Elliott Investment Management, an activist shareholder, has acquired a $1.9 billion stake in Southwest Airlines and is pushing for the removal of the airline’s CEO, Robert Jordan.
The company has been struggling with operational and financial issues, which has led to a more than 50% drop in its stock price over the last three years.
In a letter to Southwest’s board, Elliott criticized the airline for failing to evolve and modernize its strategy, blaming the massive flight cancellations in December 2022 on outdated software and operational processes. The investment firm also accused Jordan and former CEO Gary Kelly, now the executive chairman, of being incapable of leading the necessary changes.
Elliott is demanding that Southwest bring in executives from outside the company to replace Jordan and Kelly, as well as make significant changes to the board by appointing new independent directors with experience at other airlines.
Southwest, known for its cost-conscious approach and lack of fees for checked bags or reservation changes, has faced increased competition from rivals who have dropped change fees during the pandemic and are attracting upscale travelers with better amenities.
In response to market pressures, Jordan announced in April that Southwest was considering changes to its boarding and seating policies, and even dropped four cities from its map. Analyst Savanthi Syth believes that Elliott was attracted to Southwest’s strong brand, leading position at many airports, and solid balance sheet, suggesting that the necessary changes should be achievable.
Southwest, which carries the most domestic passengers in the United States, has struggled to match the profitability of its competitors with more extensive international routes. Despite reporting record revenue of $26.1 billion last year, Southwest’s profit was significantly lower than Delta and United, which have emerged as the most profitable U.S. airlines since the pandemic.
The news of Elliott’s stake in Southwest caused the airline’s shares to rise 7% on Monday, marking their second-best day since 2020.
Southwest stated that it looks forward to understanding Elliott’s views on the company, while expressing confidence in its CEO and management’s ability to execute its strategic plan and drive long-term value for shareholders.
The Associated Press contributed to this article.