DALLAS (AP) — Investment firm Elliott Investment Management has bought a $1.9 billion stake in Southwest Airlines and is seeking to oust the airline’s CEO, who has faced operational and financial problems.
The airline’s shares rose 9% in midday trading Monday, on track for the biggest single-day gain in four years.
In a letter to Southwest’s board, the investment firm complained that the airline’s stock price has fallen more than 50% over the past three years.
The firm said Southwest has not evolved, hurting its ability to compete with other airlines. Elliot blamed the airline for massive flight cancellations in December 2022, which he attributed to the airline’s outdated software and operational processes.
“Poor execution and leadership’s stubborn reluctance to evolve the Company’s strategy have led to deeply disappointing results for shareholders, employees and clients alike,” the investment firm said in the letter, dated Monday.
Southwest CEO Robert Jordan “has delivered unacceptable financial and operational performance quarter after quarter,” the letter said. He noted that Jordan and former CEO Gary Kelly, now the airline’s executive chairman, “are not up to the task of modernizing Southwest.”
Elliott wants executives from outside the company to replace Jordan and Kelly, and for “significant changes” to be made to the board, including new independent directors with experience at other airlines.
Dallas-based Southwest said it was contacted by Elliott on Sunday and hopes to “better understand his views on our company.”
“The Southwest Board of Directors is confident in the ability of our CEO and management to execute the company’s strategic plan to drive long-term value for all shareholders, safely and reliably serve our customers, and meet our commitments to all our stakeholders,” a spokesperson said in a statement.
Savanthi Syth, airline analyst for Raymond James Financial, said Elliott was likely attracted by Southwest’s well-known brand, leading position in many airports and a strong balance sheet, among other attributes. He suggested that the necessary changes should not be so difficult to achieve.
Southwest grew rapidly coming out of the pandemic, adding service to 18 more cities. Syth said Southwest has recognized the need to scale back those growth ambitions, albeit six or eight months too late, resulting in higher costs.
Southwest carries the most passengers within the United States, although Delta, United and American — all of which have longer international routes — are much larger in terms of revenue. Southwest turned a profit for 47 consecutive years — a record unmatched in the airline business — until the coronavirus pandemic hit in 2020.
Southwest reported record revenue of $26.1 billion last year, but its profit of $465 million was lower than the previous two years and about a tenth of Delta’s profit.
The Wall Street Journal was the first to report Elliott’s involvement in Southwest.
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This story was translated from English by an AP editor with the help of a generative artificial intelligence tool.
