US Markets
Monday, June 10th, 2024 2:27 pm EDT
Key Points
- Elliott Management has acquired a significant $1.9 billion stake in Southwest Airlines and intends to advocate for leadership changes due to the airline’s lag behind major competitors.
- The hedge fund aims to replace Southwest CEO Bob Jordan and Chair Gary Kelly with external candidates, citing Southwest’s decline from a “best-in-class” airline to one of the industry’s biggest underperformers.
- Elliott’s substantial stake in Southwest positions it as one of the airline’s largest shareholders, and the activist intends to explore all available avenues to facilitate the leadership changes it deems necessary for Southwest’s revitalization.
Elliott Management, an activist hedge fund, has acquired a substantial $1.9 billion stake in Southwest Airlines and is pushing for significant leadership changes. The hedge fund is advocating for the replacement of CEO Bob Jordan and Chair Gary Kelly with external candidates. Elliott argues that Southwest, once considered a top-tier airline, has now become one of the industry’s underperformers. The activist’s stake positions it among Southwest’s largest shareholders, as reported by FactSet, and Elliott is committed to using all available means to achieve the leadership overhaul it deems necessary.
Elliott’s demand includes an immediate transition of the CEO and Chair roles. According to Elliott, Jordan and Kelly have overseen a period marked by considerable underperformance. Following the news, Southwest’s shares saw a 6% increase in early trading on Monday, with the company’s market capitalization standing at $16.6 billion as of the previous Friday.
In its campaign, Elliott revealed that it conducted an extensive 18-month research period, involving discussions with numerous former Southwest employees, shareholders, and surveys of over 2,000 flyers to gauge customer preferences. The airline has faced several challenges, including delays in receiving new 737 Max planes from Boeing and shifts in travel demand post-pandemic.
Southwest has been seeking new revenue strategies to better compete with rivals offering more perks and products. CEO Bob Jordan, who succeeded Gary Kelly in February 2022, mentioned in an April CNBC interview that the airline is contemplating changes to its single class of seating and boarding methods. The company is also recovering from a significant operational meltdown during the 2022 holiday season, which resulted in over $1 billion in costs and damaged its reputation for customer service, necessitating quick improvements to its internal staff scheduling software.
Over the past three years, Southwest’s shares have dropped by more than 50%, in stark contrast to Delta Air Lines’ shares, which have increased by around 10%, and United Airlines’ shares, which have decreased by about 7%.
Elliott has a history of pushing for leadership changes in its campaigns at other companies. Recent examples include their second campaign at Crown Castle in 2022 and a settlement with Sensata Technologies earlier this year. The hedge fund has also made significant investments in other major firms, such as a $2.5 billion stake in Texas Instruments, a $2 billion stake in SoftBank, and a $1 billion stake in Anglo American. These actions highlight Elliott’s strategic focus on influencing corporate governance to enhance shareholder value.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/06/10/southwest-luv-activist-elliott-stake.html
