Elliott takes $1.9 billion stake in Southwest Airlines, seeks to oust CEO and chair

Activist hedge fund Elliott Management has amassed a $1.9 billion stake in Southwest Airlines and plans to push for leadership changes at the airline that has lagged big rivals.

Elliott is seeking to replace Southwest CEO Bob Jordan and chair Gary Kelly with outside candidates, the activist said in a letter and presentation Monday. Elliott believes that Southwest has fallen from a “best-in-class” airline to one of the biggest laggards, according to the presentation detailing its case for change.

The size of Elliott’s stake makes the activist one of Southwest’s largest shareholders, according to FactSet. Elliott said it intends to “pursue all available pathways to deliver the leadership changes” the activist believes Southwest needs.

It wants the airline to announce a CEO and chair transition with “immediate” effect, Elliott said in its presentation. Jordan and Kelly have “presided over a period of stunning underperformance at” Southwest, Elliott said.

Shares of Southwest were up 6% in early trading Monday. The company had a market capitalization of $16.6 billion as of Friday’s close.

Elliott said it spoke with numerous former Southwest employees during an 18-month research period, according to a presentation. The activist also said it spoke with shareholders and surveyed more than 2,000 flyers to understand why consumers chose Southwest over other airlines, according to that same presentation.

Southwest has struggled with delays at Boeing of new 737 Max planes, the newest models of the plane which the carrier exclusively flies, as well as shifting travel demand patterns after the pandemic.

The airline’s leaders are now looking for new ways to drum up revenue to better compete with rivals that offer travelers more perks and products.

Jordan, who replaced Kelly as CEO in February 2022 after decades with the airline, told CNBC in April that the carrier is considering ditching its single class of airplane seating and longtime boarding method.

The airline also faced a reckoning from a holiday meltdown at the end of 2022 that cost it more than $1 billion and forced the airline long known for good customer service to win over the flying public and make quick fixes to its internal staff scheduling software.

Southwest shares are down by more than 50% from three years ago when travel demand, led by domestic trips, was starting to come back. In contrast, Delta Air Lines shares are up around 10% over that period and United Airlines are down about 7%.

Elliott’s campaigns at other companies have likewise centered on a change in leadership. Elliott’s second campaign at Crown Castle in 2022 and settlement agreement with automotive parts supplier Sensata earlier this year are just two instances.

In just the last few months, the activist has taken a $2.5 billion stake in semiconductor firm Texas Instruments, a $2 billion stake in Japanese conglomerate SoftBank and a $1 billion stake in mining concern Anglo American. 

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