Elliott Investment Management, a prominent hedge fund, has escalated its campaign to overhaul Southwest Airlines' leadership by nominating 10 new candidates for the company's 15-member board of directors. The move comes as the airline struggles with declining performance and shareholder dissatisfaction, particularly as its stock price has fallen by 24% over the past year. Elliott's aggressive strategy highlights its intention to replace both CEO Robert Jordan, who has held the position since 2022, and Executive Chair Gary Kelly, the former CEO before Jordan.
The hedge fund's proposed board nominees include several high-profile figures in the airline industry, such as former Virgin America CEO David Cush, former Air Canada CEO Robert Milton, and ex-Ryanair CFO Michael Cawley. These candidates, according to Elliott, bring the necessary expertise and fresh perspectives needed to steer Southwest back to its position as a leading airline with strong profitability. The firm believes that the current board has failed to address the airline's challenges adequately and that a new board will be more equipped to implement urgent changes.
Elliott, which disclosed in June that it had acquired an 11% stake in Southwest, is now pushing for a comprehensive business review to address the airline's underperformance. The hedge fund's move to nominate a majority of the board is seen as a direct challenge to the existing leadership, which it criticizes for being stagnant and resistant to necessary reforms. "If elected, these candidates will chart a brighter future for Southwest, providing the board with much-needed expertise and relevant industry experience," Elliott stated.
Southwest Airlines has responded to Elliott's campaign by adopting a shareholder rights plan, commonly known as a "poison pill." This tactic is designed to prevent Elliott from gaining further control by diluting its stake if it attempts to acquire more shares. The airline also expressed disappointment with Elliott's decision to go public with its intentions, stating that the hedge fund has refused to engage meaningfully with the company despite recent efforts to initiate a collaborative resolution.
The situation at Southwest is reminiscent of similar boardroom battles in the corporate world, where activist investors seek to impose significant changes in leadership and strategy. Elliott's campaign comes at a time when the airline industry is facing multiple pressures, including rising operational costs, delays in plane deliveries, and increased competition in the domestic market. Southwest's earnings have been under strain, with third-quarter unit revenue expected to be flat to down 2% year-on-year, while non-fuel operating costs are anticipated to rise by 11% to 13%.
The boardroom showdown has caught the attention of investors, with Southwest's stock rising by over 1% in pre-market trading following Elliott's announcement. Analysts are divided on the potential outcome, with some expressing skepticism about whether investors will support a complete overhaul of the board. "We expect investors are unlikely to vote out the current leadership without considering the airline's go-forward plan, particularly as recent actions have shown a growing willingness to adapt," Jefferies noted in a recent analysis.
The timing of Elliott's push is critical, as Southwest continues to grapple with the aftermath of a challenging year. The airline has been working on a turnaround plan that includes adding more legroom to its seats, moving to assigned seating, and refreshing its board. However, these efforts have so far failed to appease Elliott, which argues that more drastic measures are needed to restore Southwest's competitive edge.
Elliott's involvement in the airline's leadership battle is part of a broader trend of activist investors targeting underperforming companies in the travel and hospitality sectors. Earlier this year, Elliott played a key role in the leadership change at Starbucks, where it pressured the company to appoint a new CEO after acquiring a significant stake.
