Skift Take
The hedge fund claims it now has multiple allies that support a leadership overhaul at Southwest.
Activist investor Elliott Investment Management fired back at Southwest Airlines Monday for adopting a âpoison pillâ and appointing a new director to its board.
âIn light of these actions, we have become increasingly concerned by the ‘self-help’ half-measures that the Board appears to be contemplating and adopting, none of which will do anything to allay the lost credibility of Southwest’s management,â wrote Elliott partner John Pike and portfolio manager Bobby Xu in a letter to the airlineâs board.Â
The hedge fund said Southwestâs board is âprofoundly out of touchâ with shareholder sentiment and was pushing for the airline to appoint a new CEO, along with adding more board members with relevant experience.
Elliott took a $1.9 billion stake in Southwest and has since advocated for the airlineâs CEO and chairman to step down. The carrier has underperformed in 2024, with issues ranging from Boeing delivery delays, sustained demand for premium travel and high labor costs eating into its profits. Elliott believes new leadership would restore Southwestâs profitability.
Southwest said Elliott has been trying to acquire an even bigger stake in the company through filings made with antitrust authorities.
Southwest Tries to Fend Off Elliott
To prevent Elliott from acquiring a controlling stake, Southwest recently adopted a âpoison pill.â The plan goes into effect if an investor acquires at least a 12.5% stake in the company, giving other shareholders the opportunity to buy a Southwest share for every share they own at a 50% discount. A âpoison pillâ would dilute Elliottâs voting power.
Earlier on Monday, Southwest also announced that it appointed IndiGo co-founder and longtime airline executive Rakesh Gangwal to its board of directors. Elliott described Gangwalâs appointment as an âattempt to entrench itself and the current management team.â
The hedge fund claimed it spoke to other shareholders who believed the airline needed leadership changes to turn around its recent underperformance. Only one shareholder â asset management firm Artisan Partners â has come out publicly in favor of Elliottâs campaign so far.
Elliott also alleged that multiple Southwest employees had reached out to the hedge fund, voicing their concerns about the carrierâs leadership. The hedge fund said it was concerned that Southwest might try to make short-term changes such as replacing current CEO Bob Jordan without a comprehensive selection process.
âSimply put, investors do not want to see a new plan from the same leadership team whose record at the Company has been one of failure,â Elliottâs letter read. âThey want new leaders who will bring outside perspectives and proven expertise to the task of preserving all that was great about Southwest while charting a higher-performing future for the airline.â