Elliott Management, the well-known activist hedge fund, is expected to call for a special meeting of Southwest Airlines’ shareholders as soon as next week. The move comes amid growing concerns about the airline’s performance and management strategy, following several operational challenges that have impacted its market position.
Elliott Management said Tuesday it will call a special meeting at Southwest Airlines “as soon as next week,” shortly after the company put forward a sweeping board shakeup that it hoped might stave off a proxy fight.
A Southwest Airlines Boeing 737 departs Los Angeles International Airport en route to Las Vegas on September 19, 2024 in Los Angeles, California.
Kevin Carter | Getty Images
Investor Activism Intensifies “Elliot”
Elliott Management, led by billionaire investor Paul Singer, is renowned for its aggressive activism in pushing for changes within companies where it holds a stake. In the case of Southwest Airlines, Elliott is believed to be pushing for significant reforms, including changes in leadership and a renewed focus on operational efficiency. The hedge fund’s decision to call for a special meeting indicates its determination to influence the airline’s future direction.
Southwest Airlines has faced several operational setbacks in recent years, including significant flight cancellations, delays, and ongoing issues with its scheduling system. These challenges, combined with increasing competition in the low-cost carrier space, have raised concerns among investors about the company’s ability to sustain its long-standing profitability.
The push comes days before the airline’s investor meeting, where it is expected to unveil improvements and operating changes. Elliott is seeking to oust CEO Bob Jordan and executive chairman Gary Kelly, the latter of whom has already committed to stepping down in 2025. The activist has put forward a ten-director slate comprised of airline executives and former regulators or government officials.
“We believe that competent new leaders, working through a deliberate and thoughtful process, should chart the course forward for Southwest,” Elliott partner John Pike and portfolio manager Bobby Xu said in a letter to shareholders.
“We do not support the Company’s current course, which is being charted in a haphazard manner by a group of executives in full self-preservation mode,” Pike and Xu wrote.
Southwest’s shareholder meeting is typically scheduled for May, but by calling for a special meeting Elliott is looking to elect new directors much sooner than that. It takes a few months for both sides to solicit shareholder support, and a settlement is always possible in the interim.
Elliott said Southwest’s advisors were maneuvering to limit the number of shareholders eligible to vote, via something known as a “false record date.”
Southwest Airlines in July unveiled major changes to its more than 50-year-old business model: It will soon ditch open seating for assigned seats, offer seats with more legroom that command higher fares and start operating red-eye flights. Last week, COO Andrew Watterson warned staff to brace for more “difficult decisions” in its push to restore profits as the airline faces rising costs and shifting travel patterns.
The company isn’t planning to furlough workers but it could cut its presence in certain cities and give workers the chance to transfer to other bases, according to a person familiar with the matter.
Southwest will release a routine schedule update on Wednesday that will show its flights through early June. Earlier this month, executive chairman and former CEO Gary Kelly said he would step down after the carrier’s shareholder meeting next year.
The Aircraft Mechanics Fraternal Association, which represents Southwest’s mechanics and met with Elliott, said last week the activist investor made “clear that its vision of a Southwest turnaround is one where Robert Jordan does not remain as CEO, and if Elliott can assert enough Board influence, other top executives would also, most likely, be replaced.”
“The need for change is urgent, and our request for a special meeting may come as soon as next week,” Pike and Xu said.
Southwest did not immediately return a request for comment.
Focus on Strategic Shifts
At the special meeting, Elliott is expected to put forward proposals aimed at addressing these issues. This may include suggesting new board members with experience in turning around struggling companies or pushing for a more aggressive cost-cutting strategy. There may also be discussions about restructuring or modernizing the airline’s operational model to stay competitive in an evolving market.
The call for a special meeting highlights the increasing pressure on Southwest’s management to address investor concerns and improve the airline’s performance. As Elliott prepares to rally shareholder support, it signals the potential for significant changes in the company’s leadership and strategy in the months ahead.