Southwest Airlines Braces Proxy Battle with Elliott Management

Southwest Airlines is bracing for a contentious proxy fight with Elliott Investment Management, which holds an 11% stake in the airline and is calling for major changes to its leadership and board.

CEO Bob Jordan has characterized the situation as a critical juncture for the company’s future and has been actively engaging with investors and union leaders to build support. In a memo to staff, Jordan described the dispute as a "battle for the heart of our company and our future”.

Elliott’s plan includes replacing Southwest’s CEO and board chair, Gary Kelly, and installing a new board to conduct a "comprehensive business review." The hedge fund has suggested nominating 10 candidates, including former airline executives and former federal officials, for Southwest’s 15-member board.

Southwest’s financial performance has been a major point of contention. Despite setting a record with quarterly revenue of US$7.3 billion from April to June, the airline’s profits fell by 46%. This decline follows a US$231 million loss in the first quarter of the year. The airline’s operating margin has dwindled to 0.2% for the first half of 2024, down from over 13% in 2019. In comparison, Delta and United Airlines reported operating margins of 9.5% and 7.4%, respectively, for the same period.

Elliott has criticized Southwest’s "rigid adherence to outdated strategies" and argues that substantial changes to the board are essential for improving profitability. The hedge fund aims to reposition Southwest as an "industry-leading airline with top-tier profitability" and predicts that these changes could raise the airline’s stock price to US$49 within a year.

In response, Southwest has implemented a "poison pill" strategy to dilute Elliott’s stake if it increases its holdings. The airline has also unveiled plans to end its open seating policy, introduce assigned and extra-legroom seating, and launch overnight flights to enhance earnings. However, Elliott has dismissed these measures as "insufficient and untimely."