Elliott Management takes a $2B stake in struggling Southwest Airlines

Elliott Investment Management has built a ~$2B stake in Southwest Airlines, according to the Wall Street Journal, as the fund — famous for agitating change at underperforming companies — targets the low-fare, no-frills airline.

Not that kind of activism

Elliott is an activist, a special brand of investing that seeks to make tangible changes at public companies in the hope of lifting the company’s share price. In this regard, Elliott’s reputation precedes it: shares in Southwest are up 8% at the time of writing before any specific details of what the fund actually wants it to do have been revealed. But, it’s fair to assume that Elliott would like Southwest to make more money...

Indeed, Southwest is significantly less profitable than it was pre-pandemic. The company posted net income of $977M in 2021, just 40% of its 2019 figure, a result that only got worse in 2022 and 2023, when net profit came in at $465M, less than one-fifth of its best years. In its most recent quarter, it lost $230M.

If you’ve been reading our coverage of the economy, you might be wondering “wait a second, I thought consumers were struggling… wouldn’t all of those cost-conscious fliers benefit Southwest?” That’s a logical conclusion, but air travel has been one category where consumers have been willing to splurge a bit more — “revenge travel”, as it’s been called.

But Southwest’s problems also seem to be partly of their own making. The brand was damaged by a high-profile meltdown in December 2022, which cost the airline $140M, and it's dealing with a delay in deliveries from Boeing, the company’s exclusive supplier… another aviation brand that’s not exactly on top of the world.