliver on our commitments to all stakeholders,” the spokesman said in a statement.
Southwest has long appealed to cost-conscious passengers by not charging checked baggage or change fees, and its planes don’t have premium cabins, but its closest rivals have eliminated change fees during the pandemic and are winning over upscale travelers with better seats and amenities.
In April, when Southwest reported a first-quarter loss of $231 million, Mr. Jordan appeared to bow to market pressure by announcing that it was considering changes to its boarding and seating policies.
Savanti Sis, an aviation analyst at Raymond James Financial, said Elliott was likely attracted to Southwest’s well-known brand, leading positions at many airports and strong balance sheet, suggesting it wouldn’t be too hard to make the necessary changes.
Southwest grew rapidly coming out of the pandemic, expanding service to 18 cities. Sis said Southwest realized it needed to scale back growth but did so six to eight months too late, which led to rising costs.
The airline has had few options to scale back its growth: It has been unable to get all the jets it ordered due to production cuts at Boeing since a door plug blew off on a 737 Max during an Alaska Airlines flight in January.
Southwest carries the most passengers within the U.S., but Delta, United and American Airlines, which have more extensive international routes, are much larger by revenue. Before the coronavirus pandemic hit in 2020, Southwest had posted 47 consecutive profitable years, an unprecedented record in the airline industry.
Southwest reported record revenue of $26.1 billion last year, but profits of $465 million were down from the previous two years and about one-tenth of Delta’s profits.
Delta Air Lines and United Airlines have emerged from the pandemic as the most profitable U.S. airlines to date, and that’s reflected in the relative performance of their stock prices. As of Friday’s close, Southwest Airlines shares were down 52% from three years ago, roughly the same as American Airlines. But over that same period, Delta shares were up more than 9%, while United shares were down only about 7%.
Elliott’s Southwest Airlines stake was first reported by The Wall Street Journal.
