Southwest Airlines is facing pressure from activist investor Elliott Management, which has taken a $1.9 billion stake in the company and is demanding a change in leadership and a strategic review of its operations. While the stock initially rallied following Elliott’s announcement, the hedge fund’s campaign has sparked confusion and concern among investors and customers.
Elliott’s activist campaign, outlined in a 50-page presentation, focuses on the need for “fundamental leadership change” at Southwest, calling for the removal of CEO Bob Jordan and Chairman Gary Kelly. The firm believes that Southwest’s leadership has been unable to adapt to the modern airline industry, pointing to a recent string of operational issues and financial challenges.
Southwest has defended itself, adopting a poison pill to limit Elliott’s ability to acquire more control. Despite this defensive maneuver, Elliott’s past campaigns offer insights into its potential strategy.
Previous successes at Suncor and Marathon, where Elliott also targeted leadership and business practices, resulted in CEO changes and strategic shifts. In both cases, Elliott ultimately achieved many of its objectives, although it did not always force a complete sale of targeted assets.
Analysts remain cautious about Elliott’s specific plans for Southwest, as the hedge fund has yet to outline concrete changes it wants to implement. However, experts believe that the activist campaign could lead to a review of Southwest’s popular customer offerings, including its generous baggage policy, which allows two free checked bags for every passenger.
Southwest’s unique culture and strong union presence could present challenges for Elliott’s efforts to enact significant changes. The airline’s workforce is represented by at least 11 unions, which could potentially hinder cost-cutting measures or changes to operational practices.
Despite the uncertainty, Elliott’s track record suggests that targeted companies tend to outperform the market following activist campaigns. The hedge fund believes its plan could increase Southwest’s share price by 77% within a year. The outcome of this activist campaign remains to be seen, but it is clear that Southwest faces a pivotal moment in its history as it navigates the pressures from Elliott Management.