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Elliott Management has made a name for itself as one of the most notorious activist investors in the corporate world. The hedge fund has a track record of shaking up large companies, and Southwest Airlines is the latest target in its crosshairs. Southwest’s CEO recently reshuffled the board, but Elliott has set its sights on his job.
The transformation at Southwest Airlines has been nothing short of remarkable. Chairman Gary Kelly announced last month that he would be retiring next year, and six other board members resigned in November. This shake-up at the highest levels of the company came shortly after Kelly and two other board members met with Elliott Management. The timing of these events has raised eyebrows among corporate governance specialists.
Elliott Management wasted no time in making its intentions known. The $70 billion asset manager announced that it would be convening a special meeting to discuss firing CEO Robert Jordan and changing the company’s strategy. Elliott has a significant stake in Southwest Airlines, owning 11% of the company, which is worth roughly $2 billion.
One of the changes that Elliott is pushing for is the end of free open seating on Southwest flights, a move that could help the airline generate new revenue streams. The company has also announced plans to start charging for premium seats, a practice that many of its competitors already employ. Southwest believes that these changes, along with a three-year makeover plan, will add $4 billion in earnings before interest and taxes by 2027.
In response to Elliott’s demands, Southwest Airlines has approved $2.5 billion in share buybacks. The company has also brought in former Spirit Airlines CEO Bob Fornaro to join the board, a move that could signal Elliott’s desire to turn Southwest into an ultra-low-cost carrier. Southwest will also be looking at hedge fund applicants for three board positions.
Despite these efforts to placate Elliott, the hedge fund has criticized CEO Robert Jordan for not fully embracing their proposed changes. Elliott has accused Jordan of delaying improvements to seating arrangements until 2026, a move that they believe puts the airline at a disadvantage compared to its competitors.
Experts in the field believe that Elliott’s push for change at Southwest Airlines is not surprising given the recent struggles the company has faced in the market. The airline’s stock is down over 50% from its post-pandemic peak in April 2021, and analysts believe that Elliott’s intervention could help boost shareholder value.
The significant turnover on Southwest’s board, with 15 directors departing, is seen as a potential turning point for the company. While such drastic changes can lead to real transformation, there is also a concern that some board members may have left to avoid a confrontation with Elliott. Research shows that many board members prefer to maintain the status quo rather than engage in a battle with activist investors.
The departure of Gary Kelly, who served as CEO of Southwest from 2004-2022, could signal a new chapter for the airline. Some experts believe that it is important for the current CEO to have the freedom to implement changes without being constrained by former executives who may be resistant to change.
Overall, shareholders are hopeful that the ongoing battle for control of Southwest Airlines will lead to increased profits and improved performance for the company. As Elliott Management continues to push for change, it remains to be seen how the airline will respond and what the future holds for this iconic American carrier.
