Elliott Management takes a $2B stake in Southwest, but lifting off could mean changing course
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Check your baggage… Southwest’s stock had its best day in more than two years on Monday after news that activist hedge fund Elliott Management took a nearly $2B stake in the carrier. Activists often use their stakes in companies to force change to try to boost returns. Elliott — which now owns ~11% of Southwest — wrote a letter to the company’s board on how to create a “stronger Southwest.” Part of its plan: replace long-time CEO Bob Jordan, its exec chairman, and some board members. Southwest doesn’t love the flight plan:
Long haul: The airline replied by saying it already has the “right strategy, the right plan, and the right team” to boost its long-term value. Since 2019, shares are down 45%.
Nonstop: Since launching, in 1977, Elliott has only lost money during two years, and has earned solid annualized returns with activist plays in companies including AT&T, PayPal’s, and Pinterest. Now it hopes to boost Southwest’s shares.
Losing altitude… After Southwest lost $3B in 2020, its income is still far lower than prepandemic levels (check out this chart). Southwest’s struggles deepened in December 2022 after bad weather and faulty scheduling software resulted in 16K+ canceled flights and millions of stranded passengers (Southwest got fined $140M for the holiday meltdown). Now it’s dealing with a delay in 737 jet deliveries from Boeing, its exclusive plane supplier. Last quarter, the airline posted a $231M loss and cut its annual capacity and revenue expectations.
A new pilot can reroute a business… Southwest is known for having only one class and limited premium perks. Meanwhile, rivals like Delta Air Lines and United have forecast record summer demand as they benefit from surging first- and business-class revenue. While an activist overhaul could help Southwest boost profits, it could also mean nixing perks that’ve made Southwest flyers loyal, like free checked bags and unassigned seats.