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Investor buys $1.9B stake in Southwest Airlines
On Monday, Elliott Investment Management bought an 11% stake in the company for $1.9 billion. In a letter to the company board, Elliott called on the airline to make leadership changes and replace CEO Bob Jordan and executive chairman Gary Kelly.
DALLAS - An activist investor group bought a nearly $2 billion stake in Dallas-based Southwest Airlines.
The investors are demanding changes at the top, including the ouster of the airline's CEO.
Since the pandemic, Southwest has struggled to regain profits compared to other airlines. An activist investor group believes that’s due to poor management, and they want to make changes.
Southwest says it's confident in its CEO and leadership but is open to discussions on their perspectives.
On Monday, Elliott Investment Management bought an 11% stake in the company for $1.9 billion.
In a letter to the company board, Elliott called on the airline to make leadership changes and replace CEO Bob Jordan and executive chairman Gary Kelly.
The letter also called the company operations outdated and used the cancelation crisis in December 2022 as an example of its failures.
FILE - A Southwest Airlines plane approaches the runway. (DANIEL SLIM/AFP via Getty Images)
Mike Davis is a business and economics professor at SMU and is not involved in the case.
"It’s clear that Elliott’s been very forthright with this that they think Southwest is underperforming, and they think a big part of the problem is management," he said.
While it is a significant investment, Davis says the firm can be persuasive but has no controlling interest in the company.
"I don’t think they have a big enough stake to force out the directors, but it’s a very serious moment for Southwest," he said.
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The Southwest Airlines holiday travel meltdown apparently did not impact the salary of the company's CEO. His pay nearly doubled in 2022.
The news of the activist shareholder investment comes after Southwest reported a $231 million loss in the first three months of the year.
Davis notes that some things are out of the company’s control.
"Southwest has also been the victim of bad luck. They’re entirely dependent on Boeing to supply new airplanes," he said. "If they can’t get new airplanes, they can’t grow. And if they can’t grow, their profitability is going to stagnate."
Southwest Airlines released a statement that says in part, "Our board and leadership team are thoughtfully reviewing Elliott’s letter and presentation and look forward to further conversations with Elliott to better understand its view on the company."
No matter what the future holds, Davis hopes it doesn’t change the brand too much.
"Southwest has been around for a long time, and it’s been kind of a spunky, innovative, fun airline," he said. "And whatever happens, it would be great just from a selfish Dallas point-of-view to keep that up."
From a passenger's standpoint, the investment isn't expected to impact the summer travel season.
If there is a change at the top and new strategies are implemented, that’s when customers would start to see the impact.